World’s biggest bank (Fortune Classics, 1947)

FORTUNE — Amadeo Peter Giannini, Founder-Chairman of California’s Bank of America, has probably had more impact on U.S. banking than any individual since the elder Morgan. Last year, when deposits passed the $5.2-billion mark, his branching institution became the largest bank in the world, succeeding to the place previously held by the Chase National Bank. Such distinctions, won in a struggle of unforeseen proportions, are sculptured in “A.P.’s” six-foot-one-and-a-half-inch stance, his stride, and the set of his taurian shoulders. Asked recently if he thought he had ever-in his seventy-seven years made a mistake, A.P. gave the hoarse, quick answer: “No.”

How A.P. founded the Bank of Italy in San Francisco in 1904, how he made it rise from the ashes of the 1906 earthquake fire, and how he won his fight in 1932 to regain control of the related holding company, Transamerica Corp., are too well known to need repeating. Not so well understood is the reason why his bank, which in 1930 became the Bank of America National Trust and Savings Association, has moved further faster — and more profitably — than any other U.S. bank. The publicity of its founder and the spectacular character of its rise have obscured the operations of the bank itself. When a bank becomes the world’s biggest, the fact demands a better explanation than the dynamics of a big personality.

Part of the explanation is obvious, of course: A.P. took full advantage of the forward motion around him. Take away one of a score of U.S. impulses toward twentieth-century growth, ranging from the Model T, the nickelodeon, and the telephone, to world wars and the broadening of U.S. income — take away any one of these and the Bank of America, and California, would not be what they are today.

Other facts about the bank’s bigness are obvious, too. It is big because it has more customers (almost four million) than any other bank in the U.S. It is not a unit bank, but a bank with statewide branches. It is a savings bank as well as a commercial bank. One measure of the bank’s size is that it is three times as big as its California runner-up, the Security-First National Bank of Los Angeles, which has a similar branch-and-deposit pattern.

A.P. is semi-retired now, with the special rank of Founder-Chairman, and his son Lawrence Mario (“L.M.”) is President. The simple grandeur of A.P.’s title provides him with all the prerogatives that he enjoys most. Chief among them is his right to dream up at his leisure some tough questions about Bank of America policy, U.S. banking policy, or U.S. business prospects. He saves the questions up in a well-stored mind until the collective pen scratching of vice presidents on the eleventh floor strikes him as being monastically dull. Then he explodes the questions and stirs up the answerers to debate among themselves. At this point, having interrupted their labors, he is quite likely to depart for a rubdown at San Francisco’s Olympic Club.

Turn back for a moment to the early years of the century when California was not the third most populous state, as it is now, but the twenty-first, and A.P. was just a successful young produce commission man. A.P. was not the only man who saw growth in California. He was not the only banker who later saw the opportunity that had presented itself when California sanctioned branch banking. Others could also sense that whereas the East would drive its automobiles around environs already built, California would build itself around the automobile. Again, A.P. was not the only banker who smelled the opportunity in the favorable attitude of California law toward the acceptance of savings accounts by commercial banks. Others could also see that California banking should look for its major growth to small deposits, and for its major profits to the retailing of credit to home builders, small units of farm and business enterprise, and consumers. But A.P. — because he sensed both the branch and the savings — money’ opportunities more vividly than anyone else–exploited the relation between them more successfully than anyone else. Only branches could build savings accounts in huge quantities, and only branches could use savings accumulations on such a scale.

Today, Bank of America has 504 branches, nearly 400 more than the Security-First National, second largest in branches in the U.S. It holds about 40 per cent of the total deposits of California — a big state in all respects, as Californians never let the rest of the world forget. From the outset A.P. knew that bigness in banking was what he wanted, just as bigness in everything was what California wanted. A.P. had to have bigness to give full play to an aggressiveness that is even more of a psychological birthright than he may ever realize. His Medicean optimism often led him to conclude that what was good for the bank was good for California, and vice versa. The equivalence seems to have worked out.

