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BOARD OF GOVERNORS ~ »«****»« OF THE FEDERAL RESERVE SYSTEM WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD Seotember 6, 1940. Air I, a i l Dear LCarriner: Frank Welch requested that the attached correspondence, part of •which you will note is confidential, be called to your attention as soon as possible. Sincerely, Mr. Ivrarriner S. Eccles, c/o First Security Bank of Utah, O.p;den, Utah, ; C 0 P Y ' THE FI • / ;1TO ;.U BAHK OF CHICAGO Chicago Illinois Au^ist 23, 1940 i ~^ ' r. Frank 0. Welch, President The Peoples Savings Bank Cedar Rapids, Iowa CONFIDENTIAL Dear Frank: I have your letter of August 19 and hope I can remove v/hat I believe to be some risconceptions by commenting under two headings - first, as to the Reserve City aspect of your letter and, secondl;^, as to the merits of the elimination of inter-bank deposits. So far as I know, there is no conflict between the ABA and Reserve City on the Bill as now proposed. Incidentally, the Reserve City group has in federal legislative matters been very careful to watch the amenities and recognize the broader coverage of the ABA. It happens, however, that back in 1933 to 1935, when legislative matters were very heavy, the Reserve City group, in a more or less rough allocation of effort between the ABA and Reserve City groups working in Was! ington, took the lead in connection with FDIC legislation. A very elaborate brochure was prepared and sent to each Senator and Congressman by the Association. I believe that the ABA group active in Washington at the time will tell you that it vas primarily through the efforts of the Reserve City group that the assessment on all banks was fixed as low as one-twelfth of IS rather than a much higher rate. I mention this not in praise of the Reserve City but to show that its continued interest in the subject is a natural consequence of its initial effort and that suggestions of antagonism between the ABA and Reserve City in this matter is hardly justified. In all matters the two Associations are now working in harmony toward common ends, although at times they naturally place the emphasis a little differently. Coming to the merits of the elimination of the assessment on inter-bank deposits, you may recall that at the time the FDIC was put into permanent form during 1934 there was much talk of putting a definite limit of one-half billion dollars on the FDIC reserve fund and also about the elimination of inter-bank deposits from the assessment base. These efforts were dropped to await the results of FDIC operations up to the time that its fund reached the half billion mark in the meantime the assessments on inter-bank deposits contributing appreciably to the creation of the half billion dollar fund. 'The matter of elimination of the assessment of inter-bank deposits was, therefore, not revived until last year. It must be obvious that the Byrnes Bill in the Senate could not have been passed unless it had been supported by sound and equitable reasons and unless it justified sympathetic consideration from the FDIC on the merits. Inter-bank deposits are in a peculiar category and, as you know, have been treated as such in other banking aspects. 'The assessment on such deposits leads to pyramiding duplications of assessments and increases inequitably the already disproportionate contributions by banks so assessed- in the light of the smaller benefit accruing to them in relation to the dollar volume of deposit coverage. If, as a natter of fairness and on the merits, inter-bank deposits had not been included in the assessment base, I am sure that you would not argue that they should now be included. As a matter of fact, however, the movement to eliminate inter-bank deposits from the assessment base focused attention on the v/hole assessment question, with the result that the prospective legislation now contemplates a reduction in the assessment base to 1/14 of 1 5 but gives any bank an opti.on to eliminate inter-bank , -2deposits from the assessment base if they will pay the existing rate of 1/12 of 1% on deposits on which the other banks are paying 1/14 of 1%, I may be obtuse but I do not see that this is unfair or that a bank without substantial •inter-bank deposits can justifiably complain if banks previously penalized through assessment of inter-bank deposits are granted this option at a penalty rate- as against other banks permitted to oay on the reduced rate on the same category of deposits. I have tried to be just as direct in my letter as you were and I hope that you will be just as direct in your rejoinder and tell me Y/here I am wrong* In any event, I fail to see why everybody should not welcome the proposed legislation. Sincerely yours, (Signed) Harold V. Amberg, V. P. & Gen. Counsel. C 0 T E PEOPLES SAVINGS B N H AK P Y Cedar Rapids, Iowa August 28, 1940. . Ronald Ransom, Vice Chaiman F e d e r a l Reserve System t ashinfrton, D. C. Dear Ronald: Enclosed is copy of a letter I v/rote tc Mr, Crowley today. Under date of June 26, 1939, Mr. Eccles wrote me to the effect that he