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413.1a — Source Material
Study 0
Divided & Overlapping Federal
Supervi:3ion
bank Susuensions Study of 1936
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L. E. Birdzell, General Counsel, Federal
Deposit Insurance Corporation
Hearings — H. R. 5357
de-4./ 9.3,r
ihat
we
conteniplate
Now
a permanent insurance extended to nonmember banks, it is of course appropriate that there be an express
provision in the permanent act authorizing the examination of banks,
so that is provided for in the eighth paragraph, which enumerates
the powers of the Corporation, where before it was contained in
subsection (y). There is further provision made in paragraph 2,
below that, on page 16.
Then, on page 17, there is express provision for access by the Corporation to the examinations made by the Comptroller of the Currency, and also to the reports of examinations of any Federal Reserve
member bank.
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Federal Reserve Bank of St. Louis
Mr. CROWLEY. I do not think that is correct, Mr. Congressman.
What I really said was this, that if we were to be given certain
supervisory powers we could protect ourselves. You might go back
to 1920, when you had 30,000 banks. We lost nearly 15,000 banks
from 1920 to 1933. A great many of our overbanked conditions
have been washed out.
If we do not make the same mistakes as before and do not let
this overbanked condition come back again, and if we can protect
ourselves by going into a weakened institution and perhaps buying
the assets or absorbing losses in order that mergers can be brought
about, we are going to get away with a much lower loss. If we are
given power to protect ourselves from loss, then I believe that this
corporation can get along with a reasonable income. On the other
hand, if we are just going to drift as in the last few years, then I
do not believe you can assess against the good banks sufficient money
to take care of the weaker banks without crippling the capacity of
the good banks to write off their losses currently.
When it is all said and done the strength of the fund depends
upon the banks being so well run and their earning capacity being
sufficient to allow them to take their losses currently in place of letting them accumulate. I think everyone will agree that a good
fnany banks permitted their losses to accumulate. Some of these
banks even paid dividends, whereas they should have written off
their losses.
I think that this fund should eventually build a sufficiently large
surplus so that in the ordinary regional depressions—not a depres1933--this fund could pay its losses promptly without maksion
ing an assessment against the Government or the banks.
fi
,/
Mr. CROWLEY. We have had in here 22 State commissioners for
conferences on the matter of examinations and related topics.
Let me say that in the matter of rebuilding capital, in the matter ,
1\ I of local contributions, time after time we have had a State commis- I
sioner come to us and ask us to exert our influence, because on account
of local conditions he could not do it, and he has asked the Federal
'
) Deposit Insurance Corporation to exert pressure in order to put that
bank back in shape.
So far as that examining program is concerned, every State corn. missioner who -vvants a good State banking system will agree that if
we are going to carry such a high percentage of liability we have to
have ways and means of protecting ourselves.
Let me say this to you: That in the large percentage of the State
banks we are insuring them better than 70 percent. I think that there I
are some 9,600 that we are insuring up to 80 percent. That is a tremendous responsibility.
1,
• Now, on the matter of burglary insurance, the reason we asked for
that is that a good many of the States have no legislation at all that
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9
Leo T. Crowley, Chairman, and L. E. Birdzell, General
Counsel, Federal Deposit Insurance Corporation
Hearings - H. R. 5357
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Federal Reserve Bank of St. Louis
gives the Commissioner the power to force a bank to carry a reasonable amount of insurance on its officers or employees. Already, out of
the 11 banks where we have paid out, we have had a very unfortunate
experience. If they had had some adequate insurance, it would have
helped the stockholders very materially.
We do not propose, you understand, to do that in the case of a
wholesale majority and put an unnecessary burden on those banks.
We must be reasonable in all of our demands.
Mr. GIFFORD. I am wondering what the cost of those things will be
to the bank and what you insure them against?
Mr. CROWLEY. We certainly do not want to pay for all of their
mistakes without having any right to try to get them to correct them.
Mr. GIFFORD. Do you want them to insure themselves against every
conceivable thing, so that your corporation will not have any liability ?
Mr. CROWLEY. No; but where they have not sufficient burglary insurance and protection and sufficient surety coverage on their employees, I see no reason why they should not carry it as a matter
of protection to themselves and their own stockholders.
. Mr. GIFFORD. Do you think that it is a fair treatment, and do you
I think that it is a safe treatment of a bank to demand of it a certain
kind of report, and if it does not publish it in 5 days, to fine them
$100 a day ?
Mr. CROWLEY. I think that you are exaggerating that a little bit.
The purpose of the authority to publish reports is this, that a great
many of your bank statements in the past did not really show the
true conditions of the banks.
Mr. GIFFORD. Whose fault was that?
Mr. CROWLEY. I think it was the fault of the entire system.
Mr. GIFFORD. Do you mean to say that our present national bank
system is not sufficient to show the true condition of the banks?
Mr. CROWLEY. You take the.old condensed statements gotten out
by national banks and State banks for years; they did not show the
market value of their bonds or the reasonable value of their loans.
j Mr. GIFFORD. Did not they show the last demand of the bank
I examiner in connection with the market value of those things?
Mr. CROWLEY. Oh, no; that has never been in a statement.
Let me say this to you. I think that you are starting out on a
different basis now. We are starting out anew, with the banking
system practically rebuilt and values yvay down.
_
Mr. GIFFORD. Do you not see that you are adding considerably to
the present burden of the banks by way of these examinations, and,
secondly, that these examinations may be so irritating that many
banks would rather not belong?
Mr. CROWLEY. No. The great majority of the banks give to our
examiners every kind of cooperation, and do not seem to be irritable
because we are trying to get a true picture of their institutions.
Mr. GIFFORD. Then your answer would be that they would not
object to these things?
Mr. CROWLEY. A certain percentage, yes, would object, but I do
not believe that that is the answer. Our corporation was set up for
the protection of depositors, not for the protection of the bankers.
We are trying to cut the losses to the depositors and of this corporation down to a minimum, and that is what our job it.
Leo T. Crowley and L. E. Birdzell - Paae 2
Mr. BROWN of Michigan. I am .a little bit disturbed about what
might be a duplication, or even a triplication, of the duties performed
by your corporation, the Comptroller's office, and the Federal Reserve Board.
Now, in your very clear statement which you gave to us on du.
first day, and of which we all have copies, you said on page 26-In the future the Corporation should devote a large part of its efforts to
the maintenance of sound conditions among the insured institutions.
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Federal Reserve Bank of St. Louis
Now,it seems to me that that clearly defines just what the duty of
the Comptroller of the Currency now is. Am I right about that, or
wrong?
Mr. CROWLEY. Do you mean in the case of a national bank ?
Mr. BROWN of Michigan. Yes.
Mr. CROWLEY. The only authority that we have, Mr. Brown, over
a national bank or a State member bank is that we have the power
to put them out of the fund just the same as a State bank, after
notifying the Comptroller and the Federal Reserve Board, just as
we notify the State supervisor.
Mr. BROWN of Michigan. I think that your power is greater than
that. You not only have the power to put them out of the fund, but
upon your determination that they should be out of the fund, the
statute is mandatory that both a member of the Federal Reserve
System and a national bank shall then be suspended. Is not that
true?
Mr. BIRDZELL. That would be correct.
Mr. BROWN of Michigan. If you once determined that a bank cannot reniain a member of your fund, then the Federal Reserve Board
must suspend that bank and the Comptroller must appoint you as
receiver.
Mr. BiRbzELL. No; the Federal Reserve Board must see that the
bank is no longer in the Federal Reserve System, and in the case
of a national bank, of course it would result in liquidation.
Mr. CROWLEY. You understand, the Federal Reserve Board has
no authority to appoint a receiver for a State member bank.
Mr. BROWN of Michigan. I understand that. It will appoint
your Corporation, or, if you do not care to take it, some other suitable person as receiver.
In other words, in the power that you have asked, you will have
absolute authority in your board of directors to suspend any bank
in the United States if it is a member of your Corporation.
Mr. CROWLEY. I do not think that there is any duplication there.
I think that we are the only ones that have that power.
Mr. BaowN of Michigan. Of course, the national bank department
has that power with respect to national banks.
Mr. CROWLEY. There is no particular reason why we should not
have the same control of putting a bank out of the fund, be it a
Federal Reserve member bank or a State bank, if they are not conducting themselves in a manner that is going to give to this Corporation the usual safeguards.
Mr. BROWN of Michigan. Well, I think that is true, but I am saying that that gives you the same power that the Comptroller now
has over national banks and that the Federal Reserve Board now
has over Federal Reserve banks.
Mr. CROWLEY. No; the only power that the Federal Reserve Board
has over a State bank is that if they do not conduct themselves
properly, they may put them out of the Federal Reserve System,
but there they stay,
Mr. BROWN of Michigan. That is right.
Mr. CROWLEY. Now, then, the power that we have over the State
banks is just the same as the Federal Reserve Board has over the
,y34— Leo T. Crowley and L. E. Birdzell — Page 3
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Federal Reserve Bank of St. Louis
State banks, but we carry ours further, and we ask for the power
also over a national bank, that we may put them out of the fund.
Mr. BROWN of Michigan. But it does seem to me that we certainly
have a duplication there of power. In the temporary plan or the
permanent plan as it now exists, for instance, in the matter of examinations of banks, you have to accept the examinations of the Office
of the Comptroller.
Mr. CROWLEY. That is right.
Mr. BROWN of Michigan. And the only examinations which you
are empowered to make now under existing law are examinations
of nonmember banks.
Mr. CROWLEY. That is correct.
Mr. BROWN of Michigan. Now, on page 18 of the bill, I think it
is, you ask for the power to examine all banks--Mr. CROWLEY. No.
Mr. BROWN of Michigan (continuing). With the consent of the
Comptroller.
Mr. CROWLEY. May I explain that to you, Mr. Brown?
Mr. BROWN of Michigan. Yes.
Mr. CROWLEY. The reason for that is this. Supposina that the
Comptroller or the Federal Reserve Board has a bank which ia in
difficulty ; under our law, we have asked you for the authority to
buy assets for the purpose of mergers. We may wish to go in with
the Comptroller or the Reserve Board and make an examination to
knovv the position of the bank, in order to try to determine upon a
program that will prevent us from taking too great a loss. In other
words, we will go into a bank with a million dollars in deposits and
buy $250,000 of undesirable assets, and the Comptroller would merge
that with $750,000 in another bank,and that would save us the liqui•
dation of a million-dollar liability where we would be getting off
with $250,000.
Do you get my point?
Mr. BROWN of Michip.an. I get your point, but--Mr. CROWLEY. In order to do that, we have to have the authority
to go into a national bank, and we are only asking for that where
the Comptroller is agreeable that we should' go in with him on that
r) position.
.,Ir. BROWN of Michigan. But it seems to me that even at the
resent time, under existing law, where we have a group of nationalbank examiners under jurisdiction of the Federal Reserve Board,
and a group of national-bank examiners under the jurisdiction of
the Comptroller, each having different duties, we must bear in mind
that we are here establishing a third group of national-bank examiners under your control, with power, I grant you, only upon the
consent of the Comptroller to examine national and member banks
of the Federal Reserve Sys'tem.
Now, mv point is this, that it seems to me that the three departments ought to get together to see if we cannot consolidate you all
into what seems to me to be a logical organization governing all the
national banks of the United States. If we cannot do that, we at
least ought to consolidate these three boards or bureaus into one examining division, that would have authority to examine for all three
of these governmental bureaus, and it just strikes me that the legis-
/
lation is ill-conceived in that respect. We have that provision now
with respect to the Federal Reserve Board and the Comptroller's
office.
Perhaps I ought to say that I think that your Corporation is an
illogical Government organization or bureau to undertake that work,
but it does seem to me that you are placing an unnecessary burden
upon national banks and member banks and forcing them to pay the
expenses of examinations which certainly will be more numerous
than they have been in the past. It seems to me that you are by
this act diversifying the power and authority that the Comptroller s
office has over bank examiners.
Now,if this office is not the right office to handle the matter of the
examination of national banks, let us turn it over to you or to the
Federal Reserve Board, but let us not have three different groups
of national-bank examiners.
1
Leo T. Crowley and L. E. Birdzell - Page 4
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Federal Reserve Bank of St. Louis
Mr. CROWLEY. Mr. BrOW11
Mr. BROWN of Michifran. I believe that it is illogical.
Mr. CROWLEY. I do nobt think that you would have any three groups
of national-bank examiners, to • this extent, that we have examined
only State banks. Now, there is no way under the present law
that anyone else can examine a State bank except the Federal Deposit
Insurance Corporation and the State supervisor.
