RESPONDENT: Philadelphia National Bank
LOCATION: Beaumont Mills
DOCKET NO.: 83
DECIDED BY: Warren Court (1962-1965)
CITATION: 374 US 321 (1963)
ARGUED: Feb 20, 1963 / Feb 21, 1963
DECIDED: Jun 17, 1963
Facts of the case
Media for United States v. Philadelphia National BankAudio Transcription for Oral Argument - February 20, 1963 in United States v. Philadelphia National Bank
Audio Transcription for Oral Argument - February 21, 1963 in United States v. Philadelphia National Bank
-- United States, appellant versus the Philadelphia National Bank Et Al.
Mr. Price you may continue your argument.
May it please the Court.
I think when we recessed yesterday I had just challenged the statement in that a bank has any control over its deposits.
I'd like to give two illustrations.
Some years ago in Pennsylvania, the Secretary of Banking refused to permit any bank to allow more than 3% on --3% or 2.5% or 3% on its current deposits, at a time when New York allowed a half or 1% more than that.
Until the Secretary of Banking of Pennsylvania changed that regulation, $3 million moved out of the Philadelphia National Bank to New York without any power on the part of the bank to control that move.
Another illustration; in New York City over a period of six months, a $150 million moved out, was withdrawn from term deposits of New York banks; because of a slight difference in the interest rate it was possible to earn a whole lot amount of money.
That represented the amount of cash that would have provided commercial and industrial loans of $90 million and as for as demand deposits are concerned, of course by definition, they are withdrawable by the depositor without notice.
Simply a check will withdraw all the money on demand deposit without prior notice to the bank and the bank has absolutely no control over it.
Therefore, the number of deposits or the fact that the deposits does not constitute anything in the nature of control that is similar to the kind of control that we talk about when we were speaking of manufacturing company.
There is no possibility therefore of the price war such as were suggested in the brief of the Appellant.
There is no power to control anyone because money is the only commodity that banks handle and that is fluent, it moves rapidly throughout the country at no cost and therefore, can be transferred from one city to another by mail, by telegraph and practically by telephone.
Now the three functions of the commercial bank essentially involve the deposit activity and the lending activity and the collateral services that are rendered by the bank.
There is no competition, no price competition for deposits, because banks may not allow any interest except that which is permitted by law and regulations and that applies to everybody.
So there can't be any advantage for one bank over another in that field.
Banks have to operate within the limits prescribed by regulation, which amounts to the character of investments they may make, but loans have to be short term to be liquid, they may not be more than 10% of the capital surplus of the company -- of the bank, which means in a fact that they may not be more than about 1% of the aggregate deposits of the bank.
Loans may not exceed 60% of the deposits ordinarily or about six times the capital of the bank.
60.5% must be kept on deposit with the Federal Reserve as cash reserve and an addition secondary reserve must be kept by the bank itself as a hedge against the possibility of sudden and unacceptable withdrawals.
So that the operation of a bank is entirely different from any manufacturing company and its stock in trade, cash, is subject to withdrawal practically without notice.
The term deposits of course 30, 60, 90 days there was that much notice, but when the time runs out, the money maybe withdrawn without any explanation whatever.
So far as deposits are concerned, there is no competition insofar as loans are concerned.
There are no price of competition in loans, because the interest rate is in effect fixed by the operations of the Federal Reserve in controlling the volume of money that's available to banks.
For example, the open market operations which the Federal Reserve buys and sells some $30 billion worth of government securities, can either withdraw cash from the banks and therefore reduce the capacity of the banks to lend or put cash into the banks when the Federal Reserve buys bonds, buys [Inaudible] and that makes money easier and therefore, interest rates might be affected.
So that the control of interest rates is not in the hands of the bank stocks, but in the hands of Federal Reserve itself.
The aggregate money market in the United States, the free quick money market is in excess of $500 billion.
The amount that any one bank has under its capacity to lend is vastly less than that and therefore, it would be quite impossible for any bank to exercise any control over the money market so far as loans are concerned.
Now, I'd like to say a word about this -- operations of small bank in terms in relation to enlargement.
Within its resources, within its capacity to lend with 10% limit, the lending limit of the bank itself, a small bank can compete as effectively with a large bank as two large banks with one another.
That was justified too by all the witnesses who had any knowledge of the operations of banking.