Actually, the matter would not be finally settled until 1939. The Banking Acts of both 1933 and 1935 had specified that insured banks should ultimately become members of the Federal Reserve System, and membership implied that the Federal Reserve would have supervisory responsibility. But the inexorable legislative pressures of nonmember banks led finally to the removal in 1939 of the membership requirement. Indeed, the ultimate decision in this controversy was suggested in 1938, when the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation agreed to a formal division of responsibility of the examination function.

The period of free, or nearly free, banking that began around 1880 had clearly come to an end well before the onset of the Great Depression. Marked selectivity in chartering started in the mid-1920s, at both state and federal levels, and even in the absence of economic catastrophe increasing care would have been exercised in creating new banks. But the cautious attitudes after 1935 were in large part the result of fears engendered by the depression, and it would be 25 years before the timidity of bankers would disappear. Those responsible for the supervision of banks were just as cautious as commercial bankers. Like the bankers they regulated, supervisors of state banking departments, as well as Comptrollers J. F. T. O'Connor and Preston Delano, considered their main responsibility to be the preservation of banks. Their attitudes were understandably defensive, and after the repair work of 1931-1935 was completed, it was clear that there would no longer be business as usual.

Indeed, as early as 1934 Comptroller O'Connor observed that "great caution should be exercised in the future in the establishment of either State or national banks, or branches of either, in order to prevent a repetition of the failures of a few years ago." And for the first time a Comptroller could make an unequivocal statement about his legal authority to regulate bank chartering:

The Comptroller's Office, under existing law, is in a position to require national banks to maintain adequate, sound capital, and also to prevent the organization of a new national bank unless it has adequate, sound capital, and unless there is need for additional banking facilities in the location chosen, and a reasonable prospect that the bank will operate successfully.9

The Banking Act of 1935 clearly gave to federal authorities permanent discretionary authority over bank charters. Moreover, the statute specifically required the agencies to consider certain criteria in their administration of the law. Among them were: adequacy of a prospective bank's capital structure; its future earnings prospects; the character of its management; and the convenience and needs of the community it would serve. Thus, standards that had been intermittently used by the Office of the Comptroller, and increasingly by state authorities, were finally written into the law.

The year 1936 began a 20-year period of drastic reduction in the rate of formation of new banks. On the average, 70 new institutions were started annually from 1936 to 1955. This rate was not constant over the entire period, for it began to pick up in the early 1950s as profits of commercial banks improved in the postwar years. Actually, in the decade 1936-1945, 480 new state banks were chartered; the figure for the decade 1946-1955 was 705. The corresponding figures for national banks were 55 and 156. From

8 Comptroller of the Currency, Annual Report, 1934, p. 14. 9 Ibid.

1936 to the end of 1955, applications for national-bank charters averaged about 43 each year, or one-seventh the annual average from 1911 through 1935. Over the two decades from 1936 to 1955, national-bank charters accounted for less than one-sixth of the nearly 1,400 banks organized.

There were several reasons why only 211 national banks were chartered in this 20-year post-depression span. Relatively low returns to capital invested in commercial banking were partly responsible, while discouraging preliminary discussions and a rejection rate on applications exceeding 40 percent in some years must have deterred prospective bank organizers. But the most obvious reason for the low number of bank charters was the attitude of post-depression Comptrollers. Although there was comparatively little discussion of chartering policy in successive annual reports, it was apparent that the Office of the Comptroller was for 25 years extremely reluctant to admit new banks to the competition. In a drastic swing of the pendulum of authority, "convenience and needs" were severely scrutinized, and decisions to charter new banks went from the extreme of free banking to the extreme of unduly restricted approval.

Early in his tenure, Comptroller Delano, in his Annual Report for 1938, could point with some pride to the fact that "there were no primary charters issued for national banks during the year ended October 31, 1938." 10 During the next few years, only a few national charters were issued annually. In his 1945 Report, Comptroller Delano noted “the increased flow of applications for bank charters" and pointed to "the likelihood of an even greater number of such applications in the near future.