Mr. BrowN of Michigan. That is true but let me interrupt you to
say that if the law is enacted as you and your Corporation want it to
be enacted, that is with the elimination of nonmember State banks
from the Federal Reserve Corporation, then the argument that you
are just inaking would not apply ?
Mr. CROWLEY. That is correct.
Let me say to you that there is no duplication of Federal examination At this time. I inean by that that the Comptroller examines the
national banks, the Federal Reserve Board examines only the
Federal Reserve member banks, and we examine only the State banks.
Let me add, on this matter of examination, that the Federal
Deposit Insurance Corporation cannot be put off here all by itself
and not be permitted to use the usual precautions that will be necessary in order to keep this fund sound..
Mr. BROWN of Michigan. You have all of that authority under the
existing law.
Mr.' CROWLEY. We have not the authority to do this. All of the
help that we have had so far has been in going into the banks and
working with the State commissioner and, by moral persuasion,
getting the banks to build their capital, make their application to
the Reconstruction Finance Corporation, and things like that.
Mr. BROWN of Michigan. When you made that statement I was
inclined to disagree with you. You made it, in your opening statement. On page 13 of the oriainal act it provides"that such certification to the Corporation by trie'State banking coinmissioner that the
bank is in a solvent condition shall, after examination by and with
the Corporation, be entitled" and so forth. I grant you that great
pressure was brought upon you to be liberal about that, but you had
no legal right under the law to admit any bank that was not solvent,
and, of course, that means solvent not only as to its deposit liability,
but solvent as to its capital.
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Leo T. Crowley and L. E. Birdzell — Page 5
(-)\
.
Mr. FORD. Now, in connection with these examinations, there have
been repeated charges made that there were three classes of examinations made of banks. First they said that the F. D. I. C. made
them, and then that the Comptroller made them, and then that the
R. F. C. made them, and that each one of the examinations called for
a different standard as to the classification of assets, and that they
never knew where they were.
I would just like to ask, is there any basis for that charge?
Mr. CROWLEY. Let me say to you that we have never examined a
national bank and have no authority to do so. The law specifically
says that we shall accept the Comptroller's examination.
I believe that we 'have attempted, in the entire Federal Service,
to try to classify assets as nearly uniformly as possible. The R. F. C.,
on the matter of State banks, has always taken the examination
of the Federal Deposit Insurance Corporation. The only time that
they have ever sent a man in was where there had been some difficulty arising, where perhaps they already had an investment, or
where, when we made our examination and found that perhaps the
bank needed additional aid, or something like that, they have gone
in with us and tried to work out that situation. There has been no
harassing by duplicate examinations of the Federal Deposit Insurance Corporation and the R. F. C. The R. F. C., except in those
unusual cases, has taken the examination of the Federal Deposit
Insurance Corporation.
Mr. FORD. I was very certain that that was the case, but I wanted
to get that in the rec,ord.
Mr. BIRDZELL. May I just add to that one thing that is just an
impression with me, but I am quite certain that I am correct in
asserting it.
I think that about 2 months ago the Reconstruction Finance Corporation announced that it would no longer examine banks, but
would take the examinations of our Corporation, of the Federal
Reserve Board, and of the Comptroller.
Is not that true?
Mr. CROWLEY. They have been doing it.
Mr. BIRDZELL. I think that they made a formal announcement
of that. That is an impression that I have, and we can all check it.
Mr. CROWLEY. Except this, that they do reserve the right to protect their investments.
Mr. SissoN. You mean that they have taken the Comptroller's
examination?
Mr. BIRDZELL. If. they go into a national bank, they take the
Comptroller's examination, and if they go into a State bank that we
are interested in, they take ours. They did that with the idea that
it would remove the criticism with respect to examinations so far
as they were concerned.
Mr. WILLIAMS. Has that been the policy all the time?
Mr. BIRDZELL. It has been the policy quite largely.
J. F. T. 0/Connor, Comptroller of the Currency
Hearings - H. P. 5357
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Federal Reserve Bank of St. Louis
Mr. GIFFORD. You say here that there has been considerable controversy and misunderstanding with referenoe to the examination
of banks; that they may have been harassed by the Reconstruction
Finance Corporation's examinations, by the Federal Deposit Insurance examinations, though you examine but twice a year, but, while
they were only supervisory examinations, they probably did intimidate and perhaps harass some banks by so many of these
examinations.
Mr. O'CoNNoR. First, Mr. Gifford—
Mr. GIFFORD. Comment on that, please, on the slow loans.
Mr. O'CorricoR. There is no harassment of banks by several
inations. No national-bank officer in the United States, at noexamand at no place, has made criticism of a duplication of examina time
because no such thing exists. The only man who has authoritions
step into a national bank to examine it is an examiner fromty tc;
the
Comptroller's office, and you have provided by law that we must
make at least two examinations a year. No other examiner from
the Federal Government ever goes into a national bank, with one,
exception: When a national bank asks the Reconstruction Finance
Corporation to become a partner—because that is what they are
when they buy preferred stock in a bank—when they ask the R. F.
C.
to become a partner, the banker and the Reconstruction Finance
Corporation sit down and agree on how the deal shall be made,
in that deal the R. F. C. and the bank may agree that a R. and
F. C.
man may come in at a certain time and look over their assets
or
check up certain matters, which is a matter entirely between the
bank and the R. F. C. The bank does not have to do that, or the
bank may yield to it, just in the deal between themselves.
The bank has a right to ask that an independent auditing firm
make audits—and many of them do that—aside from our examinations. Many of the larger and better banks have independent audits
made by some of the large auditing firms to be sure that
have
completely checked up on that bank. That disposes of they
the point
of _harassm
ent of different examinations.
_
Marriner S. Eccles, Governor Federal Reserve Board
Hearings —
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Federal Reserve Bank of St. Louis
R. 5357
Mr. BROWN. You will find, two se,ctions later, that special examinations are provided for by the Federal Reserve Board, but I do
not believe that the first section was ever repe.aled. But that is an
academic question; I am not particularly interested in that. But
I believe that the examinations should be conducted by 1 burea,u
of the Government a.nd not by 3.
Governor ECCLES. So do I.
Mr. BROWN. And I think it is a good time to change the law in
that respe,ct. The expense of the Government examination of the
bank is borne by the bank ?
Governor ECCLES. It is.
Mr. BROWN. Not only the examination by the Federal Reserve
Board but the examination by the Comptroller's office?
Governor ECCLES. That is right
Mr. BROWN. Ta,ke a community having 3 banks, 1 a national bank
and 2 member State banks, and you have a great deal heavier expense
upon that bank by reason of a trip by the national bank examiner
and then a subsequent trip for the examination of the other 2 banks
by the Federal Reserve bank examiner; and it seems to me that it
is an unjust and unnecessary expense upon the banks.
Now, the Federal Deposit Insurance Corporation is the only allinclusive bureau with respect to the exa,mination of banks in the
Govenunent, is it not?
Governor ECCLES. I do not understand that the Federal Deposit
Insurance Corporation was given the power to examine national
banks.
Mr. BROWN. Yes; it is under this bill. They may, with the consent of the Comptroller of the Currency and with the consent of
the Federal Reserve Board, examine any bank.
Governor ECCLES. Yes.
Mr. BROWN. National banks or member State banks.
Governor ECCLES. Yes.
Mr. BROWN. I say "an all-inclusive bureau ", with respect to the
examination of banks, because of the fact that they, of course, include all national banks, all meniber banks in the Federal Reserve
System, and a great many nonmember banks; in fact, all nonmember banks which are in the Federal Deposit Insurance Corporation. That is a fact, is it not—that they cover them all ?
Governor ECCLES. They cover them all.
Mr. BROWN. And the only banks in the country that they do not
cover are the uninsured banks, which are very few in number?
Governor ECCLES. That is correct.
Mr. 13RowN. I think I will close that part of the discussion by
this: I understand that you, yourself, feel that it would be best if
we could have one examining authority to examine all the banks
of the country.
Governor ECCLES. Let me first state that the existing duplication is
not as serious as it appears on the face of things. The Reconstruction Finance Corporation make no examinations, as a regular thing.
The examinations they made were in connection with subscriptions
to preferred stocks and debentures; and those examinations were
made only once, at the time they were determining their investment in the capital stock of the particular bank.
Mr. BROWN. And,to be perfectly fair, I understand now that they
are not, making even that, examination. They are accepting the
other examinations.
Marriner S. Eccles — Page 2
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Federal Reserve Bank of St. Louis
/ 3trGovernor Emma. That is right; and they have always accepted
the other examinations, except in very important instances, where a
great deal of money was involved and there was a good deal of
question about the bank.
The Federal Reserve Board only examines the member State
ba-nks. Their examinations are usually made along with the State
banking examinations, so as to avoid duplication. The Comptroller's
office examines all national banks. No other agency examines national banks. The Federal Deposit Insurance Corporation makes
no examination of national banks and makes no examination of
State member banks but examines the nonmember State banks, along
with the State banking departments, so as to avoid duplication
there, so that there is really not the duplication in actual examinations that would appear on the face of things.
However, there is, of course, a division of the examining authority between the 48 State banking departments, with reference to
State banks, and the Comptroller's office with reference to the national banks, and the Federal Reserve with reference to the State
member banks, and the Federal Deposit Insurance Corporation with
reference to all banks. There is not any question that you would
get a much more general unification of the policy in making examinations if the examining were all done under the direction of one
organization.
Mr. BROWN. You certainly would eliminate the duplication of
organizations.
Governor ECCLES. That is right. You would eliminate the duplication of organizations, more than duplication of examinations.
Mr. BROWN. 01', we might say, triplication of organizations.
Governor ECCLES. Yes, sir; you would do that; and you would
make, probably, for a greater unity of examination policy, which
has been very sadly lacking. However, there has been a great
amount of work done in the past 6 months with reference to improving the matter of unifying the policy as to examinations. The
Comptroller's Office, the Federal Deposit Insurance Corporation,
\ and the Federal Reserve have had a great many meetings7 and much
progress has been made toward the development of unification of
examinations.
_
11
The CHAinmAx. Do you think that one system of examination,
under one standard, is more likely to uncover or disclose fraud in
the conduct of a bank than two examinations?
Governor ECCLES. As a matter of fact, there is only one svstem
in effect now. As I explained, the Federal Reserve accepts the
Comptroller's examinations of national banks. If the banks were
required to pay the examination expense of all these independent
agencies, they could be constantly harassed and bothered with two
examinations a year from each one of them; and I cannot see how
they could endure it. As it is today, the banks are pretty well I
harassed.with examinations and with the various reports that they I
are required to make to the various agencies, which is a great
expense to them.
The CHAIRMAN. Are not the reports worse than the examinations?
Governor ECCLES. They are both bad enough, but neces-,ary.
The CHAIRMAN. From what I have heard, it would appear that
the reports are worse than the examinations.
4.1,====1,MEMNII
J. F. T. O'Connor, Comptroller of the Currency and
Mr. Brown of Michigan
Hearings — H. P. 5357
The CHAIRMAN. Mr. Brown, you had some further questions.
Mr. BROWN of Michigan. I asked questions of the representatives
.of the Federal Deposit Insurance Corporation and of the Governor
of the Federal Reserve Board on this matter, which to me is of
considerable importance, the duplication of organizations that we
have and propose in this bill for the examination of banks.
I want to say now that I think that the examining division of
the Comptroller's office has been most efficient and has done an excellent work, particularly durina this period of bank difficulties. I
feel that the criticism made ofmy views on this thing is to a certain
extent justified, and that there is not a great deal of duplication
of effort.
In section II of the bill we have the first and possibly the second
instance of where we provide for two Government examinations.
Calling your attention, Mr. O'Connor, to that, the section provides
in substance that the Federal Deposit Insurance Corporation may
examine any national bank upon the written consent of the
Comptroller.
Now, my purpose in bringing up this subject is to see if we cannot avoid duplication of organizations in the matter of the examination of banks. Going back a little into the history of the lecislation, when the Federal Reserve System was set up, undoubtedry the
idea of those who wrote the law was to provide for examination of
Federal Reserve banks by the Comptroller's office, and the law still
so provides, but by subsequent enactment, and, I think, Mr. Wyatt,
that was about 1921?
Mr. WYATT. June 21, 1917.
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Federal Reserve Bank of St. Louis
Mr. BROWN of Michigan.•In 1917 the provisions of section 481 of
the United States Code, insofar as they apply to the examination
of Federal Reserve member banks were eliminated, and I understand now that your office does not' designate any examiners out of
your staff for the purpose of examining member banks of the Federal
Reserve Sptem which are not national banks. Is that a fact?
Mr. O'CoNNoR. Yes. There is one examination a year, as I understand it, made by the Federal Reserve Board of their member banks,
because there are also the State examinations of those institutions.