California accepted
It has worked out even though A.P. was opposed frequently and bitterly because he was an integrator. The integrator is never popular with competitors who feel that he should have left well enough alone. The older California banks resented A.P. most when his branch-gathering career got into full swing during and after World War I. Their eastern correspondents, major New York and Chicago banks, took somewhat the same view. This doubt was transmitted to some of the small country banks that A.P.’s Bank of Italy was trying to buy. It looked to some of the small bankers, as it looked to the big ones, as if A.P. had a sweeping consolidation in mind — which of course he did. Locally monopolistic as they often were, some country banks preferred their independence. Doubtless some of the independence was stated with a view to the price obtainable for parting with it — but there was more than enough real antagonism to A.P. twenty-five years ago to make him a national figure then.

Both growth and the methods of growth involved A.P. in many a legendary banking vendetta. They were fought over issues ranging from banking size and branch structure to A.P.’s various and nimble methods of branch acquisition. These struggles brought A.P. into sulfurous conflict with California state bank supervisors, with the Federal Reserve System, the Secretary of the Treasury, and New York financial interests. These same issues complicated the legal attacks launched in the 1930’s against A.P.’s Transamerica Corp., that huge and vulnerable bank-holding company. The net result of all the wars is a smaller Bank of America than A.P. wanted in his days of transcontinental banking ambition, and a larger one than his opponents wanted him to have.

This mature bank is run by A.P.’s L.M., a cool and able fifty-two-year-old son. Lawrence Mario Giannini has a keen sense of the bank’s maturity and, unlike his father, a princely capacity for compromise that has advanced the bank’s fortunes without modifying its principles. He was recently appointed to President Truman’s committee for financing foreign trade — an event that could not have happened ten years ago to either father or son. Holding-company battles, fairly or unfairly, had confused popular ideas of Bank of America qua bank. There were those who regarded branch banking as an abomination. There are some still. There are bankers who prefer big accounts and few customers to many customers and a chicken-feed tediousness of small accounts, and they tend to look down their noses at Bank of America with its department-store bustle, flair for promotion, and even its sheer size. They are, however, a decreasing tribe; fewer and fewer U.S. bankers can afford such disdain.

Thus the appointment of L.M. to President Truman’s committee was in a way a recognition of the success of the bank, and the soundness of the simple principle that underlies all its policies. That principle can be found at work, in the deposit figures, which show an unusually large proportion of small accounts, of both the savings and the commercial type. The bank does seem to have the ability to handle the biggest banking operation in the U.S. with the “personal touch.” Even more remarkable, perhaps, is that the “personal touch” has managed to survive even the bank’s own self-consciousness about it. The bank likes to explain that it can lend to the many because it lends on character rather than collateral. This self-definition, while it does not dismiss collateral, has the beauty of locating large numbers of characterful customers outside of Dun & Bradstreet’s. Its only disadvantage is that it annoys many other bankers who operate on a similar policy, on a smaller-than-Giannini scale, and with less California showmanship. But this is a drawback that costs Bank of America nothing.

Thus Bank of America sells itself as a big bank where the little consumer borrower of today can feel that he may be the big commercial depositor of tomorrow; and where the little savings depositor of today can feel that he may be the big commercial borrower of tomorrow. For the bank’s almost four million individual customers there is a large element of myth in these identifications. But the myth is warm. And for some of the bank’s customers there is indeed a large element of fact in the myth. The myth and the fact together can be said to constitute Bank of America’s unique personality.

Passbook versus checkbook
“If you were a Bostonian you’d think there was a run on the bank,” remarks a Californian of the crowds that gather to do business with Bank of America in such numbers that they sometimes spill out into the streets around the branches.

The whole liability side of the bank’s book is brought to life by these crowds. It is no longer unusual for a big commercial bank to have large numbers of savings accounts; but Bank of America is the biggest in this versatile class. At the end of 1946 it had over $3 billion in commercial deposits and over $2 billion in savings deposits. Only two great banks of the nation, the National City and the Chase, had larger commercial deposits. Not one of them had a comparable pile of savings funds. Indeed Bank of America’s total savings accounts are larger than the deposits of the four largest U.S. savings banks combined (Bowery and Emigrant of Manhattan, Dime of Brooklyn, and the Philadelphia Saving Fund Society). In fact, the $2 billion of savings can be compared in scale only to the hoards of the biggest insurance companies.

