State Banking: A Study in Dual Regulation

Abstract

State-chartered banks have been on the American scene since the earliest days of the Republic. A number of them, even today, operate under special charters granted by their state legislatures in the days before general incorporation statutes. By i868, however, only five years after the creation of a system of federally chartered national banks, state banking seemed to be on the way out. Conversions to national charter had been widespread, largely because of a prohibitive federal tax on banknotes issued by state-chartered banks, and the number of commercial banks under state supervision throughout the country dwindled to 247. From that low point, the number of state-chartered banks increased steadily as commercial banks made more and more use of demand deposits as money and less and less use of banknotes. Today, state-chartered banks account for roughly two-thirds of the nation's i4,ooo commercial banks. In addition, all of the nation's mutual savings banks, all of the nation's stock savings and loan associations, and sixty-three per cent of the nation's mutual savings and loan associations are state-chartered. These figures, however, overstate the actual strength of the principal financial institutions under state supervision. More than $220 billion of the nation's commercial bank assets are held by federally chartered national banks, while less than $i6o billion of such assets are held by state-chartered commercial banks. Put another way, the average national bank has $45.7 million in assets and the average statechartered commercial bank only $17.6 million in assets. Similarly, the far less numerous federal savings and loan associations hold $67 billion of the nation's savings and loan assets as contrasted with the $63 billion in assets held by all state-chartered associations. As a result, the average asset size of federal savings and loan associations-33 million-is more than twice the $15 million average asset size of statechartered associations. It is only because state banking systems include $58 billion in assets held by the nation's mutual savings banks, all of which are state-chartered, that they can boast forty-nine per cent of the total assets held by all the country's commercial banks, savings banks, and savings and loan associations. Two other statistical observations might be made which place the nation's state banking systems in proper perspective. The first is that among the larger financial institutions which have a choice between federal or state supervision, a substantial majority have chosen federal supervision. Thus, of the nation's 397 commercial banks with deposits of more than $ioo million, sixty-three per cent are national banks under