Mr. I3RowN of Michigan. I think that in section 330 of the United
States Code, the idea was that it was hoped that the State examinations would be sufficient to satisfy the Federal Re,serve Board, but„
as a matter of fact, we have a considerable force of examiners now
under the Federal Reserve banks' jurisdiction, of the individual
banks, I take it, rather than the Federal Reserve Board.
Now we are proposing to set up an examining division in the.
office of the Federal Deposit Insurance Corporation. Therefore,
if we include the Reconstruction Finance Corporation, which likewise had a corps of examiners, and I think have some yet, we have
four Government agencies at the present time examining banks,
and if we eliminate the Reconstruction Finance Corporation, we have
three, assuming that H. R. 5357 goes into effect as written.
Now,I recognize that it is going to be difficult to settle this problem before we settle the problem of the right of nonmember banks
to the benefits of the insurance provisions of the law. I realize.
that that is a big problem that perhaps ought to be settled first,
but I made this statement, having in mind the hope that the Treasury
Department, the Federal Reserve Board, and the Federal Deposit
Insurance Corporation can present some plan to this committee by
which this duplication of organization can be eliminated.
It seems to me that a national bank ought not to have two governmental masters, that the regulations ought to come from one general
head. one banking department.
Z.F.T. O'Connor — Page 2
92z4,,
,
‘/Y,Ar"
j
I also recognize, Mr. O'Connor, that this is a statement, rather
than a question, but I do want to ask you if you do not think that
more efficient examination of our banks could be had if we consolidated the examining departments that we now have into one
organization?
Mr. O'CoNNon. Mr. Congressman, you have made a very clear
distinction that is not usually made by people who talk about theduplication of examinations by Federal agencies, of which there is
no such thing, and you have made a very careful discrimination between those, and you are correct in that statement where you referred to different agencies making examinations rather than duplications of examinations.
There is no such thing in the Federal Government as the duplication of a single examination. In the first place, there is no examine'. that enters a national bank except an examiner who is duly
authorized to enter that bank on authority of the Comptroller of
the Currency, with one exception. If the bank invites the Reconstruction Finance Corporation to become. so to speak, a partner in
that bank, as it does when it makes an investment in the preferre(I
stock of the bank, then the bank and the Reconstruction Financk.,
Corporation. like any two contracting parties, sit. down and niake.
)
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Federal Reserve Bank of St. Louis
1
1
any agreement or arrangement that they want to make. I have
nothing to do with it at that stage of the proceeding. The Reconstruction Finance Corporation can say,"We insist on having the
-examiner go in here once a year." That is all right if the bank
agrees to it; I will not complain. The bank can invite in, as some
of the larger do, certified public accountants and auditors, and they
laxe the right to do that. I am merely making the point that at
no time does anyone enter a national bank except the duly authorized representative of the Comptroller's office.
The national banking act provides that I must examine national
banks at least twice a year, and oftener if found necessary. The law
also provides that the Federal Reserve Board may examine banks
in special instances, and, as I understand it, they examine their
member banks once a year, and the State examiners examine them
.once or twice, or whatever the State law provides.
Now that brings us to the third exanunation, and that is by the
Federal Deposit Insurance Corporation. There is a question as to
just how far that examination should go, and what the regulations
should be wit.h respe,ct to it.
We must never forget that that is an insurance corporation, and
we have insurance corporations in this country which are underwriting bonds against embezzlement, theft, robbery in State and national
banks in this country, carrying a liability of many hundreds of millions of dollars, and when they pay a loss, as they had to do in about
.every month in the days past, there is no subrugation, there is no
right. That is a complete, straight loss. Those insurance companies
underwrite those losses, and have no recourse, so to speak, against
the assets of the bank at all. They just write a check for $50,000, or
1100,000, or whatever the amount may be and they have no right of
examination, or no right to go into any of these banks.
I am just pointing that out--Mr. BROWN of Michigan. You are not speaking of the Federal
Deposit Insurance Corporation?
Mr. O'Comktoa. No; private companies that are insuring against
embezzlement, robbery and all of those things, that carry that with.out.examination at alf, and that have no subrugation rights.
Now,it is for the committee to determine just how far they want
the Federal Deposit Insurance Corporation to go, or what attitude
they should take toward these State banks, which are not chartered
by the Federal Government, and with the States jealous of their
supervision over them, and where their examinations are in good
shape, properly so, and some of the States are very proud of their
examinine system.
•••••
J.F.T. O'Connor — Page 3
9)1‘
&14/f.),C
I just ;mit to point out, in passing, that the Federal Deposit
Insurance Corporation has 16 percent of the total deposits
outside
of the Federal Reserve System. In other words, 84 percent
of the
deposits are in the Federal Reserve System. As to 16 percent
of
those outside of the System, your examinations would apply so
far as
the Federal Deposit Insurance Corporation is concerned.
Now, in the national banking system, as you know, we have about
5,467 national banks, about 3,000 less than we had at the peak,
and
the State member banks of the Federal Reserve System, as I remember, number about 976.
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Federal Reserve Bank of St. Louis
So we have three things in mind in discussing your problem
, Mr.
Congressman; that is first, that the Comptroller's office is responsi
ble
for the examination of 5,467 national banks. You have giVen
limited
examination to the Federal Reserve Board over 976 banks, and
the
Federal Deposit Insurance Corporation has 16 percent of the total
deposits, so that there is no duplication of examination, but there
are,
as you well pointed out, these agencies examining these particul
ar
banks; but that is a matter for this committee.
Mr. BROWN of Michigan. Well, of course, under section 11
Mr. O'CoNNoR. I wanted to discuss that, Mr. Conpressman. You!
called attention to that, and here is the reason for it7 and I think it
is very important.
The Federal Deposit Insurance Corporation, if you pass the bill
as it has been suggested to you, will give us the right to buy the assets
of a bank before we have to close it. If it is a bank getting into bad
shape, it is worth more as a going institution if we can go into that
town and buy it or merge it, and the Federal Deposit Insurance
Corporation in those instances may say,"We would like, if we should
disagree with your examination, the right to go in there and make an
examination in event we are going to buy the assets ", and we say that
we have no objection, that we will give them the written permission to
go in there, and that is the only reason that that was put in the bill,
Mr. Congressman. We cotild not write it in. but I am glad to ele:tr
that up.
Mr. BROWN of Michigan. That is the only reason for it?
Mr. O'CoNivoR. That is the sole reason for it.
Mr. BROWN of Michigan. Well, do you think, Mr. Comptroller,.
that it would be advisable for the Government to give consideration.
to the question of turning over the matter of the examination of
banks to one governmental agency?
Mr. O'CoN:con. I know, Mr. Congressman, that you will appreciate my embarrassment in answering that question. It is just not
quite fair to ine to answer it, because each of us would probably
say,"Why yes; we will do it '', so that I would rather leave it to
the committee. Whatever you fellows do, we will do at our end
of it.
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Federal Reserve Bank of St. Louis
EXC MPTS
EMPIRF FO1
ir.)7F.1
Detter folders for Letter files
306S
Send your Order to the nearest "Y and E"
Representatives or to our Home Office
YAWMAN
AND
ERBE MFG.O.
Main Factories and Execut!ve
ROCHESTER, N. Y.
Drandies arkl ."\::n!s in all Principal Cidea
J. F. T. 0'Connor, Comptroller of the Currency
Hearings — S. 1715 and H. R. 7617
April, 1935.
Now,the question I would like to clear up, Senator, is the question
of the so-called "duplication of examinations." There is no such
thing in the Government as duplication of examinations. There is
no one who enters into a national bank, except an examiner who is
duly appointed by the Comptroller of the Currency, with the approval of the Secretary of the Treasury, as the law provides, except
in one instance. If the bank makes a deal with the Reconstruction
Finance Corporation, and the bank and the Reconstruction Finance
Corporation go in as partners and provide for some kind of an
examination, it is entirely a voluntary matter between the bank and
the R. F. C. That is the only instance in which anyone goes into a
bank except a duly accredited representative of the Comptroller's
office.
The Federal Reserve Board examines State banks, and that work
is done in cooperation with the examiners of the various States, making examinations,I believe, once a year. The law requires the Comptroller to make two examinations every year of national banks.
Now, the only other agency that makes examinations in Washington is the Federal Deposit Insurance Corporation, and they examine
State nonmember banks which are members of the fund. And no
other agency goes into those banks on the part of the Federal Government.
I want to say that I have not found any complaint, or none has
been registered so far as I know as a member of the three offices or
departments, that there has been any criticism on the part of the
States directed against the Federal Deposit Insurance Corporation,
or the Federal Reserve Board, in working together for the examinations of those State banks. I have not found any on the part of the
States. And I want to be sure to clear up the question that there is
no duplication of examinations. I have seen many statements made
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Federal Reserve Bank of St. Louis
64
BANKING ACT OF 1935
that examiners from two or three departments go into those bankxwhich is not true.
Senator GLASS. Well, while it is practically a fact that there may
be no duplication of bank examinations, as a matter of law the
Federal Reserve Board is authorized at any time it pleases to examine
a member bank.
Mr. O'CONNOR. The law provides it may make special examinations, Senator.
Senator GLASS. Yes.
Mr. O'CoNNort. Yes; that is the wording of the law, which they
have never exercised, because they have access to our records.
Senator GLASS. They have access to all your data ?
Mr. O'CONNOR. Yes, sir.
Senator BYRN-Es. Your contention is, as a practical matter, then,
there is no duplication?
Mr. O'CoNNoR. There is no duplication. There are no two examiners that go into a bank representing the National Government,
which is duplication of examination, Senator.
1
J. F. T. O'Connor — Page
Senator GLASS. But when all of those State banks come into the
Federal Reserve System, as they are required to do by July 1, 1937,
will they be examined by the Comptroller's office or by the Federal
Deposit Insurance Corporation?
Mr. O'CONNOR. Well, if they become members of the Federal
Reserve System, then, of course, they would not, under present
statutes of Congress, be examined at all by the Comptroller's office,
under the present statute.
Senator GLASS. Well, they would be examined by the Federal
Deposit Insurance Corporation examining board?
Mr. O'CoNNon. No, sir.
Senator GLASS. And then that would not constitute a duplication ? You would not examine them?
Mr. O'CONNOR. No; I would not examine them.
Senator GLASS. And the Corporation would not examine them?
Mr. O'CoNNoR. No; the Corporation would not examine them.
There would be no necessity.
Senator GLASS. They would be examined under the authority of
the Federal Reserve Board?
Mr. O'CoNNoR. Yes; just as they accept their examinations nov:.
Senator BYRNES. So far as the banks are concerned, they are not
annoyed by duplication of examinations?
Mr. O'CONNOR. No, sir.
Senator BYRNES. But the fact is the Government has two sets of
examiners under the present organization?
Mr. O'CoNNoR. Yes. sir.
Senator BYRNES. Making examinations?
Mr. O'CONNOR. Yes. Now, that is the proper way to state the
whole problem that is so misunderstood.
Senator GLASS. Under the law the Corporations—I mean both the
Federal Reserve Board and the Federal Deposit Insurance Corporation—have access to your data?
Air. O'CoNNoit. Yes, sir.
Senator GLASS. Your examinations of banks?
Air. O'CONNOR. Yes. Senator.
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Federal Reserve Bank of St. Louis
•
BANKING ACT OF 1935
65
\
Now, here probably is the foundation for the criticism tha some\times comes with reference to those examinations, to be very pointe&
If you have a town, which happens very often, where you have got a
national bank, and you have got a member bank, and you have got a
State nonmember bank in the town, you have got three sets of
examiners from the Federal Government going into that town; you
have got the national-bank examiner going in there with his assistants, and he has no authority to go into the others; you have the
Federal Reserve Board examiner, with his assistants. going in there;
and you have the Federal Deposit Insurance Corporation examiner
going in there.
J. T. Pole, Comptroller of the Currency
Hearings — S. Res. 71
/9
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Federal Reserve Bank of St. Louis
/
CHAIRMAN. Mr. Comptroller, to begin at the beginning, it has
been periodically suggested that the office of the Comptroller of
the Currency be abolished and its functions transferred to the Federal Reserve Board, and the reason given for such a suggestion is
that there is a large duplication of functions. Do you concur in
that belief that there is a large duplication of functions ?
Mr. POLE. I do not see, Mr. Chairman, that there is any duplication of functions. If the comptroller's office were attached to the
Federal Reserve Board, they would necessarily have to designate
somebody to take charge of the comptroller's duties, and while the
Federal Reserve Board has the right, and does make examinations
of banks from time to time, I think that the board is generally perfectly willing to rely upon the reports of the comptroller's office and
indeed of the State superintendents of banks, and where they are not
they have the right to make their own examinations. Moreover, th
Federal Reserve Board is a deliberative body, whereas the function
of the comptroller are primarily executive.