Being in effect not one but two banks, a savings bank and a commercial bank, Bank of America commands the full range of modern lending. Commercial, or check, money, accounting for more than two-thirds of the total circulating money stock of the nation, has as its great economic characteristic the fact that it is lent largely on short term. Savings money, on the other hand, is the rainy-day money of the U.S. and its great legal and economic characteristic is that banks can commit it to higher-yielding, long-run investments such as real estate. Having learned these important legal and investment truths about the deposit structure of Bank of America, the reader can forget them.

The reason he can forget them is simple. The law sets certain limits on the uses to which these two types of funds may be put, and the problem of segregation in Bank of America is purely the concern of the cashier. The bank fastens its attention on how funds, just funds, can be invested or lent most profitably.

Bank of America has learned over the years, for example, that the installment plan is a great and increasing U.S. loan market. It is customary to think of installment credit as consisting of personal or consumer loans. True, the bank had the tremendous figure of $215 million in consumer loans on its books at the end of 1946. But it also had some $30 million of installment-plan small-business loans. Finally, it exploited as no other bank the installment amortization principle of the FHA mortgage; about 40 per cent of its $755 million worth of real-estate loans is in FHA-guaranteed mortgages.

The retailing of deposit services parallels that of loans. In the 1930’s, bank salary costs remained more or less fixed as they are wont to do in spite of depression. With an eye to new and profitable paper work for their employees, many of the biggest banks accepted the popularization of the checkbook. Bank of America was among the first to promote this once neglected “bookkeeping” business as a respectable banking function. Put such mass retailing of credit and such mass retailing of deposit service together on their most intense plane of interaction and you get A.P.’s idea of banking.

Money at work
Turn now from the bank to its incredible environment. California has multiplied its population five times during the lifetime of Bank of America. World War II enabled California to compress almost a generation’s industrial growth into a few years. War work came to California on wings-and suddenly 330,000 people were at work in the airplane plants. War work came to California on keels — and suddenly 313,000 were at work in its shipyards. Warworkers came to California in anything that rolled, and the population of the promised land soared from 6,900,000 in 1940 to 8,100,000 in 1945. To cap all this, U.S. demands on California’s top-ranking cash crops were the biggest in history.

War money struck California with more energizing force than any other major area of the country. Like all commercial banks, Bank of America played its part in raising this war money by setting up on its liability side a war-loan deposit to the credit of the Treasury and on the resource side the securities themselves. Like all savings banks, it bought huge quantities of U.S. debt out of savings too. In both cases the resulting government deposits soon flowed out into war work, and into the pockets of warworkers. Then they came back into the banks as new deposits.

In California, however, the expansion of bank funds as a result of war financing was far greater than one might guess by simply looking at the participation of California banks in the wartime monetization of the national debt. For the U.S. funneled into California not only funds it raised within California, but large funds from outside the state to finance planes, ships, transient servicemen, etc. So heavily did California depend on federal debt creation that it has been called, not inappropriately the promissory land.

During the war, branch managers contended with a banking clientele that came on like a transit rush, deposited like fury, borrowed to the limit, and paid on the nose. Fundamental changes occurred in the structure of the bank’s asset accounts. Throughout this activity, however, California itself felt that peace would bring a radical change; it was even anticipated that the flow of money would set strongly toward the east again. Nothing of the sort occurred. While huge government deposits in New York banks sloped off rapidly because of unreplenished withdrawals and the shift of deposits away from the East, deposits of the Bank of America continued to rise. And while Bank of America’s deposits were on their way to the top, they passed National City’s and Chase’s coming down. In parallel fashion, California’s population continued to rise.

