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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 banking.
From 1863 to 1913 Congress assumed jurisdiction over no banks
except national banks; and the Federal banking laws enacted during
this period naturally were 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 general regulatory provisicms 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.




-2In 1933 Congress extended its jurisdiction to all State banks
which chose to have their deposits insured by the Federal Deposit
Insurance Corporation; but it was not until 1935 that it started extending its 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 uBde applicable to all banks subject to the jurisdiction of Congress*
A glance ever the table will disclose that these laws leave
State member banks more freodom than national banks and leave nonmember insured banks much more freedom than member banks•
Stated differently, it discloses that although the Federal
Government has assumed the responsibility for insuring the deposits
of all insured banks, it has not thrown the same safeguards around
the transaction of the banking business by non-member insured banks
as it has with reference to member banks •
In view of the facts that all national banks are required
to be nenber banks, all member banks aro required to have their deposits insured, and member banks pay approximately 85 per cent of
the assessments to support the deposit insurance system, the result
seoms 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 OP FEEERAL STATUTORY PROVISIONS
REGULATING AND RESTRICTING THE BUSINESS OP
DIFFERENT CLASSES OF BANKS

jUpplioable

lype ol otatuue

National
Banks

State
Member
Banks

to
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, offioers#etc

Yos

Yes

No

Restrictions on interlocking directorates betweon
bank and other banks*

Yos

Yos

No

Restriction on interlocking directorate botwoon
bank and securities companies*

Yos

Yes

No

Prohibition against soouritios affiliates*

Yos

Yos

No

Prohibition against acting as medium or agent in
connection with loans to dealers in securities*

Yos

Yos

No

Prohibition against affiliation with other
corporations*

Yos

Yos

No

Limitations on loans to affiliates*

Yos

Yus

No

Limitations on invostmont 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*

Yes

Yes

No

Prohibition against making loans or paying d:.V
idends while reserves deficient*

Yas

Yes

No

Restrictions on purchase of investment securi
ties and stock*

Yes

Yes

No

Limitations on acceptance powers*

Yes

Yes

No

Limitations on loans to one borrower*

Ye»

Yes

No

Limitations on loans seoured 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 deposi ts« Yes

Yes

Yes

Prohibition against loans or gratuities to bi ink
examiners •
Yes

Yes

Yes




' Norm ember
Insured
Banks