•
Excerpts from a letter to Mr. Leo H. Paulger from L.— M.___Clark of the
Federal Reserve Bank of Atlanta dated November 30, 1936
"Another examination has just been completed of the Savannah
Bank and Trust Company and practically the same violations are again
reported. During the examiner's discussion of the matter with the
management of the bank, it developed that other banking institutions
in Savannah have not been reouired to adhere to the provisions of the
regulation and for that reason difficulty arose in the attempt to
effect thP desired corrections, especially as to the public funds
so carried.
"There have been other instances in this district where correction of violations of this nature have been difficult due to
similar situations as outlined above, and information given by
the banks that other banks in the same community had not been renuired to remove accounts from the savings department where they
were carried in violation of the provisions of Regulation Q. Accordingly, in view of the difficulty experienced, we are attempting to obtain the cooperation of the Chief National Bank Examiner
of this district in an effort to have the provisions of the regulation-carried out by all member banks."
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Federal Reserve Bank of St. Louis
SOURCE: AnnuAl Report of the Secretary to
Pa. Bankers Association (Charles F.
Zimmerman, President, First National
Bank, Huntingdon) about May 2l, 1936
The Bankiu Board
It is a privilege to express the confidence felt throughout the Commonrealth because of the marner in which the plans of Secretary of Banking,
Luther A. Harr, have materialized since the Scranton Convention, in setting
up the Banking Board as an arm of the State Government in supervising state
chartered banks and trust companies and trust departments of national banks.
The authority conferred upon the Banking Board together with its present
personnel, assures a continuance of sound reFulatiens and administrative
policies within the Banking Department, and is a considerable guarantee
against undue political influence in tl-e conduct of the work of the Department. Opinion of our bankers iE to the effect that the establishment of
the Banking Board marks a real step in advance for an even stronger banking system for Pennsylvania.
Mistaken StTervipou Policy
Sensing from correspondence with members of the Association, many ner
problems arising nowadays in practical banking, it is difficult to avoid
expressing the thought that constant aggressions in the field of banking
by federal authorities, have brought to the forefront the grave necessity
of aggressively upholding states rights in banking, if the normal processes
of banking in America are to be preserved to us for the future.
A serious question in point has been projected by recent federal
legislation under regulations authori2ed by the Banking Act of 1935. Trust
departments of national banks in this state presumably may be no longer
guided
by the Pennsylvania Fiduciaries Act, but instead are expected to submit to
certain methods prescribed in Regulation F issued by the Federal
Reserve
Board. I refer to the action by Federal authorities to upset
the established
method governing oilr investment of trust funds held by a
national bank trust
department under the jurisdiction of the County Court,
in prohibiting participations in mortgages owned by the commercial departmen
t of the bark, and
eligible for trust funds under our Pennsylvania Fiduciari
es Act.0
Such needless ham-stringing of the natural functions and
obligations of
corporate trustees, persuades one that these steps at
Tashington should be
promptly retraced for the good of all parties concerned.
Neither any banker
nor any other thoughtful person needs to be reminded that integrity
carnot
be lerislated into the conduct of trust department management. It is
vain
to assume that such a prohibition as the foregoing, governing the
normal
and long established method of investing trust funds by corporate
trustees,
can by any means whatsoever promote more honorable intent or
wiser discretion, on the part of the trust investment committee of any
bank. Laws of
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Federal Reserve Bank of St. Louis
1GA5
• Ai
•
SOURCE: Annual Report of the Secretary to
Pa. Bankers Association (Charles F.
Zimmerman, President, First National
Bank, Huntingdon) about May 21, 1936
The Banking Board
It is a privilege to express the confidence felt throughout the Commonrealth because of the manner in which the plans of Secretary of Banking,
Luther A. Harr, have materialized since the Scranton Convention, in setting
up the Banking Board as an arm of the State Government in supervising state
chartered banks and trust companies and trust departments of national banks.
The authority conferred upon the Banking Board together with its present
personnel, assures a continuance of sound regulations and administrative
policies within the Banking Department, and is a considerable guarantee
against'undue political influence in the conduct of the Tork of the Department. Opinion of our bankers is to the effect that the establishment of
the Banking Board marks a real step in advance for an even stronger banking system for Pennsylvania.
Mistaken Supervipou Policy
Sensing from correspondence with members of the Association, many
ner
problems arising nowadays in practical banking, it is difficul
t to avoid
expressing the thought that constant aggressions in the field of banking
by federal authorities, have brought to the forefront the grave necessit
y
of aggressively upholding states rights in banking, if the normal processes
of banking in America are to be preserved to us for the future.
A serious question in point has been projected by recent federal
legislation under regulations authorized by the Ranking Act of 1935. Trust
departments of national banks in this state presumably may be no
longer guided
by the Pennsylvania Fiduciaries Act, but instead are expected to submit to
certain methods prescribed in Regulation F issued by the
Federal Reserve
Board. I refer to the action by Federal authorities to upset
the established
method governing our investment of trust funds held
by a national bank trust
department under the jurisdiction of the County Court,
in prohibiting participations in mortgages awned by the commercial departme
nt of the bark, and
eligible for trust funds under our Pennsylvania Fiduciar
ies Act.0
Such needlesF ham-stringing of the natural functions
and obligations of
corporate trustees, persuades one that these steps at
Tashington should be
promptly retraced for the good of all parties concerned.
Neither any banker
nor any other thoughtful person needs to be remin(led that integrity
carnot
be lerislated into the conduct of trust department management.
It is vain
to assume that such a prohibition as the foregoing, governing the
normal
and long established method of investing trust funds by corporat
e trustees,
can by any means whatsoever promote more honorable intent or
wiser discretion, on the part of the trust investment committee of
any bank. Laws of
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Federal Reserve Bank of St. Louis
•
this type tend most of all to throw disparagement upon thousands of conscientious bank officers, whose problem it is to keep in operation high-grade, correct trust practices day in and day out. It is fair to say that E0 far es
Pennsylvania is concerned, this provision in Regulation F, is devoid of all
merit as a practical measure.
Many similar instances can be provided to establish the unwisdom of
supervisory policies now in vogue out of Washington. The influence of the
Pennsylvania Bankers Association shonld be felt in the direction of finding neans for having supervision made a serviceable instrumentality rather
than a basis for obstructing the normal and necessary activities of good
banking.
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Federal Reserve Bank of St. Louis
'Vac
•
SOURCE:
NORTHAESTERN BANKER----JULY 1936
Pages 49-51 (THE IOWA CONVENTION)
---DEPOSIT INSURANCE"
"NET BANKING SAFEGUARD,
Phillips L. Goldsborough
Director
Insurance Corporation
Deposit
Federal
"I would like to point briefly to five things deposit insurence
has done for you which are outside the intrinsic benefits of the law
and in addition to the common bond it has given you.
"First, there has been the program of capital rehabilitation which
I mentioned earlier. Next it has made available to those banks which are
not members of the Reserve System the counsel and advice of examiners of
wide experience, men whose contacts have been national in scope and who,
consequently, bring a broader understanding to bear on the probltms of the
individual bank. Also, with your State Banking Department it has worked
toward the setting up of uniform examinations and has made its examinations
concomitantly with the state authorities wherever possible.L_Again, in cooperation with your State Banking authorities, it 1.8 rapidly gutting into
shape a 'condition report form' which will answer the needs of both and
save you what would otherwise be needless duplicatios) Fourth, it has
extended to all insured banks the benefits of the /ederal Reserve regulations concerning the payment of interest on demand deposits a source of
saving to all of you. Lastly, the fiscal policies of the corporation have
been such that the Temporary Federal Deposit Insurance Fund was liquidated
without cost to you and the entire amounts of the assessments you have paiC
into it were carried over into the Permanent Deposit Insurance hind as
credit against future payments.
"The corporation stands ready to cooperate and will do everything
within its power to help, but the primary responsibility for building
today a strong foundation for tomorrow's business, rests with you. It is
a social and a moral duty which each of you must face in his own community.
Po group of people has a greeter challenge. You are in a very reel sense
the hope of the countr;: for a sound system cf banking. In your vision and
leadership lies the way to new prosperity."
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Federal Reserve Bank of St. Louis
SOURCE:
NORTHWESTERN BANKER----JULY 1956
IOWA CONVENTION RESOLUTIONS
Page 54
We appreciate the benefits derived from the Federal Deposit
Insurance Corporation as an insurance corporation and believe that
the insurance has been e contributing factor to the stabilization of
banking. however, we disapprove any program of the FDIC whereby the
corporation usurps or dominates any powers now resting in the hands of
the superintendent of banking.
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Federal Reserve Bank of St. Louis
Report of the Trust Committee
46th Annual Convention
Ohio Bankers Asso., 1936
(The Ohio Banker, June 1936)
* * 4, * * * * *
During the year, the Trust Committee also has given study to and
favors a uniform fiduciaries act.Consideration of the law and practice
Y'll;
of requiring bond from Ohio corporate fiduciaries continues. The
question of the practice of law remains in the picture in some parts of
the state and litigation is being closely watched with an eye to a
possible statewide decision, if this matter is to be determined by the
courts.
1//
It should be noted here that during the year, state examination of
trust departments in national banks was terminated. This is now done by
Federal examjnation.
/
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Federal Reserve Bank of St. Louis
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ICO,rj
•
Discussion on the Address of Mr. Fisher
Proceedings of the 54th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935
Mr. Bates (Iowa): * * * * * * * * The delay, it seems to me, in
which we are placed, by the many things that have to be covered before
a thing can be accomplished--in our district we haye a law that
authorizes the banking institutions to establish offices in towns where
there are no banking facilities, not a separate corporation but a small
office for the purpose of furnishing that community_ with banking
facilities. The parent bank must keep the original books at the bank;_
there is no capital fOr the office, merely an office in a community,
that cannot support and has no business for a bank but still the people
of the community have a right to some banking facilities. Now, sinqe
September 22, 1935, we must get the consent of the FDIC before that
office can be established and there must be an insrection made by a
representative of the FDIC to ascertain; first: whether the bank has
sufficient carital to establish the office; and second: whether the
office is necessary. You know, I think the FDIC or any other federal
agency ought to have some confidence in the men who represent the
state. Without intending to criticise, I do not believe you fellows
were selected, whether appointed by the Governor or by the Legislature
or how you came into office--you were not selected because of your
dumbness but were selected because of your ability to perform the
thing for which you were selected and you are supposed to have some
intelligence and h5ve had some experience and be fairly, at least,
qualified to fill the position you occupy. Now, these gentlemen were
selected in the same manner to perform the functions of the things
they are doing the same as we are. Now, the FDIC have rerorts_there_
of their own or any of our states, they have a copy of our examination
reports of that particular institution and those rerorts are recent,
they are_not_a,_year old, not more than six months old at any time,
and it seems to me they could facilitate thins by taking the examination report instead of doing this: they send us a form and we inake
out an application and re are recuired now to have the bank make out
. an application and send it in. It goes to our district supervising
authority and from there to Washington and when it gets in there,
what do they do? They send back to the district supervisinr authority
a request for him to go out and make an examination of tbe situation
of thPt bank, it is not a real examination but he must make a viPw of
the situation, so to speak, and make a report back before we can
establish that office. I think we ought to be able to, with the
FDIC supervising examiner there and our supervisinc, examiner in my
department, we ou:ht to be able to get together and know whether that
office should be established or not. * * * * * * * *
I have made two or three notations here: The question was asked
this morning of Mr. Crowley with reference to the amount of bonds
required. Now, in every examination report that is made by the FDIC
there is this notation: "Bonds of office insufficient" or "is sufficient."
Our law does not prescribe the bonds the bank is required to give. I
think it is difficult to make any fast rigid rule, I don't think it can
-e7a,
be made by law, but there should be some basis upon which we should get '
4
'
4
*4
suggested
together
As
and
no*
be
too
high.
fix
the
bonds,
and
it
should
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Federal Reserve Bank of St. Louis
by Mr. Crowley, every officer in every bank should be bonded. These are
only strengthening the service. There are many things, it does seem to
me, can be simplified by the FDIC authorities and the state authorities
getting together and making theoe examinations and these contacts more
imply and with some dispatch.0 still repeat what I said the first
day of our convention: that the FDIC is an indispensable organization
in the banking system of this country and it is the duty of every supervisor, as I see it, to give his full cooperation with that organization
and support it to his utmost and at the same time protect his state
organizations because I think that it was the state banking system of
this country that built up the middle west as far as that is concerned,
and without it we cannot go on further and progress as we have in the
past. If there were some way--I doni t know what suggestion to make
about it but if there were some way the representatives of the FDIC
and tne committee of supervising authorities could get together and
work out a plan by which many of these things could be simplified it
would save not only the corporation annoyance and expense but would save
us a lot of it and facilitate our work very greAly'.
r
1
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Federal Reserve Bank of St. Louis
******
** **
>
•
SOURCE:
THE MISSISSIPPI BANKER - MAY 1935
ADDRESS OF m. D. BRETT, State Comptroller, Dept. of Bank Supervision
Pages 36-37-38
* * ** * ****
With the various rules and regulations I have mentioned and
others that will be issued from time to time, you no doubt think
of top heavy bank supervision. But may I call to your attention
that these are not merely to bring about a proper understanding and
observance of the law, but are also made in the interest of uniformity,
to the end that all will be proceeding along the same lines. When
this is accomplished the exPminerls time in your bank will be lessened.
