The Chase Goes National

The first duel between Aaron Burr and Alexander Hamilton, who favored strong central authority, was not fought with pistols but with banknotes. Burr in 1799 founded the Bank of the Manhattan Co. to help finance the young Democratic-Republican Party and battle Hamilton's Bank of New York, which underwrote the Federalists. Hamilton's bank is still prospering, and Burr's grew into today's Chase Manhattan, with assets of $13 billion the U.S.'s third largest savings institution (after San Francisco's Bank of America and Manhattan's First National City Bank). Last week, breaking with a tradition that goes back to Burr, Chairman George Champion and President David Rockefeller announced that the Chase will seek to give up its state charter and apply for the national status that offers what they called "greater flexibility."

A Question of Freedom. One of the unique aspects of the U.S. economy is the dual banking system, which divides authority between federal and state governments. Two-thirds of the nation's 13,500 banks operate under state charters, the rest under national charters. The state banks generally have to put up less in the way of reserves than national banks, also can extend larger loans to individuals, and have greater latitude in making investments. But the national banks have several advantages, of which one stands out: larger freedom to expand. U.S. Comptroller of the Currency James Saxon, who supervises the nationally chartered banks, has been generous in approving applications for branches, providing that state laws do not specifically forbid them. Because bankers have become eagerly competitive and growth-minded, there is a distinct trend away from state banking. In the past four years more than 60 state banks have sought national charters.

By far the biggest state bank ever to seek national status, the Chase obviously wishes to grow faster. In the past five years it has been limited to eleven branches in the fast-growing suburbs, while its archrival, the First National City Bank, was permitted by the Federal Government to open 32 suburban branches. As a national bank, Chase will not only be able to narrow that gap but also, if it chooses, issue travelers' checks throughout the country, engage in the business of renting computers and leasing other machines, and go into factoring (a profitable if somewhat risky form of lending in which the borrower usually puts up accounts receivable as collateral).

Safety Valve. Immediately after Chase's move, New York State Superintendent of Banks Frank Wille called on both the state's lethargic legislature and the U.S. Congress to eliminate the inequalities between state and national banks. Next day, Governor Nelson Rockefeller, brother of the Chase president, seconded Wille's motion. In Washington, House Banking Committee Chairman Wright Patman worried that the Chase "is so big it could become a bellwether" and said that if more state banks follow the trend, the dual banking system may be seriously threatened. Though the dual system is some-what anachronistic, it does give bankers a safety valve--the option to switch if either state or federal controls become too tough.

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