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5. Commercial Banking
- University of Arkansas Press
- Chapter
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Chapter Five Commercial Banking When I arrived at Commercial National as its president, I found myself sitting at a desk outside Richard Butler’s office in the lobby of what appeared to be the lending platform. I sat out in the lobby for a year before moving into the president’s office because Butler still occupied it and I wanted to build camaraderie with the staff. In April 1971, I met Barnett Grace, a lawyer and Certified Public Accountant , who then was with the “Big Eight” accounting firm of Arthur Andersen of Dallas. Grace was a Batesville native whose family I had known through the law firm. I urged him to do what I was doing—to leave his current profession and enter banking. We agreed that Grace would join Commercial National Bank as an executive-in-training in January 1972. In retrospect, several factors motivated me to become a banker, not the least of which was my then twelve-year-old son Scott’s declared ambition to become a physician. I had expected him to become a lawyer and join the firm. Also, heading a bank allowed me to invest in its stock, whereas the opportunity to invest while practicing law was limited. In addition, with twenty-nine retained legal clients and a growing practice, I found myself working seven days a week with little opportunity to do anything else, leaving me unable to respond as fully as I wanted to a call that was equally strong in me: to work in the community with the aim of producing a stronger Arkansas. 63 BOWENrevisedpages.qxd:Layout 1 2/6/08 4:00 PM Page 63 In the summer of 1971, a young Yale graduate with Vietnam War experience as a Marine came to see me in my new capacity as Commercial National’s president. The young entrepreneur, Fred Smith, gave me a copy of his Yale thesis, which had as its theme the creation of a nationwide air transport system for overnight delivery of packages. It was to be called Federal Express. I took the thesis to the bank’s loan committee. The committee members responded that Smith needed investors, not a loan. Undaunted, Smith went to Worthen Bank and Trust Company, where he received a warmer reception and a loan to start his operation with two planes and staff members at Adams Field, the airport serving Little Rock. Subsequently, Smith’s need for additional space could not be met by the Little Rock Airport Commission and within a year he moved his entire operation to Memphis, where he moved into airport space vacated by the Tennessee Air National Guard. Smith’s persistence was such that he succeeded beyond his most aggressive expectations. At one point, he was the highest paid executive in the United States and FedEx is a fabulously successful company. Even as I was pondering whether to make this career change, the banking scene in Arkansas was heating up. The state’s largest financial institution, Worthen Bank and Trust Company, had established the First Arkansas Bankstock Corporation (FABCO) as a one-bank holding company in 1968, allowing FABCO to engage in activities that were not permissible for banks, such as owning other banks.1 In early 1970, FABCO applied to the Federal Reserve Bank to convert to a registered bank holding company so that it could bring other banks under its umbrella, with the first being the Arkansas First National Bank of Hot Springs. Ninety-nine percent of the shareholders in the Hot Springs bank already had tendered their stock to be exchanged for FABCO stock by the time it went to a hearing in Little Rock before the Federal Reserve in June 1970.2 Richard Butler was one of those who testified against FABCO, charging that the move was a back-door way for Worthen to move into branch banking, which was prohibited by state law. This prohibition was a holdover from the Depression. When deposits began to be insured in 1933, the prevailing attitude was that branching was a dangerous activity because it provided more opportunities for banks to make risky loans. Although FABCO and the individual banks whose stock it owned would be separate corporate entities, Butler said, “it controls these banks just as surely and just as effectively and absolutely, as if they were mere branch offices despite the elaborate trappings of separate entities, separate boards of directors and so forth.”3 64 / COMMERCIAL BANKING BOWENrevisedpages.qxd:Layout 1 2/6/08...