The objections that are now common, and whicn form the basis of
suggestions and criticism, will be eliminated. The time of your directors and officers will be saved to be devoted to the important duties
of the bank. I am persuaded to believe that as soon as we demonstrate
our ability to the F.D.I.C. and other governmental supervising agencies
to efficiently supervise and examine banks, and to bring to them
information needed to form conclusions, and impress them witn our
desire to observe the law on every hand, just so soon will we lighten
our burdens in this respect. We are not nnmindfUl of the wonderfnl
work done by the R.F.C. in rehabilitation as a vehicle for capital
structure and the fine work done by the F.D.I.C. in qualifying our
banks for deposit guaranty, and may I say that I have found these
agencies very co-operative with us in our program. We must admit
that their interest is such in the banks that they are entitled to
all the information they desire and assistance in seepg that our
State laws governing banking are observed. I believelpur banking
law is fairly sufficient when observed in every respect along with
the observance of sound principles of banking. Sound banking practices
will do more than any one thing to preserve to us what we are pleased
to call State rights for our banks. There should be close co-operation
between this Department and the F.D.I.C. as a regulatory and examining
body and to this end both departments are striving, and thus far we
have accomplished some satisfactory results on various matters which
in many ways will result in benefits to you. At this time we a're
working on a revision of our examiners procedure and reports to bring
them in conformity with F.D.I.C. procedure and forms with supplemental
portions bringing in matters that we see when examinations are not
jointly made. L.
P.ilso other forms you have to make are being reconciled
to the F.D.I.C. and other Governmental forms required when State
banks are members of the Fedcral Reserve System to the end that when
a call for report of condition or other information comes out the
figures compiled may be used for all call reports by your bank:7)
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Federal Reserve Bank of St. Louis
'
1
tri48
-2-
The lississippi Banker - May 1935
M. D. Brett
Pages 56-37-38 (contd.)
Immediately after taking office I began discussions with the F.D.I.C.
through its Supervising Examiner for this district, Mr. W. Clyde
Roberts, to see if our work could not be made more uniform and
duplication of efforts, wherever possible, eliminated and I have
found him very co-operative and sympathetic with our problems and
with the employment of extra examiners we have just been able to
complete a tentative schedule which in the main will result in joint
examinations, subject of course, to withdrawal at any time it proves
not to be feasible. Uniform procedure with respect to other matters
is in sight, wita certain exceptions. Therefore, with uniform examination procedure and forms, call reports and as many joint examinations
as are possible, and joint agreement as to criticism and suggestions,
we believe your work will be simplified and lessened and good will
promoted between the F.D.I.C., our Department and the banks' officers
and directors. As I see it now, under the law, sole enforcement of
the laws rest with the State Supervising authorities of the respective
states. But the exposure of the F.D.I.C. from the standpoint of
deposit guAranty is auch as to entitle it to every consideration. Cooperation from State departments having jurisdiction over bank supervision to the end that all requirements tending to sound banking are
met is highly necessary and this department is giving the F.D.I.C.
whole-hearted co-operation. Although the proposed amendments to the
Banking Act of 1933 of the U.S. carry power to enforce its rules and
regulations and the law, yet I believe that if our bankers can
demonstrate that they can manage their banks and are co-operative,
and if the State Department of Banking properly supervises and examines
the banks and sees that the law is observed, notwithstanding this right,
which is recited as "may" instead of "shall" in most places in the
amendments, States' rights in banking will yet be preserved to a great
extent, in so far as the F.D.I.C. is concerned. I-As a further aid to
this end we have installed an efficient tracing system and your call
reports are reviewed and anything revealed therein needing correction
we bring to your attention as soon as possible for correction prior to
examinations. Thus we should be able to solve much of our supervising
overload through co-operation of all concerned.
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Federal Reserve Bank of St. Louis
111111.
100• S. Banking Problems* by Dr. Gaines It.
Carttalkoswa /ow Tork liniversity
(Journal
of the Canadian Bankers. isso., Ostobert 1935)
*
* * ******
In spite of the bousseleseirng ehialk has taken
amber et small institutions whisk have irne pima place, there is a large
in the Amorieme banking
strrneture ampt of bresehes of strum miingelitee
entire Maim situation mild be greatly bernefited imetiletleme6 the
IN, the graduel externeise cf km* bembim es that all sissable amen
ities amid have adeOat* ead sere beskleg servime without takimg the
smell local lestitmtlem boodle the beldam doriesOhm's ihilt ems Am
bed yam. ?he Federal
Goverment emernet safeli amens ibis buries thro
lhe
ugh
PIM 'the affairs
of the latter ere goiag alms very *imply at prOS
OM4,
beef
ier, bemuse af
the resent beseeelemalag, but all such mam
as mai their bestim time
eel, after years have elapsed.
•* * * * * *•
'be problem of lams Is clemly seaseeted
natio** reciired by the vesieme autherities4 with the type et bask semilerne %Mk ammirners have made
It mere difficult for beaks to inerease looms Aerie,
the past tee years beams. ef Incomearily rigid regeireemis4
geMerel Stott arnmeinere hare
bess the met lemismt* Mona aseerve beak ellooloosi
r Quite strict bet set
as severe *a latlenal beak smOirnerso SIM a mete
s of maltiple smemimatise
provosts banks male( spy leans except them ehleh
are extr
et Short diseAdernip and it mold appear oafs ase te relax emely Heald mid
the rules semelhat.
illerndardisetem of beak eaukeinatiotus and amestratios of sash
swat within
erneergenisatiem is lapoostive•
lios (kited Auto. seeds a unified basking stru
tter*. All Mote Woke
Mould be remised te joie the Poisral %serve
Spot
s% and as seen as expodisot all member, of the system should be put
lede
r astiasal Shorter. The
trend tolordusifisatien bee bees mem in seve
ral respeets bemuse the
pelbeet 404 belkieg system me le se small my responsi
ble for the ante
basking tremble. *id) led up ts the bank hili
dey
ef
abou
t tee years age.
It is signifternat that groater progress has
hem made in releasier depepits
is amber bens them in astossobeirs., The suggesti
on that banks new subjest
Vederel ?splatter meld svoid saifisatien by teem
ieg memomeMer Slate
beaks is utoloo slam it sight seme retaliat
ory meseres by a Morel
140inistratios, ALUM bias not hesitated to intr
odmee redleal measuree, mod
thee presipitate a movement for immediate mattemalisat
ios of
beaks.
** *
**** * *
the illnion that the particular age in vhilh a give
s baikieg prestige
-sista is final is one that is semlimmal4tming
lhemiee mud
proati400 et Amorists banking domed aplerge grea ahme
t
mg
It is amenery
to resegnise the fast that beaks sorry risks emd suffer
less
ee, ihe
essitsmay for memy years ef bone te Install
adequate servise Sharps met
seep, Meeks realise they are entitled te this
to fear the realties es the part of their easte seem of imam bet seen
rners no might meat the
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Federal Reserve Bank of St. Louis
1637
t
bailie change of pelisfr 1111 this reeteet• Ikea serrisss bays wet taw basks
e single years Ihromoral years
as hist as 01100$000,411.
of Om 14
U. S. sorsreisi maks
that
if
all
age a eatios-iride Serm, bassatell
adopted a small fleet Ammo mom then $50,000000 meld be sated te
eereleue emmeally. This, of esuree, is only sae tripe of servile *am.
is bas teem ledicated, on the other hand, costs ems beet be cut by cooperative *sties to reduce the meet important empomps item *deb is
interest paid su deposits. Particularly in rural areas !twiny country hmke
sre operatiag Apes earalago insufficient to justify their eapital investeast bet beemeee e iseepetitive oaseitteee are paying eseeseive rotes of
interest ea tiee &peals. This met be Obeaged4 an4 there ere indieatioas
that start hall 1011101 10.6 WI the beaks tm daeling with all the4e problem,.
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Federal Reserve Bank of St. Louis
.Ta ICY
•
M. E. Bristow (Virginia)
Discussion on the Address of Mr. Hecht
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935
********
* * * * * I have in mind the publication of statements of member
banks of the Federal Reserve System on the call of the Federal Reserve
Banks. In my state all state banks including Federal Reserve member
banks are required to publish statements whenever the Comptroller calls
on national banks. Therefore, ever since the inauguration of the
Federal Reserve System we have made calls and required their publication
concurrently with the national system. Our banks should not be required
to publish two statements. In my state we have worked in cooperation
with the FDIC and have adopted the form of a published statement pre_
scribed by it. It is obvious that wq_cannot keep step with two
lifferrnt federal authorities unless they themselves are agreed on their
requirements. In order to meet tIle issue presented by the pending Call,
we have agreed with the Federal Reserve Bank of Richmond to have the
statements published at the concurrent calls of our department Ald the
Federal Reserve Bank of Richmond. If other states are similarly situated
I feel that we should request the Federal Reserve Board to accept the
statements which are published in regard to our calls in the place of
theirs. The statements which we call for as a matter of fact show the
financial statements of bhe banks affected. There is little change
between the forms which we use and those prescribed by the Federal Reserve Board.
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Federal Reserve Bank of St. Louis
* * *** * **
'
t..••••••••°
•
Harold W. Horsey (Delaware)
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935
Mr. President and Gentlemen: I have a very brief report. In the
first place, there has been no new banking legislation excepting one
law modifying the investment provisions. In the first place, we think
we have a pretty accurate set of banking laws and, in the second place,
since the record showp_that a large percentage of the banks not only in
Delaware but throughout the country are in the FDIC it looks a little
bit superfluous for the states to exert themselves now to pass new
banking legislation, unless they are looking into the future. On that
ground it would be justified, but as long as the new FDIC Act is in
force with the powers, provisions and regulations they have in connection with legislation, any legislation on the part of the state is
We have
superfluous unless we are looking into the future as I
a very optimistic view at this time. Business conditions in the state
have improved and, we think, throughout the depression, comparatively
speaking, the conditions in Delaware have been more than good. Agriculture this year has had a good crop, and things do look very good.
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Federal Reserve Bank of St. Louis
Itravd
\-
SOURCE:
MONEY AND BANKING--by White (Revised 1935)
CHAPrER XXX
RECENT MONETARY AND BANKING LEGISLATION
Page 720
One of the most serious defects of the banking system of the
United States is its lack of uniformity. In general it may be said
that we are operating under forty-nine different systems: the
forty-eight state banking systems and the national bankinz system. A special train carrying two hundred and sixty etaminers
in addition to about a hundred clerical assistants from three
different agencies (the national banking system, the state banking
department, and the Federal Deposit Insurance Corporation)
recently arrived in one of the larger cities in the United States,
and the three examining bodies worked at the same time in all the
banks of the town. The Banking Act of 1933 did not reiedy-this
situation, except in so far as the participating banks in the Federal
Deposit Insurance Corporation must become members of the
Federal Reserve System before July 1, 1937, unless the law is
amended before that time. Although branch-banking privileges
were extended, our system is still predominantly one of independent units.
*
if-
•
•
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Federal Reserve Bank of St. Louis
v.cri ei4
•
Proceedings of the 55rd Annual Convention
National Asso. of Supervisors of State Banks
Baltimore, October 1954
* * ** *** **
J, S. Love (Superintendent of Banks, Mississippi): A moment ago, in
reporting conditions in Mississippi, I neglected to report on legislation.
In 1955 there was appointed, partly by the Governor and partly by the
Mississippi Bankers Association, to be reported to the legislature of
1934, changes in the banking laws, one of these completely rewritten
largely to conform to the Federal Banking Act of 1933. There were many
things in this law; tightening down of the laws in view of better
banking. For instance, the question of loans to officers and directors
of banks: no officer of a bank can now borrow from his own institution
without permission of the Superintendent; under the new law one of the
factors that affected the small country town in Mississippi was regarding
banking facilities, thus permitting not branch banking but branch officers-maybe a town hasn't sufficient business to justify or support a bank but
still needs some banking accommodations, solvent and strong banks in the
neighborhood can establish an office and give the people facilities, which
is all that is needed after all.
