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The McFadden Act: a look back

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Abstract

August 19, 1983 At this point, the Federal Reserve Board, which had been sympathetic to branch banking, reversed its attitude. Although National Banks constituted the backbone of the Federal Reserve System, a majority of the Board concluded that the best way to ease these banks' competitive disadvantage in states that permitted state-chartered banks to branch was not to allow branching by national banks, but to circumscribe branch- ing by state member banks. The chief advo- cate of this view was the new Comptroller of the Currency (and Board member), Henry Dawes, who, in testimony to Congress, as- serted that "Branch banking, unless curbed, will mean the destruction of the national banks and thereby the destruction of the Federal Reserve System..." Consequently, in a4-3 vote on November 1923, the Board Federal Reserve Board views In 1922, Congressman Louis T. McFadden (R-Pa), a former bank President, introduced a bill that would allow national banks parity with state banks in establishing branches. But the bill encountered strong opposition and failed to move. At about the same time, Comptroller of the Currency and Board member, D.R. Crissinger, became increas- ingly worried over the c(jmpetitive disad- vantage placed upon national banks by the prohibition on branching. Unsuccessful in his efforts to get the Congress to adopt remedial legislation, he issued a ruling that national banks could establish agencies, teller windows or additional offices within the city of the parent bank for the purpose of accepting deposits and cashihg checks, provided that state banks were permitted by state law to operate branches in that state. Crissinger contended that the additional offices were not branches inasmuch as they were not authorized to make loans, a ruling that triggered a storm of protest, including a blistering anti-branching resolution adopted by the ABA. The recent manifestations are propelled by the inexorable march oftechnological and market developments that have steadily undermined ba

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