What is the reconversion picture for banks as a whole? It is now recognized that the large government-bond account makes most commercial banks investment rather than lending institutions. In February commercial banks owned about $72 billion of the national debt; Bank of America alone held about 1 per cent of the debt. Moreover, although bank-eligible U.S. obligations carried low interest rates, their volume was so large that they have provided the average commercial bank with an enormous lift in earnings. The total interest payments on bank-held U.S. securities last year amounted to nearly one-half the net income of U.S. commercial banks. Bankers themselves are a bit self-conscious about the extent to which their income depends on the national debt service. Their time-honored business, they know, is lending not ‘investing. Bank of America acts on this premise in a direct way. Its location, its method, and its spirit have enabled it to increase its lending operations in the reconversion period at a far more rapid rate than the average commercial bank in the U.S. A look at its recent loan expansion shows some of the reasons why.

How to lend
Bank of America’s lead in placing new loans during 1946, as compared with average U.S. commercial banks, is plainly indicated in the upper chart on page 73. [See charts right.] A closer look at the lower chart serves to illustrate clearly specific differences between Bank of America’s operations and those of the average U.S. bank. Bank of America’s loan figure is bolstered partly by its great size’ as a savings bank. Savings money enables it to participate in real-estate lending to a greater degree than the purely commercial bank in any region. The bank’s non-real-estate loans also contain a greater proportion of crop-production loans, as compared to manufacturing-production loans, than those of any big eastern commercial bank. Furthermore, its non-real-estate loans normally contain a far greater percentage of consumer installment loans and small-business installment loans than those of most banks.

However, the chart on page 73 may surprise some readers with its demonstration that Bank of America’s 71 per cent increase in real-estate loans (non-farm) from 1945 to 1946 was not spectacularly larger than the 54 per cent established by commercial banks as a whole. Plainly, the main reason for Bank of America’s total over-all loan advantage must be sought elsewhere. The same chart puts a finger on it — in “Installment and Other” loans. This bracket includes all of the agricultural production loans and all consumer loans. It registers an advance of 103 per cent for Bank of America as compared to an advance of only 34 per cent in all other commercial banks. The consumer credit line is the big factor here. In every category, although the figures do not show this, the small loan is basic to expansion and earnings. The bank’s average loan is $3,500.

The smaller loans, which were so important to Bank of America in 1946, are also the type of loans that A.P. learned to handle so expertly before he had a large enough bank to participate in big syndicates as well. The little Bank of Italy began in 1904 by helping to finance the movement of valuable California produce to its eastern market-and California’s merchandising of eastern manufactured goods. A.P.’s institution was still a market-basket bank when many an eastern bank it has now surpassed in size was a blast-furnace and railroad bank. Even today, the bank naturally likes to emphasize this small-business financing, which it still does in great volume and at considerable profit. Its aggressiveness in this field virtually originated a commercial-banking trend. Some big eastern and midwestern banks are only now beginning to admit that they will take most of the small-business financing they can get.

A not-so-usual story of small-business financing is that of David Brown of Pasadena, who borrowed $50 to buy some secondhand chairs ten years ago. He now has a neon-lighted new-furniture business on the main stem. A flashier exemplar is Belmont Sanchez, the Los Angeles auto dealer. His first loan from Bank of America was an inventory credit to finance his purchase of a few new cars. In fifteen years he has increased his working capital from about $1,500 to about $2,500,000.

The G.I. provision has had a notable effect on the bank’s loan pouch. Since the act was put into effect, the bank has advanced some $17 million on G.1. business-loan guarantees. Riena Graf, who was a secretary, and Esther Donnellan, who was a teacher of shorthand and typing, both joined the WACs during the war. When they were mustered out they decided to ‘set up a public-stenography business for themselves in downtown Los Angeles. The bank helped them to obtain their equipment and swing their unexpectedly booming payroll. Such stories can be duplicated from one end of California to another.

Deficit financiers
In that great specialty of Bank of America’s, consumer financing, a comparison between the national and the California picture is revealing. Whereas commercial banks handle about 40 per cent of consumer installment loans in the U.S., California commercial banks handle an estimated 50 per cent of the total business in California. Auto finance is one of the simplest and broadest indicators because it normally amounts to roughly a ‘third of the total installment-sale credit line in the U.S. Bank of America finances probably one out of every three new-car purchases in the state. In the household-appliance field it handles an estimated 60 to 70 per cent of all sales by independent dealers. In personal loans the bank’s business as a deficit financier slightly exceeds the total done by all non-bank lenders in the state. It has often beaten out national and local finance companies by the simple device of offering lower rates.