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Federal Reserve Bank of St. Louis
** * * * * * * *
/,
zz
t )
•
Address by Leo T. Crowley, Chairman,
Federal Deposit Insurance Corroration
National Asso. of Supervisors of State Banks
33rd Annual Convention, Baltimore, Md., October 1934
**********
The problems will differ with each state, but may I suggest that
you consider carefully the idea of making certain that your laws are
such that your banks and you as supervising officials can obtain the
maximum amount of benefit from the various Federal agencies. In this
the Corporation will give any assistance possible, especially with a
view of promoting a desirable uniformity, and you will not only increase your effectiveness as supervisors and aid the banks, but you
will increase the efficiency of the governmental agencies established
to aid you.
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Federal Reserve Bank of St. Louis
** *** *** **
r*
..h".11
SOURCEs
PROCEEDINGL
YOU STATE BANKFRE, AUOCIATION - 1954
Palo 15$ (REPORT 01 THE commITTEE Cit FEDERAL LEGISLATION)
* I believe that the approval of the FDIC should be
* *
sought by every bank seeking to establish branches. In this
manner a single agency caa control the rate of expansion
without in any way interfering with the sovereignties of
either state or national systems. It is highly probably
that ouch a plan may help to eliminate excessive competition.
It certainly would add no onerous burden to seibership in
the FUnd and might assist the members by providing them with
a mpasurement of self protection. It may be that the idea
is unworkable but et present I believe it has posBibilities
of being developed into other methods of self-preservation
and control on the part of the banks themselves.
*
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Federal Reserve Bank of St. Louis
LOURCEI
ME COMMERCIAL & FINANCIAL CHIONICIA--ABA Oonventione-Nov. 17, 19754
Address of President of State Bank Divialion, Clyde Hendriy, President
Tenn. Valley Jenks Decatur, Ala*
PlAc 55
The &tate 's.-ak Diviuion nas u aeavy program ahead *blot will
afford ita membership aany opportunities for waive eervice. Among
ir
ths more iaportaut objectives and the meann for reeehtre, them,
reconeendeds
1. That we continue to light aggressirelv fee the preservation
of the 1-1.ato Bunkiei; byaLea aa against any form of hilresneratic centralization*
k. That we take such steos as may he neceseary in order to hring
Anther ameudnent to the *inking Act of 1955, modifying it so es
about
to not require nonmember State balks to become membere of the Federal
Reserve System in order to continue their rleposit lereurenne, and, if
pov:Able, limit asseeements to a fixed maximum within the ability of banks
to pay.
a
5. That we use our influence to bring about tir,e co-ordination of
examinations by the several supervising authoritiee, with perhaps a revision
of standards and classificetions.
4. That we continue to emphasize and develop better bank memagosent theough inetitutes end eonfereeeee erd ott,en-fpc
5. That we urge the putting into practice of reesonable stop4mos
and service charges and sleek new sourcer for mi./liege in order that tanking
operations nay show a reasonable profit.
6. That we encouregf the a9pointment of competent State supervisors,
with adequate pay, and that we advocate that banking departments be removed
as far ea is possible fron political influence.
"
111
7. That we insiet on greater care being exercised in the granting
Aamd(
supervisors
State
the
between
-operation
of new charters, with a close. es
the Coeptroller of the Currency with reference thereto.
N. That we continue our program of promoting nere uniform State
banking laws.
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Federal Reserve Bank of St. Louis
1
SOURCE:
REPORT ON BANKS OF DEPOSIT & DILCOUNT, ETC. - B.Y. 1954
BANKING BOARD RESOLUTIONS
Page 39
Pate 40
21.
*
*
*
*
*
Resolved, That no bank or trust computy and no private banker,
investment company or hew Xork agency of any foreign banking
corporation shall, direct4 or indirectly, by any device whatsoever,
pay after December 81, 1984, any interest on any deposit which ie
payable on demands
Provided, that nothing herUn contained shall be conetrued ae
prohibiting the payment of interest in accordance with the terse
of any certificate of deposit or other contract entered into in good
faith,
or before December 10, 1984, and which is in force on
that date; but no such certificate of deposit Or other contract shall
be renewed or extended unless it shall be modified to conform to
this regulation, and every bank and truat company and every private
banker and hew lork agency of any foreign banking corporation
Shall take such action ea may be necessary to conform to this
regulation ae soon as possible consistently with ita contractual
obligations;
*
4
*
*
Demand deposits within the meaning of this regulation shall com,
prise all deposits peyable within thirty days and all funds held
by investment companies in connection with the exercise of the
power conferred by subdivision I (a) of sect;on 508 of the Banking
LaW, which are payable within thirty days.
The 6uperintendent is authorised to construe thie resolution in
ouch a manner as to require the persons and corporations to which
it applies to conform to the requirements imposed upon banks
which are membere of the Federal Reserve bystem, with respect to
the non-payment of interest upon demand deposits.
Adopted December 6, 1974.
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Federal Reserve Bank of St. Louis
SOURCE&
RIPONT ON SAKS OF DEPOSIT & DISCOUNT, ETC. - NJ. 191.4
SIMON BANKING
bacLi *abaft semi)
The Stephens Act, dividing the state into nine districts and permitting branch banking by banks and trust companies within such
districte, has new been a law for about gym months. The provisions of that Aot are clear that the Legislature was especially
ooncerned that it should be administered in such a wey as to avoid
undue and unsound expansion of bankimg under its terms. This
principle the Board hos kept constantly in mind in the exercise of
its poser under the Act to approve or disapprove applications for
branches. Not only has the Seard weighed with the utmost care
all applicationa which have same before it but it has also sided and
aPProved the policy of the Superintendent in cooperating with the
office of the Comptroller of the aarremey in an effort to establish
* OOMMOD poliey as between stnte aad nations' systems* The eontimeless of this policy is not only advisable but imperative if
braneb banking is to develop on a sound basis. For the purposes
of determining in what communities tnd under what conditions
there is to be a further expansion of banking fsoilities, all the
banks of the State mnst be treated as Waning to one system. The
mingle purpowe of providimg sewed and adequate banking facilities
for all Deities* of the State emmnot be aehieved in the absenee of
eesperation between the two agemelea which are authorised to permit
the formation of maw banks or branshes*
ihe belief of the Beard in this principle is refloeted in a :Taal
Umm adopted March 111 195t pursuant to which the board memorialised Oengresz to incorporate in any amendment to the federal
bankieg lens provisions requiring the approval of state authorities fer the metthhilihment of a national bank or branch thereof in
any emannmity served by a state beak or trust eempemp4 provided the State would likewise mast legislatiom requiring the
approval of the federal authorities for the establishment of state
bank or trust compemy or breach thereat in OW, immunity served
by a natimalimmik4
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Federal Reserve Bank of St. Louis
1.616
-11
•
The Seattle Conference - Report by
Howard H. Hansen, Supervisor of Banking, Wash.
National Asso. of Supervisors of State Banks
33rd Annual Convention, Baltimore, Md., October 1934
-,* * * * * * When the F. D. I. C. came into the picture '.,e attempted
wherever possible o make general examinations with them. We found,
however, t'-it our examination was a little different than that of the
F. D. I. C.1 We have non-member state banks, member state banks, and
trust depaaments of national banks, and the F. D. I. C. chief examiner
had the states of Washington, Oregon and part of Idaho to examine, so
our fields did not coincide, but(!herever possible we made joint examlnations. Te found, however, in all these joint examinations, both with
the Federal Reserve and the F. D. I. C., that the time taken for making
these examinations was from one-half to one-third longer with the same
number of our men and the same number of Federal men. This was brought
about to a considerable extent by reason of the fact that there were
two sets of examiners and only one set of bank officers and they got in
each other's way. There were different types of reports to make up;
sometimes the loan classifications were a little different and, in the
case of member banks, the Federal Reserve examiners paid particular attention to past due paper, while we look to solvency. Little differences
like that resulted in a longer time for making the examination. Also,
in multiole examinations, it takes at least twice as much of the officers'
time to take care of examiners and furnish them with reports and information to complete the examinatio!D
LI
,,,A
Running through all of this, we must remember that all state banks
examined
are
either by the Federal Reserve Bank or the F. D. I. C. in
addition to our own examination, but the national banks are examined
only by the national bank examiners and not by the F. D. I. C. or Federal
Reserve Bank. It was, therefore, our thourht to try to perfect a
program that would be acceptable to the Federal Reserve Bank and the
F. D. I. C. whereby they would accept our examination ?s their own.
Naturally, we had to give some thought to the responsibility which
they have in their respective positions, particularly the F. D. I. C.,
which have guaranteed deposits in non-member state banks and member
banks and naturally want a complete picture of those banks. They have
48 states and 48 different supervisors to deal with and the most serious
trouble .in connection with accepting the examinations of these numerous
supervising authorities is the fact that there is no uniformity in
making these reports. Therefore, if we are to suggest a program to the
F. D. I. C. for making one examingtion by the state supervisory authority,
we must take their viewpoint also and provide uniformity to help them
quickly to grasp the picture of a bank. Early in September, about the
time of the Seattle meeting, a conference was held in Washington, attended by representativesof the F. D. I. C., Federal Reserve Bank and
Comptroller, at which time they agreed upon a uniform form of examination,
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Federal Reserve Bank of St. Louis
"
- 2-
11/
already discussed this morning. I am in accord with the gentleman who
desired more brevity in that report and an endeavor to give a cuicker
and clearer picture of the examination, but I do believe tipit if this
committee meets with representatives of the F. D. I. C., they can work
out a good uniform renort that we all can agree to use.
Then another factor in making examinations is the caliber of exapiners and their experience. We should be able to satisfy the F. D. I. C.
and the Federal Reserve that our examiners are competent and able to do
the job. If we can make a reasonable showing, agree to use uniform examination reports, and show that our examiners are able to perform the
task, then I think it is reasonable that we request consideration be
given to elimination of this multiple examination system as it now exists.
One additional point: Te feel that the F. D. I. C. and Federal Reserve Bank should have a close contact with state supervisory authorities
in order that we can give a clearer picture from our resnective states,
particularly those of us who are far from the office in Washington.
Therefore, the chief examiners should be left in their positions and
should work closely with us, reviewing reports as we review them and consulting with us and we with them as to improvements that may be put into
effect.
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Federal Reserve Bank of St. Louis
°.-4316,
•
Address by John G. Nichols, Chief, Examining Division,
Federal Deposit Insurance Corporation
National_Asso. of Supervisors of State Banks
33rd Annual Convention, Baltimore, Md., October 1934
***********
Joint Examinations
Due to the diversity of responsibilities fixed by Federal statutes
upon this Corporation, and by state statutes upon the state authorities
of the respective states, it is recognized that certain criticism has
arisen in some quarters, regarding the duplication or multiplicity of
examinations. Therefore, under the existing laws joint examinations
appear essential and require the fullest cooperation between this Corpo-I
ration and the state supervising authorities if the most satisfactory
results are to be obtained.
It must be remembered that Congress has imrosed upon the Federal
De::osit Insurance Corporatim the duty of keeping itself currently and
accurately informed regarding the conditions of all insured Fund-member
banks, and justly so when consideration is given to the Corporation's
liability in insuring deposits. In view of this, from the very inception of the examining program of the state non-member banks by this
Corporation the examinations have of necessity been made on an asset
appraisal basis. It is noteworthy that the banking laws of the several
states vary to such an extent that an examination made in conformity
with the statutory reeuirements of the respective states, does not
ordinarily cover the scope or conform with the specific requirements
imposed on this Corporation by the Congress. We fully realize and appreciate the difficulties you have encountered when arranging for
joint examinations, joint conferences, and so on, which in many instances have certainly caused you to deviate from your customary program and practice. Due to the varying statutory requirements just
mentioned and the recognized interruption of the usual program of the
state authorities,IL2 method of mutual procedure in bank examinations
has been developed,in cooperation with the commissioners of a number_g_
states, which has proven highly satisfactory. Such mutual procedure may
TieTillustrated as follows:
In those states where two examinations per annum are reeuired by
statute, one joint examination is made with the state examiner which
this Corporation conducts and writes the report. The state examiner
joins in signing the report and the confidential section. Two reports
are forwarded by the Corporation to the commissioner of banks, one
copy for the commissioner's file (which contains the confidential section), and one copy for transmittal by the commissioner to the bank
with his usual letter. This re-ort is considered as an examination by
the state department and meets the requirements of the state law.
