In this connection it should also be noted that, while the branch banking system is able to adjust itself to the capital requirements of towns of all sizes more readily than the independent banking system, and thus to secure a better distribution of the banking capital of the community, it does not follow that it will do so. On account of ignorance of conditions, insufficiency of capital or inability readily to increase it, or inertia on the part of the head office, a town may have to wait for the establishment of a branch longer than it would for the establishment of an independent bank.
Whether or not this will be the case, however, depends to a considerable extent upon the keenness of the competition between the big banks with branches. The big central banks of Europe, which have no competition within their field, have been slow to establish branches. The coercive force of the government has been necessary in many cases to secure their proper expansion. In the case of the other big banks, however, both of Europe and of Canada, competition has resulted in very rapid expansion during the last half century, probably as rapid as could be desired.
Regarding adequacy of service, the method of granting charters and the attitude of the government towards private banking is important. If banks are allowed to spring up spontaneously, like manufacturing and commercial establishments and farms, they are likely to be plentiful and to be located wherever needed. Experience, however, has shown that private banks cannot be adequately regulated in the interest of the public and that incorporation under public auspices should be required.
Two methods of incorporation are employed, those of the special charter and of the general law. Except in the case of special institutions, like central banks, the former is objectionable, since it opens the doors to political favoritism and is likely to result in bad distribution, lack of uniformity in regulation, and lack of steadiness and regularity in development. Incorporation under general laws, or the free banking system, as it is sometimes called in this country, is unquestionably the best from every standpoint. All the necessary checks and balances can be incorporated in these laws, and the supervision of public officers, together with the necessary administrative machinery, provided for. This is the only practicable method to employ in an independent system like ours.
The special charter method works best in connection with the branch bank system, in which the question of chartering new institutions only occasionally arises, and in which delay is not so serious.
CHAPTER IV
Commercial Banking in the United States
The commercial banking system of the United States consists of several elements which have been contributed at different periods in our history. The most important of these are state banks, national banks, and the independent treasury system.