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DISCRIMINATION IN FEDERAL BANKING LAWS In addition to laws peculiarly applicable to the National Banking System, the Federal Reserve System or the Deposit Insurance System as such, Congress has enacted many laws for the general purpose of preventing -unsound banking practices and requiring banks to operate in a manner conducive to the public interest. It would seem that laws of the latter class should apply uniformly to all banks subject to the jurisdiction of Congress; but they do not do so# Some of them apply only to national banks, most of them apply to all member banks of the Federal Reserve System, but only a few apply to nonmember insured banks. This is not the result of deliberate policy or design but of fortuitous circumstances incident to the gradual development of Federal supervision of bankings From 1863 to 1913 Congress assumed jurisdiction over no banks except national banks; and the Federal banking laws enacted during this period naturally wore made applicable only to national banks» In 1913 Congress extended its jurisdiction to those State banks which chose to join the Federal Reserve System and extended some, but not all, of the goneral regulatory provisions of the National Bank Act to them* Practically all remedial or regulatory banking laws enacted from 1914 to 1933, inclusive, wore made applicable to all member banks, State and national alike# -2- In 1933 Congress extended i t s jurisdiction to a l l State banks which chose to have their deposits insured by the Federal Deposit Insurance Corporation; but i t was not until 1935 that i t started extending i t s regulatory provisions to them; and so far only a few of the general regulatory provisions of the Federal banking laws have been extended to them. The result is shown in the attached table, which disregards laws peculiar to the organization of national banks, membership in the Federal Reserve System, or the insurance of bank deposits and relates only to general regulatory provisions which could properly be made applicable to a l l banks subject to the jurisdiction of Congress. A glance over the table will disclose that these laws leave State member banks more freedom than national banks and leave nonins mber insured banks much more freedom than member banks. Stated differently, i t diacloses that although the Federal Government has assumed the responsibility for insuring the deposits of a l l insured banks, i t has not thrown the same safeguards around the transaction of the banking business by non-member insured banks as i t has with reference to member banks • In view of the facts that a l l national banks are required to be nBmber banks, a l l member banks arc requirod to have their doposits insured, and noiribor banks pay approximately 85 per cent of the assessments to support the deposit insurance system, the result seems not only nonsensical but unjust. -3- In order to remedy this situation it is not necessary to require that all insured banks be national banks or to require that they all be member banks. It would be sufficient to extend to all insured banks those general regulatory provisions of law which Congress deems necessary or desirable for the purpose of preventing unsound banking practices and requiring the banking business to be conducted in a manner conducive to the public interest* To do so would reduce the risks of deposit insurance, eliminate unfair discrimination between different classes of insured banks, and require all insured banks to operate in the public interest. On the other hand, if any of these general regulatory laws are too strict or are not necessary or desirable in the public interest, they should be modified or repealed and should not be left on the statute books to hamper member banks alone. COMPARISON OF FEDERAL STATUTORY PROVISIONS REGULATING AND RESTRICTING THE BUSINESS OF DIFFERENT CLASSES OF BANKS Applicable to Type of Statute National Banks State Member Banks Nonmember Insured Banks Restrictions on real estate loans• Yes No No Regulations governing exercise of trust powers. Yes No No Restrictions on acting as insurance agent• Yes No No Restriction on acting as real estate loan broker• Yes , No No Prohibition against holding "other real estate" for more than five years. Yes ; No No Limitation on indebtedness which bank may incur. Yes No No Restriction on loans to executive officers. Yes Yes No Restrictions on dealings with directors• Yes Yos No Prohibition against paying preferential rate of interest on deposits of directors, officers,etc Yes Yes No Restrictions on interlocking directorates betweon bank and other banks. Yes Yes No Restriction on interlocking directorate between bank and securities companies• Yos Yes No Prohibition against securities affiliates* Yos Yos No Prohibition against acting as modium or agent in connection with loans to dealers in securities. Yos Yos No Prohibition against affiliation with other corporations. Yes Yes No Limitations on loans to affiliates* Yes Yus No Limitations on investment in bank promises« Yes Yos No -2- Applicable to Type of Statute National Banks State Member Banks Minimum capital requirements* Yes Yes No Prohibition against loaning on or purchasing own stock. Yes Yes No Restrictions on withdrawal of capital and payment of unearned dividends* Yes Yes No Prohibition against impairment of capital. Yes Yes No Requirement that reserves specified in Feden il Reserve Act be maintained. YGS Yes No Prohibition against making loans or paying d:.Vidends while reserves deficient. Yes Yes No Restrictions on purchase of investment socurj tios and stock* Yes Yes No Limitations on acceptance powers. Yes Yes No Limitations on loans to one borrower. Yes Yes No Limitations on loans secured by stocks or boi ids. Yes Yes No Minimum capital for branches. Yes Yes No Restrictions on establishment of branches* Yes Yes Yes Restrictions on payment of interest on depos: ts* Yes Yes Yos Prohibition against loans or gratuities to bi ,nk examiners* Yes Yes Yes ' Nonmember Insured Banks
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