Lending under Branch Banking Both the unit and the branch bank are equally obligated by the

dictates of prudence to diversify risk to maintain proper secondary reserves through short-term liquid investments. The factor of safety must always take precedence over everything else. But the unit bank can only go a limited distance in its total investment activities. First, it must set aside its primary and secondary reserves; then take care of its normal lending activities; and finally, if necessary, it may borrow or rediscount in order to meet extra credit demands. The same path must be followed by a branch system, but it is an easier path to follow that that enjoyed by the unit bank. In supplying excessive credit wants in some communities the branch system is not obliged to borrow from outside sources so frequently as the unit bank. Excessive wants are satisfied without any effort or ado by interoffice borrowing, funds being shifted from regions of plethora to those of dearth. Only in times of general credit scarcity is it necessary for the branch bank to apply for outside aid. But in normal times the strain to satisfy credit demands is far less on the branch office than on a similarly situated unit bank. In fact the branch manager rarely concerns himself with the problem of reserve maintenance: that is a responsibility of the head office. In considering a loan application he is a rule concerned solely with its worthiness. Naturally he does not extend his lending activities to applicants who are not bona fide residents of his immediate trade area any more than the unit bank does. The point is that he does not have to depend solely upon the ligaments of credit developed by that community in which his branch is located. He has the opportunity of drawing upon the resources of as many other communities as his bank has separately located branches, and the more widespread and diversely supported economically these branches are, the greater that opportunity. The branch manager may be prone to abuse this advantage, by trying to develop business credit liberality. He is desirous of seeing his branch grow and prosper, and the best and most available vehicle for attaining size and profits is through lending wisely. The greater the branch size and earnings the greater the prestige of the manager and the more kindly and generously is he likely to be regarded by those at the head office who fix his compensation. All this is praiseworthy. A danger arises all too frequently in large organizations, however, where the severity of staff competition, the struggle to rise, to show oneself above the multitude, brings into being the variety of employee who seeks special recognition through too liberal lending as
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The essential objective of the credit department is the same for a branch bank as for a unit bank. The function of such a department in either case is to collect, assemble, and classify data used to determine the credit rating of borrowers and prospective borrowers. The data must be carefully analyzed and filed in such a manner as to make it readily accessible to bank officers and others who are entitled to use it. The usual practice is to have duplicate credit records, one kept in the head office, the other in the branch office at which the customer transacts his business. In any event, the head office retains supervision of all extensions of credit. If the branches are located some distance from the head office, the problem of making information promptly available to both becomes more complicated. Interchange of credit information is carried on when necessary among the branches.

a business-building method. Control of this perfectly natural propensity is definitely a head office responsibility. The head office must not let its own desire to attain size and larger earnings get out of bounds and are dangerously magnified when carried to the branches. There is a natural opposition between the credit department and the new business department of any large organization, including banks, both unit banks and branch banks. The one depends for its livelihood on the constant delivery of a stream of new business, particularly of new depositors; the other1, on wise credit policies and practices, so that necessary liquidity may be maintained and collection effort and losses minimized. While the new business department is not oblivious of the necessity of prudence in credit customer singlehandedly, brings the application to the committee for its decision and acts as the applicants ambassador; and if he recommends favorably, he should stand by his act and judgment. The originators recommendation for or against the credit is necessary in order that the branch manager, district manager, or head office may not make the egregious mistake of passing favorably on an application of which the man at the point of contract with the borrower and therefore the greatest quantity of firsthand information, and should, accordingly, speak his mind and be held accountable for it. Rarely is there a conflict in judgment between head office and branch manager except where the head office believes the manager is too enthusiastic about a credit and particularly about the applicant, or where the manager is known (or thought) to be subject to an undue amount of pressure form a prominent citizen or that most speciously valuable individual a good friend of the bank. Even more rarely is the head office likely to approve a credit which the branch manager has disapproved. Occasionally it may be done usually for policys sake; but rarely do such credits turn out satisfactorily. As a rule a double affirmative or a double negative is the answer to the application.

The essential objective of the credit department is the same for a branch bank as for a unit bank. The function of such a department in either case is to collect, assemble, and classify data used to determine the credit rating of borrowers and prospective borrowers. The data must be carefully analyzed and filed in such a manner as to make it readily accessible to bank officers and others who are entitled to use it. The usual practice is to have duplicate credit records, one kept in the head office, the other in the branch office at which the customer transacts his business. In any event, the head office retains supervision of all extensions of credit. If the branches are located some distance from the head office, the problem of making information promptly available to both becomes more complicated. Interchange of credit information is carried on when necessary among the branches.