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Federal Reserve Bank of St. Louis
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- 2The second examination is made by the state department and that department Arites the report. Vihen the commissioner of banks so desires
the Federal Deposit Insurance Corporation joins with the state department in making this second examination, and if recuested, jcins in
signing the report. Likewise in those states where only one examination is required by statute a similar mutual arrangement has been adopte&
7-hereby a joint examination with the Corporation's examiner and the
state examiner is carried out in the same manner as first recited and
which fulfills the statutory requirement of those states.
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Standard Report Form
This discussion suggests further the desirability of the adoption of
a uniform report of examination by all bank superv'sing authorities--both
State and Federal. In this connection I wish to 1,oint out that early
this year the Federal Reserve Board, the Comptroller of the Currency and
this cornoration made a study of all examination forms used by the twelve
Federal Reserve Banks, the Comptroller's Office, trlis Corroration and
the respective state banking departments in an effort to produce a report that would be uniform and satisfactory to all Federal authorities.
The report now in use,with which you are familiar, was adopted. An
identical form of report is in use by the Federal Reserve Board and the
Coalptroller excert in features relating to the National Banking Act and
the Federal Reserve Act essential for those authorities which are
provided by insert schedules. We are informed that several states have
already adopted this uniform report, and it is respectfully urged that
serious consideration be given to this aubject, particularly in view of
the mutual advantages that will naturally accrue, and the consecuent
reduction in costs of making joint examinations.
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Federal Reserve Bank of St. Louis
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Discussion following speeches by F. D. I. C. Officials
National Asso. of Supervisors of State Banks
33rd Annual Convention, Baltimore, Md., October 1934
0. H. Moberly (Missouri): Referring to the joint examination, I am
quite in accord with the recommendations of Mr. Crowley. In Missouri we
try to cooperate in joint examination. I find, however, tklat there ie
some dissatisfaction or inconvenience in full cooperation,Llue to the
fact that our examinPrs must not only earn their salary but also earn
the expenses of the department and are forced to work a little more
rapidly than the Corporation examiners, the CorIoration examiners making
a complete report while at the banD If some provision could be made
whereby they could operate more rapidly we would be very glad to cooperate more rully than in the past. I just offer that as a auggestion.
Mr. Croydey: You mean our men hold your men up, because our men
are slower? As a matter of fact, it should be our men are ahead of yours
Mr. Nichols: One difficulty is that our report is much longer than
the state report and to cover the ground it does take longer, sometimes
Ft day longer, to make the examination report of the bank. A great deal
of that report does have to be completed in the bank, a man can't take
it out and finish it in his room. The answer is, I think, the adoption
of a uniform report, then his examiners will have to stay as long as our
examiners.
J. A. Broderick (New York): I wonder rhy you can't simplify your
%report? I don't think any bank is justified in prolonging an examination
just because you have a very long report. The idea of a report is to
show the condition of an institution, to make comments on such loans as
are necessary, to get information in regard to the earnings and to give
details as to legal violations. If I may say, the reason why New York
State will not adopt the uniform report is because we believe a simplified
report is necessary, one that can be readily understood by the directors
of an institution. The comment of directors is that it takes some time
to understand an examination report and to find out what is vitally
necessary to them. I believe in a simplified form of report, and I believe examiners should furnish that to them, but I do not think every
question under the sun should be answered by the examiners. In the reports throughout the country--most of the questions are not necessarY
in the examination report if the examiner is doing his duty. He knolks
how many have attended directors meetings and of any violations. I think
the directors of the institutions are just as much interested in the report as the examiners are. I think the examination report should be put
in such a form that the directors can readily understand violations and
criticism in regard to loans, and let us drop the statistical and other
information for a special examination if necessary, instead of extending
the examination, so an equal amount of time will be taken by both. Let
us find some way of making examinations which are more effective than in
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the past, and not have most of the examiner's time taken in filling in
his reports with figures in uhich no one is interested.
Mr. Crowley: Don't you think the information the examiner should
get for the chief examiner is a knowledge of bank attendance of directors, etc.?
Mr. Broderick: An examiner always has information he would like to
convey to the chief examiner and that should be rut in the ret'ort with
salient features going back to the directors. I believe in the education of directors as well as the Department, but from an examiner's standpoint, many examiners are more disturbed about filling out the auestions
on the report than they are in the condition of the institution. I think
it is very easy, Mr. Crowley, to show auickly to the examining staff and
supervising directors, on a very fer sheets, the results of an examination.
Mr. Crowley: Te are perfectly willing to simplify if by simplification we do not eliminate the necessary information.
Mr. Broderick: You have a good deal of information there, Mr.
Crowley, that is not necessary and only takes up time. My comments are
not made as Superintendent of Banks but as an examiner of long standing.
M. E. Bristow (Virginia): As one of the supervisors who would
favor uniformity of forms, it would be helpful if we had an onportunity
to discuss the forms that are to be put in use. I would like very much
to see our forms uniform with yuurs (FDIC). With the forms you have
already adopted, the supervisors haven't had an opportunity of being
heard or offering suggestions. Of course I see the viewpoint expressed,
and I believe the examiners' reports should be as brief as nossinle and
limited to 7etting facts more than statistical information. That should
be done at the office.
D. W. Bates (Iowa): Mr. Chairman, I am not opposed to the appointment of the committee, but I think the committee at this stage would be
entirely useless. The form of report has been adopted and ,,ut in use
and now a committee to reform that will just retard progress in my
opinion. I am down next to Missouri, where Mr. Moberly comes from. I
join with him in what he has to say about the report. Most of us (at
least in my state) the department is supported by the compensation that
the examiner gets in examining these institutions. Chen we send an examiner out to examine a bank we expect him to pay his way as well as
the expenses of the o fice, and also expect him to do his duty as required under the 1Rw.
:i He is seat out to examine the bank, but he isn't
sent out to get a statistical report to be filed in the archives in
Washin7ton. I do not believe it is necessary, to find out whether a
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Federal Reserve Bank of St. Louis
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bank is sound, to have as much in the report as the reports adopted contain. I think they should be simplified. If the F. D. I. C. requires
all of the information that is called for by these reports I think that
information should be aside from the examination proper of the bank and
if the F. D. I. C. desires that information they should get it following
the proper examination of the bank, and let their examiner continue so
that ours may be released when the joint examination of the bank proper
is made.
'-'1
We are very grateful for the F. D. I. C. so far, -- if they are
making examinations without cost to us, but I can't tell how lone that
may continue and certainly it would be F very great drain on our
treasury if we had to pay in the future for these examinations, if they
are going to prolong them as long as it takes to make the examination
L-11°-:
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I am not offering this as a criticism, because I join in what has
been said in perfect unanimity between our department and the department
in Washington. Nobody, I think, can say he has had any better treatment
at the hands of those in charge of the F. D. I. C. than we have.
hnve done our best to cooperate, and I think we have--I hope so at any
rate, but I do say this, that the examination or report must be
simplified in some manner because of the time it takes to make an
examination of the bank. Unless it is done the joint exanilmtions,
Thich we have been carrying on dn Iowa very satisfactorily, will have
to cease because of the expense and time consumed in making the examination.
Ourney P. Hood (North Carolina): Our experience in North Carolina:
in t'e old days we would send out two men to examine a small bank, and
ey 1,ould spend one day in the bank and two days in the office, and the
management was under the impression we were charging them three times
as much for the examination as it cost. In my opinion every examination
should be completed at the bank. Iow, the F. D. I. C. sends two men and
ve send one man, and it takes three days to examine the bank and the
result is that the examination costs us less under the present system
than it did under the old syste ..:3
. FurLher, as Commissioner of Banks,
we need all the statistical information in the report and bank management, and these reports are helpful to us--they cost us less money and
we are glad that they are as lonu as they are. Cooperation of the Department with the F. D. I. C. and the cooperation of the F. D. I. C. witn
our Department has been perfect. Their work has reestablished in our
state a real State Bankinp- System.
R. E. Gormley (Georgia): Mr. Crowley, Gentlemen: I listened with
a great aeal of interest to the discussion this morning, and if I may
be permitted to humbly offer a auggestion or thought which may occur to
you as radical, I would like to do so. It occurs to me that if the
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Federal Reserve Bank of St. Louis
-4 F. D. I. C. could accept the examinations of the various State Banking
Departments--take in Georgia, I have a staff of five for makinp examinations, against the Federal Reserve, National Banking and those of the
F. D. I. C., and it seems to me there should be an amendment to the
F. D. I. C. Act to permit the corporation to accept our form of examination.
Mr. Crowley: I would like to answer that. You are a fine bunch of
fellows and we have high regard for you, but we aren't going that far.
You couldn't expect us to insure your banks and not be able to know
what is going on.
Mr. Gormley:
You insure national banks without that examination.
Mr. Crowley:
Yes, but we have some Federal control there.
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Federal Reserve Bank of St. Louis
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SOURCE:
MINUTES OF YED. RES. AGENTS' CONFERENCE-Wash. iilay 1934 (ConfiCential)
4. EXAMINATION, SUPERVISION, AND REGULATION. (Mr. Wood led discussion.)
(18)
Topic 4-B. Criticisms and corrections to be considered direct with
bank or through State authorities.
Mr. Wood read the following statement, which was adopted:
"Letters of criticism or correction should be written directly to the
banks. Relatione with State supervising authorities should be close and
cordial. There should be whole-hearted cooperation at all times. State
supervisors, however, cannot fairly be expected to assume our reFoonsibilites.
"Prior to June 16, 1933, there might have been some just qUestion as to
the extent, if any, to which we should exercise supervision. With the passage
of the Banking Act of 1933, however, we are charged with certain responsibilities that require us to exercise direct and definite supervisory relations
with State member banks. Whether we like it or not, we are 'in the army now.'
"Of course, we must be careful to refrain from invading the field of
State superviscrs. This is not difficult, and in nearly all cases State
authorities are really glad to have the benefit of our thorough examinations.
"The report of examination should accurately and fairly disclose the
condition of the bank examined, and recite in a constructive way, allitems of
criticism. The letter of the Pederal Reserve Agent to the directors should
also set out, in a constructive way, comments on corrections that need to be
made. The bank management should be requested to advise the Federal Reserve
Agent directly in reepect to the corrections made, or to be mede, or to
furnieh him with a copy of the letter to the State supervising authority, containing such information. In nearly alleases, the managements report direct
to the Federal Reserve Agents."
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SOURCE:
REPORT ON BANKS OF DEPOSIT & DISCOUNT, ETC. - N.Y. 1934
Pages6 and 7
BRANCH
BkNKING
The progress which has been made in the extension of branch
banking on what is believed to be a sound basis, has been largely
due to the policy of cooperation which has existed between the state
and national authorities in the administration of the Stephens Act
and the branch banking provisions of the federal statutes.
Arrangements have been made whereby no branch authorization is
issued until after consideration has been given to any other applications pending before either state or federal authorities for
branches in the same eommunity. In the granting of applications, careful study has been made of the needs of the communities
to be served and the facilities of all applicants to satisfy such needs.
No branch has yet been authorized to either a state or national
institution except with the approval of both state and national
authorities:
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Federal Reserve Bank of St. Louis
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SOURCE*
ANHUI EEPOFT OS BAAL OF DEPOSIT Sr Discom, ETC. - 11.Y. 1953
!Amyl (Banking Board)
CO..I
BANKS-EMERGENCY MEASURE&
Despite the importance of institutions organised to assemble
small savings, it muat be recognized that the commercial bania is
the centerpiece of our credit structure. New bank credit cones
into being largely as a consequence of the lending and investing.
acttvities of commercial banka, and it is thie credit which eon.
etitutes the country's principal exchange media. It is this credit
which becomes the income of the wage earners and other classes
who utilize savings institutions as depositories for their savinga.
Any obstacle to the free flow of oommercial bank credit must
inevitably affect the condition of all types of banking institutions.
There are not many powere of the flanking Board which nay be
directly eaployed to prevent undesirable expansions and contractions in the total outstandinc volume of commerciel bank credit.
One such power was bestowed upon the Board, however, at the
date of its inception, end that ie to regulate the method and standards "for the valuation of the assets* of institutione under the
supervision of the banking department. In thf: exerci5e of thiv!,
power the Board has striven to avAd the narrow definitions of
asset values that otherwise might have been employed in euca a
n14 as to interfere with the normal flow of bank credit.
//
After the declaration of a bank holiday' by the Governor of this
btate in the early part of march, other occasions vrose for Ulfencouragement by the Board of devices to stem the tide of panic
contraction. When it appeered probable that there might be general reliance throughout the country upon scrip as an emergensy
currency, the Board foresaw the danger that much of this scrip
might not circulate beyond the confines of reetricted srees. At
its nesting of March 6, 1953, the Board adopted the folLowing
resolutions *Resolved, That the Banking Board recommends
that the &Cate be prepared, in the event that the national Government does not take care of the situation, to provide for sone
medium to circulate as currency throuch the State at 1Frge • • • •*
By resolution of March 8, 1953, the i:loard approved the issuanse
of an authorisation certificate to "The Emergency Gertificet Cora
poration of New Iork." Fortunately, the provieions of the Bank
Conservation Act have thus far at leant evoided the neeessity of
the functioning of this cor.;)oretion.