It is only fair to say that Bank of America ought to do this well. Its branch network puts it in an excellent position to practice installment lending in volume. The individual branch covers an optimum area and population for its type of lending business. Bank of America’s personal and business credit file, unparalleled by that of any comparative regional file in the U.S., is available by teletype or phone to all branch loan officers in all parts of the state. The trick in big-time installment lending is to know your break-even point — which is figured on the loan’s discount rate, costs, size, and maturity. The most useful way for the banker to state this formula is to place in the hands of his loan officers a chart showing the minimum amount that is worth lending at a given rate in any of the brackets. He must try to balance his loss items and break-even items with paper that will give him a net return on the whole portfolio.

Costs, naturally, determine the extent to which the banker can drive down his break-even point. Right now, the interview and acceptance expense is the largest single item on the list, and it is not likely to lose its relative importance. Collection expenses have been wonderfully low for years now. One of the more picturesquely specialized officers is an assistant vice president, one of whose duties is to advise branch managers in the practice of what the installment trade calls euphemistically “embezzlement adjusting,” i.e., recapturing cars and other goods that have not been paid for. Recapture, which may require skill with the skeleton ignition key, is directed solely at the dead beats who occasionally ruffle the bank’s collection record.

Branch at work
Suppose that a customer, entering the bank for the first time, has recently come to California from the Midwest or the South. The chances are that small borrowing without security is not so much a habit with him as it is with Californians. Suppose also that he has moved into a California neighborhood with an unusually high proportion of newcomers who feel somewhat the same way he does. Suppose, finally, that he asks for a loan so small that it will hardly repay its service costs. A Bank of America branch manager is often able to put the significance of all these facts together in a few seconds of conversation. He knows that the customer will discreetly report his transaction to his friends in some remark, not about a loan but about the bank’s friendliness. The final granting of the loan includes all of these calculations about the future business it may produce.

Centralized banking talent and experience make it possible for the branch manager to act quickly when offered unusual or abnormal risk. Suppose that he is asked to finance the accounts receivable of a small woodenware company that distributes to small craft shops all over the West. He is not entirely convinced that the credit policy of the firm is under control. He turns to a specialist in San Francisco or Los Angeles for all of the collection ratios and methods that are standard in the woodenware trade. Such guidance is one of the chief bridges between the bank’s size and its tremendous volume of small loans.

The amount of the largest loan the branch manager can make is limited, not by any cut-and-dried formula but by the combination of his ability, experience, and location. The branch manager’s loan limit may range from a conservative $10,000 in a very small branch to a matter of six figures in a large branch. Very large loans, naturally, are head-office affairs. The largest bank commitment ever made to a public-utility company was recently arranged as a standby credit by a syndicate headed by Bank of America — a seventy-three-bank syndicate made $95 million accessible to the Southern California Edison Co., Ltd. But the fact remains that the biggest costs and the biggest gross profits are concentrated in the daily round of numerous small transactions handled by the branch men.

The big money
Bank of America was an old hand at farm-production loans on the very day it was founded as the Bank of Italy in 1904 — A.P.’s experience in produce brokerage gave him a sharp eye for its credit possibilities. Ever since then the bank has been expert in financing every stage of the farm-production and marketing process. Many of the bank’s farm-production loans are small in size and might properly be considered as a segment of the small-loan field. However, their totality belongs in any discussion of the big money. One reason is that although California farm units are widely distributed, California farming tends to market through big associations or co-ops. The significance of all this for Bank of America is that the succession of loans by which it brings a case of oranges, say, from the tree to the eastbound freight car is a single, continuous credit process. Loans to growers are part of a structure that builds up to citrus-industry loans of as much as $20 million in some months.

