The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
347 BOARD OF GOVERNORS S-·6 OF THE FEDERAL RESERVE SYSTEM WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE: TO THE: BOARD Jime 25, 1957. Subject: }I" Program for strengthening banking situations where such need is indicated in the case of State member banks. Dear Sir: As you will recall, at the recent meeting of the presidents of the Federal Reserve banks, members of the Board brought up for discussion the desirability, as a System matter, of working out programs to take care of any State member banks which may be in a weakened condition or faced with such unfavorable prospects as to raise a question as to their future. In reality, such a concerted program would be a continuation of the rehabilitation program begun in the summer of 1953, with the difference that, whereas the earlier phase of the program was concerned primarily with the strengthening of the capital position of the banks, the current phase of the progrnm, while not ignoring the question of adequacy of capital or neglecting efforts to obtain adjustments where needed, would be concerned primarily with the fundamental questions of management artd economic justification for a bank. In accordance with the understanding reached at the Presidents' Conference, therefore, it is requested that a survey be made by each Federal Reserve bank of the banking situation in communities in its district where State member banks are located, with a view to determining which, if any, banks are faced with serious difficulties, either because of ~~ over-banked community, lack of economic justification on any other grounds, inefficient management, or any other reason. If a bank's difficulties are due to an inefficient management, effort should be made to effect an improvement in the management. Such a suggestion does not contemplate, of course, that the Reserve banks are to attempt to run tl1e State member banks, select their managements, or dictate to the managements. It C.oes contemplate, however, that, if a bank is suffering because of management or its future appears uncertain on that account, the situation bo brought clearly and emphatically to the attention of the directors of the bank, and that eve~ 348 , -2- S--6 the directors be urged to fulfil.l their primo.ry responsibility of providing a proper management. In such situations it is felt that efforts should bo made to enlist the cc1operation of the appropriate State au.thori ties, if they are not already working on the prcblem. If the directors are unable or umvilling tc provide adequate manag<::ment in the circumstances, it would seem that the Federal Reserve bank and State authorities should ccnsider C!:l.refully whether the best intereEts of the depositors, the stockholders, the community itself, and the Federal Deposit Insurance Corporation would not require that tho bank be absorbed by some other institution or placed in voluntary liquidation at a time when the deposits may be paid off without loss to the depositors or the Federal Deposit Insuronce Corporation, and the stockholders may yet receive something on their stock. If the question is not one of management, but of the lack of basic justification for the existence of the bank, a similar program for absorption or voluntary liquidation would seem to be in order. The suggested program imrolves, of course, cooperation tn the fullest extent by the Federal Reserve banks, the State authcrities,.the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Reconstruction Finance Corporation where that Corpor&tion is interested, as situations may :L."ldicate &11 manners of consolidations or mergE:rs, State member banks with other State member banks, with national banks, or with insured nonmember banks, or any other combination Qf the thrc;e classes of b9.nks; perhaps even the organization of a new bank to assume the liabilities of existing institutions. In this connection you <::.re familiar with the fact that the Federal Deposit Insurance Cor-por~tj_on .has made a Lumber of absorptions possible through loans on unacceptable assets, and it should be noted that the right of the Fedoral Deposit Insurance Corporation to purchase assets or make such loans expir8s July 1, 1938. The Board appreciates the fact that, working along the lines discussed in this letter, the F'ederal Reserve banks have been instrumental in a number of cases in bringing about mergers and effecting changes in manr:;.gements, and that in other cases the Reserve banks are worki.ng on definite programs to improve existing banking si t.ua tions. It is belinved, howaver, that intensification of efforts along these line:..> and n development of a progrmn for the System as a ·Nhole is highly dt:!SlraDJ...E:. It is requested that a report be submitttJd to the Board by Sep'tembor 1, 1937, as ·to the results of the survey, the accomplishments to date, and. the status of each of the c·ther cases where it is felt that action of some kind or degree along the lines discussed is desirable. .In a2king for a repcrt by September 1, it is realized, of course, . ,• 349 -5- S-..0 that considerable t:lme will be necessar-.r in working out some of the· individual programs, but the Reserve banks are familiar with the situations in their respective districts, and it is hoped that some of the situations on which 'they have been working may have been satisfactorily adjusted by that time. · Ver,y ~ yours, Chester Morrill, Secretary • .. TO ALL PRESIDENTS r
@FedFRASER