was just as much anti the Byrnes Bill as I was, and assured me that he v/ould do everything he could to stop it. Our today's newspaper infers bhat a relative of the Byrnes Bill- with Mr. Crowley1s -\elp- might become the law of the land next week — hence I v/rote Mr, Crowley as I did. I am writing you, as Vice Chairman of the Federal Reserve System, as the newspapers recently carried the information that Mr. Eccles vrould be away from Washington for a month or six weeks on his vacation. Ivybe that's why the Reserve City fellows are trying to slip a Bill of this kind over just at this time. Please do what you can to stop it, and please see that this letter frets tc Mr. Eccles' attention as soon as possible. Thanks a l o t . Kindest r e g a r d s , Sincerely yours, (Sgd.) F. C. r ;elch fw-mv P R E S I D E N T CCf Y August 28, 1940 Hon. Leo T. Crowley, Chairman Federal Deposit Insurance Corporation Washington, D.C. Dear Mr. Crowley: No doubt you will call writing me under date of February 15 this year to the effect that you would recommend that any reduction in the FDIC assessment rate should apply alike to every insured institution* For your information, I enclose herewith a copy of a newspaper article appearing in this morning's CHICAGO JOURNAL OF COMMERCE which specifically" states that "the legislation :r. Crowley vd.shes to see enacted before leaving the FDIC will produce a Savings for some of the larger institutions, estimated to be rove than 25;* of their present assessments." According to my rough computation of how the new Bill, accredited to you, will operate so far as the five banks of this city are concerned, the big bank of our town, which has practically all of the country correspondent bank business, will save 514,254 which is, roughly, not Z5% of their present assessment, but almost 50% of their present assessment. The other four banks of our town vri.ll save the magnificent sum of $1310. The income of your Corporation from Cedar Rapids will, of course, be reduced accordingly, and I therefore find it exceedingly difficult to reconcile your letter to me with the newspaper article. Newspapers, of course, have a way of getting things twisted when the reporter writes it up, and I sincerely hooe that is the case in this instance. This letter gees forward by air mail, and I will appreciate a prompt reply as to your present position in the matter. I have had several conversations today with some of my banker friends, both in and out of the city} all of ihem are very much disturbed about a plan that is going to give the big correspondent banks the benefit of most of the proposed saving, and I should like to transmit to them the substance of your reply to this letter. Our annual state convention meets the 8th of next month, and while the newspaper article intimates that the House is going to consider your Bill next week, I sincerely hope you will nob permit Chairman Steagall's committee to rush this Bill through the House like our good friend, Senator Herring, rushed the Byrnes Bill through the Senate. He afterwards wrote me that he did so in ^rood faith, as he thought i t would benefit all banks alike. Sincerely yours, W-H7 Frank C. Welch President This article is protected by copyright and has been removed. The citation for the original is: Vanderpoel, Robert P. “House Group Approval of Changes in Federal Deposit Bank Insurance Law Hit.” Chicago American, September 27, 1940. August 50, 1940* Jftr. Frank C* Welch, President, The Peoples Savings Bank, Cedar Rapids, Iowa* Bear Frank; I ant today in receipt of your letter of August 28 enclosing a copy of your letter of the sane date to Honorable Leo f« Crowley, Chairman of the Federal Deposit Insurance Corporation* Through our staff we try to keep currently advised regarding all national legislation that may affect banking, and I have no :;.nfbrasation from these sources that leads ne to believe that either the Byrnes Bill (3, 1518) or H# U. 8656, coHBBonly known as the Steagall Bill—copies of both are attached—is being given active consideration at this tine in either House* As a matter of fact, neither bill has been reported by the Banking and Currency Conaaitte© of the House, The copy of your letter to Mr* Crowley indicates your idea that there is some other legislation, which now nay be under consideration, but you do not refer specifically to any bill* I am interested in the calculations in your letter as to the effect of the legislation you have in Kind* Will you kindly figure this out a little ware fully for me, so that I will see just how you arrive at the results stated in your letter, and under what bill or bills would these results be produced? I am also interested in knowing what your own State Association may be doing about this legislation or what any of the national associations may be doing* In this connection, I understand that the Washington representatives of the Aaerioan Bankers Association endeavor to keep currently advised about all banking legislation, and I assuae that you have had some contact with them and know what their position nay be* As long