The California soil produces still other sources of loans. The oil industry is currently using about $30 million, and the fisheries make heavy seasonal calls on bank credit. Besides these primary producers there are the booming manufacturers of California. Textile-factoring and apparel-manufacture credits reached new peaks during and after the war. In 1946 the California apparel trades did about $400 million.

At the peak of the war effort the bank was heavily interested in government-guaranteed credits to war enterprise. Up to $40 million was extended, for example, to the various Kaiser enterprises. Since the war’s end such credits have naturally declined in importance. Bank of America has always shown interest in the progress of Henry Kaiser, even going so far as to grant a recent $12-million credit to Kaiser-Frazer. As for government guarantees on what Congress calls small-business loans — which are often quite sizable, of course — the bank seems to be taking an independent attitude. It has chosen to get along without the RFC co-maker plan sketched out by Congress — and there is some characteristic feeling in the bank that where such loans are involved, it knows enough to be its own RFC.

A good chunk of big Bank of America money works in Hollywood. A.P. became the patron banker of the art when most other bankers regarded movies as an ephemeral subdivision of the penny arcade. The late A. H. Giannini, M.D., “the Doc,” A.P.’s brother, made more as a doctor of movie finances than he ever did at the bedside. One of the earliest big productions financed by A.P. and “the Doc” was The Kid, with Charles Chaplin. Other hits followed.

Bank of America’s $50 million in the Hollywood portfolio includes more than two-thirds of the total bank credits extended to the town’s flourishing independent producers. Loan agreements vary a great deal, depending on the kind of movie that is being made, the distribution deal that is being planned for it, and its shooting schedule. The basic interest rate varies from 4 to 6 per cent. With long experience in the field, Bank of America does not need to charge up large expenses against its movie-loan gross of about $2 million a year.

Homes in the West
The $755 million of mortgage-secured credit carried on Bank of America’s book at the end of 1946 happens to be larger than the total resources of all types of the largest savings bank in the U.S. — the Bowery in New York. It is not only the figure that is compelling. The real-estate credits, depending on how you look at them, serve to illuminate successively several of the major perspectives of the bank.

In the first place, the mortgages are savings funds. In the second place, they are handled with a clear realization that — from the point of view of the customer who uses these credits — they are simply a long-term variety of the consumer loan. In the third place, some 40 per cent of their dollar volume is in FHA-guaranteed mortgages-which means that the government bears most of the risk. Fourth, although it is still popularly believed that the bank has large loans secured by farm real estate, this is not so. California farmers are rich, and the California farm debt is at its lowest dollar figure in almost a generation. Finally, the mortgage line reflects a California housing tradition: 80 per cent of its unit volume covers single-family homes.

California needs new homes and needs them badly. “The state has averaged about 85,000 a year so far,” says a bank officer. “But we can probably use 125,000 units a year for the ‘next decade.” The bank’s biggest single operations in this field are closely related to its wartime relations with large operative builders. A thirty-three-year-old builder named Paul Trousdale, for example, built about a thousand detached units in the neighborhood of Los Angeles under emergency (Title VI) provisions of FHA. Now Trousdale is planning a development in the Baldwin Hills area of Los Angeles. It is estimated that a Bank of America credit involving as much as $50 million for land accumulation and construction will be needed. Bank of America is interested also in the Kaiser Community Homes project of a Los Angeles builder, Fritz Burns, and his associate Henry Kaiser.

Banker’s profits
Bank of America is not in business for bigness alone. Its net earnings of $28,500,000 in 1946 were larger than those of any other bank in the country. Where those earnings come from is reviewed by the operating statement on page 170. This breakdown, which indicates the varying yield of dollars placed in installment, real-estate, and straight commercial accounts, is worth some study. So is its demonstration of the high-volume, low-yield equation for the bank’s total securities. So is its $3.5-million gross income from securities profits. The table shows a 1946 net of $28,500,000. After the deduction of a $12-million provision for surplus account, this brought $17 million in dividends to 155,000 common stockholders.