." 11 Although he felt it appropriate to discuss some of the "problems and principles" of chartering policy, Delano confined his analysis to a repetition of firmly established dogma-that study must be made of "such intangibles as the experience and skill of the existing or proposed managements, the future earnings prospects of the banks, the convenience and economic needs of the communities to be served, and the adequacy of the capital structures in view of the geographical location." The Comptroller, Delano felt, was "not charged with and does not undertake the enforcement of the antitrust laws," but was "obligated to exercise his discretionary power in the light of the purposes which the statutes in this field were designed to achieve." 12 But if it was the role of the Comptroller to lessen the possibility of monopoly in banking, as Delano's statements suggested, there is little evidence that he wished to take the route of providing new banks to lessen the possibility of monopoly power. While giving lip service to the "undesirabil ity of either hampering entrance into, or mobility within, the banking field," Comptroller Delano seemed more concerned to prevent the dangers

10 Comptroller of the Currency, Annual Report, 1938, p. 1. 11 Comptroller of the Currency, Annual Report, 1945, p. 4. 12 Ibid.

of excess banking capacity in any particular community. In 1948 he could remark that "the National Banking System apparently has stabilized numerically, for the time being at least, the number of banks in the System having remained in the neighborhood of five thousand for some five years." 18

In 1951, Comptroller Delano again reflected on the question of achieving an optimum investment in the commercial banking industry. In his Annual Report for that year he wrote:

We recognize the desirability of competition wherever possible, since we believe that sound and healthy competition between banks redounds to the public welfare through increased adequacy of credit facilities, fair rates of interest, and the prevention of undue concentration of monetary and economic power. Hence, in considering applications for new banking offices in communities having only one bank, we give considerable weight to this factor. In communities where competition already exists, the factor is given somewhat less weight, for excessive competition can result in such a weakening of existing banking institutions as to bring consequences so injurious to the welfare of the community as to outweigh any benefits to be anticipated from increasing the intensity of competition in such cases.14

13 Comptroller of the Currency, Annual Report, 1948, p. 1. 14 Comptroller of the Currency, Annual Report, 1951, p. 3.

These words, while suggesting a judicious attempt to provide an appropriate number of new commercial banks, find little support in the statistics. Only seven national banks were chartered in 1950, and only nine in 1951.

At the same time, state authorities showed little more disposition to charter new banks. A survey made by the Joint Economic Committee of Congress, published in 1952, suggested that state authorities looked primarily to the prospect of profitable operations and improvement of the competitive environment as the chief reasons for granting new charters. Like the Comptroller, they gave lip service to the ideal of avoiding too much competition and at the same time of providing bank resources where none existed. Yet it is clear from their questionnaire responses, repeated over and over again, that they were anxious to avoid the "overbanking" of the 1920s. Without any question, this concern dominated chartering philosophy among state as well as federal supervisors.

Continued Growth of Multi-Office and Multi-Unit Banking

In the turmoil of the early 1930s the course of branch banking was unclear. In the five years 1931-1935 the number of branch banks increased from 751 to 822, while the number of branches dropped from 3,522 to 3,156. In these years, however, there was a marked change from intracity to intercity branching, the number of branches in head-office cities declining by about 750 and the number of "outside" branches rising by 375. Between 1935 and 1950 branch banking made steady, if unspectacular, gains. In this 15-year period, the number of banks maintaining branches increased from 822 to 1,241, and the number of branches grew from 3,156 to 4,721. The proportion of branches located outside the head-office city increased steadily during the early part of the period and then remained approximately constant during the first postwar decade.

Beginning in the early 1950s, branch banking accelerated its rate of increase. By the end of 1955, there were 1,659 branch banks in the country maintaining 6,710 branches. Branch-bank offices constituted a little more than 40 percent of the total number of banking offices, and branch banks accounted for approximately 55 percent of the banking resources of the country.

Although the rate of branch-bank expansion over the quarter century from 1930 to 1955 seems impressive, it was slower than it would have been under more liberal federal law. Legislation removing restrictions on branching was very nearly passed by Congress in the early 1930s, as the electorate's disenchantment with the banking system turned to vindictive anger. Indeed, almost any bill aimed at strengthening the financial system could have passed the Congress. Once again, however, the supporters of