as the House Committee has not reported either of the bills above referred to, I take it that the views of any banker or banking group would be considered by the House Cawnittee upon request* Mr. Frank C. Welch, Cedar Rapids, Iowa -aI would also be Interested in knowing what information you receive from Mr. Growley in response to your letter. Upon receipt from you of the above information, I will be glad to call it promptly to the attention of Mr* Ecclea, as well as to the attention of the other members of the Board. Assuring you that I as pleased to hear from you and am interested in the matters discussed in your letter, and with kindest regards, I am, Very truly yours, Ronald Ransom, Vice Chairman* RR:ac C THE PEOPLES SAVINGS BANK 0 P Y Cedar Rapids, Iowa September 3, 1940. Mr. Ronald Ransom, Vice Chairman Board of Governors of the Federal Reserve System Washington, D, G. Dear Ronald: Replying to yours of August 30, I enclose herewith a clipping of the newspaper article which appeared in the August 28 issue of the CHICAGO JOURNAL OF COMMERCE. I also enclose, for yoToqj^g^^j^^Qi^^y^^JJlLlja^ a copy of the letter I received from Harold Amberg under date"of August 23. The two enclosures, I believe, will explain to you fully what I meant in my letter of the 28th. Mr. Eccles' idea, as you probably know, is to permit the banks to deduct their average balance in the Fed before computing their FDIC assessment. Ivy idea is that the fairest way to all banks would be to permit them to deduct their average due from banks whether it i s owing them by the Fed or any other corresoondent bank. I think it's exceedingly unfair for the Government to pass a law which prohibits the payment of interest to us on our balances with our correspondent banks and then pass another law which would relieve the bank receiving the deposit from paying any FDIC assessment thereon. It seems to me that the bank making the deposit is the one entitled to any exemption granted under the FDIC law. T/y friend, Harold, thinks I am unreasonable," but I honestly feel that my plan is much more reasonable than the one concocted by the Reserve City bankers. I'll let you know what I hear fro:r Mr, Crowley. Kindest regards, Sincerely yours, (Sgd.) FCW fw-mv P R E S I D E N T This article is protected by copyright and has been removed. The citation for the original is: Chicago Journal of Commerce, “Crowley Awaiting New FDIC Law Before Taking Utility Post,” August 28, 1940. September 5, 1940. Personal Mr. Frank C* Welch, President, The Peoples Savings Bank, Cedar Rapids, Iowa* Dear Franki X am this morning in receipt of your letter of the Srd, replying to mine of August 50, which was in turn in reply to yours of August 28, all with reference to your idea that the Byrnes Bill, or something of that nature, sight shortly be enacted by the House* I have read your letter with interestj also the enclosure of a clipping from the Chicago Journal of Commerce and a copy of a letter to you from Ur. Harold V* Axnberg, President, Association of Reserve City Bankers* If the Chicago newspaper correctly quoted Mr* Crowley, his statement seems to have been directed towards his wish to see certain legislation enacted before leaving the Federal Deposit Insurance Corporation* The statement that this legislation was due for consideration by the House next week would refer to the present week, and so far as I have been able to ascertain, neither the Byrnes Bill nor the Steagall Bill would seem to be due for consideration this week* This not only results from pressure of other bills now before the House, but also from the fact that the Banking and Currency Committee of the House has not reported either of the bills* As I told you in ray letter of August 50, we try to keep currently advised regarding all national legislation that may affect banking* I will forward copies of your letters to Chairman Eccles, as requested by you, and will also see that the other members of the Board are advised regarding your views on this legislation* Mr* Amberg's letter, having been signed as an official of the First National Bank of Chicago, does not specifically answer the question raised by me in my letter, namely, what is the official attitude of this Association regarding the legislation? I understand from your letter of September 5 that Mr* Mr. Frank C« Welch -2- Anberg's letter is probably the only information you have regarding their attitude, I still do not know *hat, if any position has been taken by the American Bankers Association, or by your own State Association or other associations* Possibly you are as much In the dark about this as I am, but it is always interesting to me to know what the banking associations are saying or doing about pending legislation, and I will await with interest further information from you as to Mr. Crowley's views on these matters, and, if you should obtain information from other sources about banking associations1 views or current developments regarding this legislation, I will appreciate your passing It on to me. Very truly yours, RRiac Ronald Ransom, Vice Chairman.