Bank earnings depend largely on deposit volume and the use made of it. Given the same deposits, one bank can attain a higher net than another only if it turns its deposits over more profitably: at lower expense, or at higher average rates-or both at the same time. Bank of America’s ratio of earnings to 1946 year-end deposits was about .6 per cent, very close to the average for banks of its class. National City and Chase, for example, showed a ratio of .4 per cent for 1946. A drop of .2 per cent of return on Bank of America’s $5.4 billion in deposits would have amounted to a drop of about $11 million, or about 9 per cent, in gross earnings. Bank of America’s earnings per dollar of deposits did not compare, of course, with those of the First National in New York, the proverbial banker’s bank, which consistently makes a full 1 per cent or more on deposits.

However, all other things being equal, a bank with smaller invested capital in proportion to deposits earns more on capital. Bank of America’s earnings on invested capital in 1946 were 16 per cent, compared to National City’s 6.5 and Chase’s 6.1 per cent. This advantage over Chase, for example, reflects the fact that Chase’s capital amounts to 7.1 per cent of total deposits compared to Bank of America’s 4.3 per cent. Such a comparison goes a long way toward explaining why Bank of America’s stock sells at a premium over indicated book value, while other banks with heavier capitalization sell at a discount from book value. The matter of capital ratio is itself a much debated one in banking. In the last thirty years the average ratio has fallen from around 20 per cent to about 7 per cent. Some bank experts would like to see this cushion of protection for the depositor grow in size. On the other hand, many large banks regard it as perfectly proper to operate on thinner capital ratios than a generation ago because government “shelters” now do so much of the protective work that bank stock was supposed to do in the past. The FDIC’s insurance of deposits up to $5,000 guarantees 47 per cent of the dollar volume of Bank of America’s commercial deposits and 87 per cent of its savings deposits. Treasury support of government bond prices, and FHA, and the G.I. Bill guarantee at least 47 per cent of the bank’s assets.

Concentration bogey
The great expansion days of Bank of America are probably over. The probabilities are that it will remain a California bank. Although the bank has opened eleven new branches in the last eighteen months, its coverage is pretty complete. The basic pattern has been established. Some Californians can talk about how it might become a $10-billion bank sometime in the future without adding any considerable number of branches.

The threat of banking monopoly in California is an idea that occurs to everyone who looks at the bank’s size or counts the 156 Bank of America branches that are the only banking facilities in their communities. Bank of America replies on several grounds. One is that its rates are no higher than other banks’ — and other banks are within short driving distance. Consider another facet of the bigness question. Some of the strongest opposition to A.P. has come from the independent bankers of the U.S. Their stand seems to be that while Chase and National City are not too big, because they are in big country, Bank of America is too big. The test of interest rates throws the burden of proof back on them, and not on Bank of America. A prewar study showed that highest bank interest rates were associated with the U.S. regions having a high proportion of one-bank or two-bank towns with unit banks. In these regions, such as the Kansas City and Dallas Federal Reserve Districts, it seems all too apparent that even if their intrinsically higher farm risks are taken into account, unit banking plainly tends to take advantage of local monopoly.

Bank of America, it is true, possesses about 40 per cent of the bank deposits of California. Yet California, with 6 per cent of U.S. population, possesses less than 10 per cent of the bank deposits. New York, with only 10 per cent of the national population, controls 22 per cent of the bank deposits of the nation. Half of this “control” rests in the hands of five big banks. Perhaps the proper answer to both criticisms is — so what? Eastern bigness and western bigness both were evolved to meet particular credit conditions. And with all the shortcomings of the U.S. banking system, the hard fact remains that it is one of the most flexible, smooth-working instruments ever devised to expedite the fundamental economic processes.

But at least this much can be said: regional branch banking of the Bank of America type has the effect of offsetting eastern concentration, always a bogey west of the Mississippi, with western concentration able to deal with it on equal terms.

The bank abroad
Today’s Bank of America may seem a relatively stodgy affair compared to its purple days of the late twenties and early thirties. The purple was actually in Transamerica, not the bank. The connection between the two began about 1917, when A.P. founded an auxiliary, owned by Bank of Italy shareholders, to purchase the stock of unit banks and thus prepare them for their merger. Later, Transamerica expanded its purchases to almost any likely-looking situation and by 1928 controlled huge banking resources in California, as well as banks in neighboring states and other parts of the U.S. and abroad. One prize holding was The Bank of America N.A. in New York — and thereby hangs the Transamerica tale.

Transamerica’s stock was widely distributed by the end of the twenties and its stockholders were delighted to see the speculative pressure that built up the market price of their Transamerica shares — and paid little attention to A.P.’s repeated comment that they should not look for a killing, but to the long pull.

The long pull, in his mind, was toward the east, and trans-continental banking power. In 1929 he sold a chunk of The Bank of America N.A. (New York) to financier Elisha Walker and his associates, for a correspondingly big chunk of Blair & Co., old-line industrial underwriter. Later he turned the chairmanship of Transamerica over to Walker. When the stock-market break came, it drove Transamerica down from a high of $132 to $30. Those who had traded their Bank of Italy stock, or their independent bank stock, for Transamerica screamed as loudly as any holding-company shareholders of the time.

Furthermore, while Walker still controlled Transamerica he sold The Bank of America N.A. in New York to National City for a piece of National City itself. A.P. hurried into action, announcing that Walker was trying to wreck the bank, and instituted a proxy fight to regain control of Transamerica. He stumped California under the aegis of a committee of Transamerica stockholders and won hands down.

Hardly had the victory of the shares been won than the U.S. battle of the bank run was on. That reached a climax in March, 1933, when President Roosevelt closed all the banks for a holiday. When the time came to re-open the banks, the Bank of America, in spite of the Indian sign that some Californians wanted to put on it, re-opened with all the rest. An RFC credit of some $65 million was made available in 1932. The whole period left the public a little confused as to the bank’s and Transamerica’s quite separate trials. Ever since, A.P. has had a burning desire to prove in action what a good bank it is.

There are certain lessons here. One is that the high price A.P. sometimes paid for control of the assets of country banks was the price he had to pay to build such a big branch bank. Another is that the write-downs enforced by the depression were largely borne, in effect, by precisely those who were in for the ride — the Transamerica stockholders. (In the thirties its affiliates acted as a rehabilitation basket for the shakier loans acquired in bank purchases by A.P. — assets not considered good enough for Bank of America.) Since the mid-thirties, when Transamerica divested itself of the bank, they have gone separate ways. Transamerica now controls only about 20 per cent of Bank of America. Its chief interest is in its 79 per cent control of the banks of Nevada, its heavy control of the banks of Oregon, its outright control of the Occidental Life Insurance Co., Allied Building Credits, Inc., and a host of other credit enterprises. Its operations are the 1947 form of the original adventurous spirit of all A.P.’s enterprises. It recently enjoyed hearing the SEC drop the last of its cases against it. Currently proposed legislation (Senator Tobey’s Senate Bill 829), which is vociferously supported by Federal Reserve Board Chairman Marriner S. Eccles, aims to prevent bank holding-company expansion without government consent-and would limit bank-holding companies to bank ownership alone. But it is no death sentence.

Today A.P. evinces a gusto for people, events, and projects as undimmed as his inveterate ecstasy over California melons at mealtime. A.P. denies having bothered to read proofs of his newly published biography, A. P. Giannini, Giant in the West (by Julian Dana). But he enjoys his arrival on the library shelf.

The bank takes up the cycle point of 1947 where he left off years ago. In the twenties, for example, he was busy in Europe, offering U.S. dollars for pieces of European banks. Now Bank of America’s London office is humming with continental credits. Bank of America has opened a Manila office for the first time. In the future it may travel as far as the China coast, to do battle with Chase, National City, and the merchant bankers of Britain and the Netherlands. The emerging scale of the world’s needs for dollars may cause even Bank of America stockholders to be surprised at their foreign business half a decade from now. Yet such adventures will be the product of momentum. They might even appear as anticlimactic, in the light of the last four decades’ expansion at home. One price of bigness is that it gets harder and harder to get bigger.