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Federal Reserve Bank of St. Louis
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SOURCE:
MINUTES OF FED. RES. AGENTS' CONFERENCE-Wash. Nov. 1932 (Confidential)
Pages 11-1k (?)---Pages not numbered.
CURRENT PROBLEMS IN RELATION TO MEMBER BANKS
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(32)
Topic 4-F. Relations between Federal reserve banks and national
and State examining departments. - gr. Stevens.
Topic 4-G. Examinations by ederal reserve bank examiners vs.
subsequent continuing personal calls by such representatives of
the Federal reserve bank in the nature of assistance in adjusting
unsatisfactory conditions and endeavoring to correct errors of
management. - Mr. Stevens.
The above two topics wore considered together.
following comments:
Mr. Stevens made the
"It is obvious that the Federal reserve banks, occupying a position of
sponsorship for their members, should maintain close and friendly relations
with the supervising authorities., both State and national, under whose auspices
the examinations of these banks are made. We have tried not to put ourselves
in a position where we could be criticized for overriding the authority of the
supervising departments and our first approach as to corrective measures is always througL the department itself.. We have found that the departments are
ready and willing to give us information as to what measures they are taking
and to welcome our cooperation. In certain States they seem to be willing for
us to go direct to the banks urging our views as to what should be done in man
instances.
"by its very nature an examination is critical in its essence. Indeed,
under present day conditions, an examination and report to the management and
to the board of directors in the nature of criticisms too often may lead to
their discouragement and loss of morale, at a time when they are waging a hard
fight to exist. It seems to me that it is important that we in the Federal
reserve banks should follow up corrective measures in a constructive end helpful way. We should show that the sponsorship of the.Federal reserve bank means
e friendly and helpful interest in their difficulties, rather than merely a
criticism of their actions.
- "I have instructed our examiners from time to time between examinations
to make personal calls on banks in unsatisfactory condition, and if advisable
to call in the officers and directors from time to time with a view of helping
-Lem work out their problems."
In the discussion of these subjects, attention was called to the Federal
Reserve Board's Regulation H, which indicates that Federal reserve examiners
shall act with the examination staff of the Stete, and to the board's letter of
July 26, 1930, X-6665, which stated among other things: "If this supervision
is
not conducted by State authorities, the Federal heserve Agent iE directed to
taKe
https://fraser.stlouisfed.org sucn action as in nis opinion will oischarge the responsibiLities of the Boerd";
Federal Reserve Bank of St. Louis
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beferandus let OS on the leport of
the ircsial Committee ea lambing. Part TI
thember of Cummerse of the Us 26 As
Doseiber 2, 1931
411maittse Soper%
The Ccomittee prommote a nombor of reseassedatioss milk mord te bran&
benkingpshieh it considOro te he ate of tho mot importmet snbloots treated
in its rerort. The roesassadatteas, followed as a gawp by supporting statesesta, arc
4) National banks, unlimited by restrictions of state laws, should bs
permitted by federal stalest* te establish statewide bremehee, provided that
in any state ematisming to prabibit statewide branches ef state blahs the
federal statute Amid apt booms effective for a period of six mouths after
its enactments
(P) Amy grant of hrwsch bathing powers te national books should be given
alms to state member twnhe et the reserve system. elbjemt te eemeurrense of
state, lam
(3) Statutory permission to somber basks to establish breaches Ohonld bo
omaditioned apes the arpatval
admiaistrativo authorities, subject to
definite requirement that the 'vital of a tram& Aystom be at least the
aggregate of the etpital that would be required if each banking office iM the
system ammo am independent nAtiomml bank*
(4) Administrative motheritios Should be vented pevor to reiJuire
showing im owe of the application for a brim* that the general assettiss
of the *mash system, as well as the semditiems umda.1140k the bras& mould
operate, imdteate the probability sof smOSsomill addatasesse tof the prorated
hoemeh4
(S) lho right te setablish a brow* in mar giveu Iceation withia the
beendhing arm, should be dallied if there is sm administrative fladimg that
the banking requirements or the district of the prorated breath are being
adegmately serwieedo
(111) There shovld be legislative grant of discretion to the administrative
authorities te recaps suitable maim ef tatentimm te establish a de novo
brooch or to ae uire branches, by merger, AO well so of discretioa to withhold
final approval for a reacenable period of tine.
(T) Subject to the coneurramee of the rederal losterre Board, the authority
to permit or deny branches should he gives to the isiptrollor of the Onrres47
with rawest to aational busks and te the realm tants with reepoot to state
swim Illets•
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Federal Reserve Bank of St. Louis
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TOUT Committee believes, however, thot Imo reed leo imprevemeet of nnr
benktv situation is the orderly amd serefully rogplated development of bran&
beekias. The loss of the indopsodeat states of some boas, mot mow in a
falsities to proteet rs14 the safety or the bank depositor or to fhrnish
edeqmote banking realities te their esimmeities„ geed result in Nonerit if
*awe beaks iheold be oeuverted tato bromehes of strums bombs. /t ha* also
beams generally reeeseieed that there meet be °arena avoidance of tbe
erestion or nemesemserf inotitatimmilbelher they be unit OP branch banks•
Consierable hardship has teem esperieweed
emee sammmeities Imeoesse
of the partial or complete break-deem of their hankies
Im
instanses it is difficult, if net tupeleible, for lesal Interests to assume
the entire burden of re-establisbamg seeded bulks er to protest adequately
the capital structure and deposits of soletiog beams, In a regrettable
member of eases, in the absence of brae* beoblas, weak national amd etate
bank* samtimma became. no svailable mesas offer to affiliate them with stronf
institutieuv6 Breath banking would provide a solution to most of these
probloise thremSh enabling stress, orallmammapd institutions to invite existine
basks to melhise with thee end elremethma the facilities offered the public,
iselndies the establishment of sace Wiese as might be rw-uirod in the
sealler tome anti villaipre•
The Committee bog reviewed studies of brae& basking amide hers and
*breed, and **waled*. that doubts as to its breeder applitability to oar reaniveemets are unwarranted amd smst yield to the needs of the present sitsa,
time It believes, mereemes$ that breech leaking, if it is to be effeetive,
east be so devised that soeh breashims ores shall Webs& busiomps °enter*
Polasssing adogwate finammial strength mad 'hall sabres. a reasonable diver,elAY af agricultural, besiege* sod bminstrial enterprises., While the most
desirable diversi,fleatiee my set be secured in all testssess, the Committee
believes thst atate-wide bras& bookies will greatly otromplisi the feneral
situation and vill provide 1m a great sway states the memo
sefrieient
banking stabllity•
amuse of the rrebibitioes upon state-mide bresdh booking by nbtional
and state member bELnks of the federal reserve system, Chi* furnieh about
sixty per sent or the bookies resource* of the *pantry, mod the fact that
either limited or no bremehtms privileges are permitted state benkr in many
state* where rellpf is seeded, it is imperative in the interest of sorters'
imprevesewt
branCh Waking legislatios pressed from Ike Camersee of the
Waited States.
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partieslar, it is of hisk importemmor that the properly
operated unit bask Ada is adeqmately sereleg the rimsosial interests of
its emosenity most met be sabjested to ummeoessetry sr eneesseideal oomrotition
free mew Imam* banks established hy outside interests. Soamd beeking requires else that trranvb eystems shoull nst be built by rodkless esepetitive
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Federal Reserve Bank of St. Louis
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bidding for the Mere. of ex:hitting banks. If the lever.bemhed. sendition which
exists in seme legalities is te be *voided elseshere* there Should be a eurb
upse spy =bridled ?see for supremo/11y in both the nenher and eatemt of banking
Wiese and epee these forms of gampetities Shish impel a balk te enter
reluotestly epee bras& honking ia order be pretest its serrespeedmat twain
business or te matmtain its poeities is the fimemoial stree4mtes
* * * * * * It weld be fruitless, therefOre, te propose bon* telkimg
as a streegthenUggessure without requiring that there be dememeireted
onfAxoity of mitiolossit te elope with the prebiame esufeentimg it Ware may
hank is alleged te endow ts beendh beeking4
Ne less impertmet is the riruiremeet thet Unit swear ts the spare.
ties of brauebee should have usimpaired eepits1 feeds adequate te serve the
need, of the egmennitieg in vhidh it does business. !a requiring the peseessiem
ef adequate sapital, the Committee realities also that se effeetive sheik weld
autsmstieelly be plaomilwatimilesiroble development ef been& beshiag.
Mile favor is fame film the proposal that the eepital of a bras* ',sten
iheeld not he 14bes thas the aggregate eepital that esuld be required if *elk
bees* er the parent bank were an tadspeedent tuitional bank. the Committee be.
lievee that the additional bread' bookie, powers shenli be devised with 'pedal
attention te servicing the receiremeste 0111100. esemenitiee amd of emmil
cities* lime lieited great ef accretion aight be given le administrative
metberitiee te permit, under exceptional simennetemeest the estahliehment
beenehee in sash oammonitiee if, for imstemes,
pereet beak sem meet the
eepital requiremeets of state law for tedepeedent state basks is sea parties.
ler leeLtions.
After its mosso ef the situations the Committee has semeluded that the
may effestive meow la *ilk the above reeemmemdatiame solid be prowl:
serried into draft. eneeptiag thee* regerdiag **pita remiremente, geed be
to vset homed diseretiannm peelers in respeseible supervisory ofriciale te
grunt or uithheld permission te engage la bran* bemkiag. In order that there
sir be enifoseitr is the develepmast
bees* beekime within the oonfisee
the federal reserve metes, it is peepesed that se far as federal legielttien
is senessued, the authority to pesseribe regulations affeetiag brindles of a
national beak be vested tn the Comptreller ef the Curran", aid the smilloril,
to preeeribe regniatiens &treating: banmehes of a state member bank be vested
in the fedora reserve beak. subject In both instances to the review mod seem
curremee of the Federal 1eserve Beard. 'he reserve banks sod the Federal leSOf., Ileard should maintais assionitative relationships with state superintendents
of bombe amd ether state busking authorities is the matter of allowilg or
dewing beemehes to state member beaks.•
Misers. Adams, Jehnemni, Lenedelep Undaseasisditellkirtor are met la
eseard with the reeenemadatien that a matiamel balk be granted the power te
eetablieb, ender lisitatiens, etete.wide breed's. le thews states ia shielh
state bona* are met permitted snob breashott mime state laws. Thar emPPert
the Frinciple of state matemon, in relatiaa te breadb banks•
Ir. lausdule regovds that be tikes this position for tbe reason, seeing
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Federal Reserve Bank of St. Louis
- 4Sete - Continued
ethers, that sinee we hove easel state sod stational benikiag wets*, the
aotomomy of the states Ohailit be remposted te the extent that emtlemal bombe
sompetiog with Aide beaks desid set lee gives powers prohibited mike state
lees to 'tate betake. ilbe observes that in resemitiem of this amtenomy Oestrus
in the past has United the sights of natiemel teaks te en* as are permitted
to sompeting state tasks sperating maw state legislations Re seetieme as
emanrles the emestamet of illeetion 11-k of the 'Federal Deserve Act/ tm ehiek It
is provide& that trust paters *hell not be emereised by aatioaal balk* *ore
snob rower, will 'outrages, the *tate laws relative ts eompeting state banks
mod trust companies, mod Santee of the Act whisk permits rather then compels
sembership ef state Mike ia the federal more, system and allows smelt state
banks te beeeme members evat thee* they are operating beemehes to an attest
sot permitted matiemal bombes
Milmeas filsorde that ite woold have preferred that the Committee report
follow the sesolatiame ea brash basking, adopted by the aaeoutive Council of
the Ameriese lemkers Asseelatiee ia April, 11414 te the effeet that unit
basking lees skeelod he medifisd only to ea seta* lot mai peoult, *ere
eseemeteen, Postiftsd6 emmatnity-mide teimmek bulking in nestrepolitom areas
sommipweide been& bemkitv; in rural distriote. In every reaP4444 lismgerr
he believes the enemy of the laws of the seperete etalso govermiag lormaCh
balking *head be preserved.
* ** * * 4 * *
lire Robinson supports the Committees reemenemdation that eatiomal balks
be alleged to establish state-eide twenabee. after a perio4, ia *tete* whose
lane de se ,,preit state beaks to have eneh bromebee. He record* the opinion,
however, that me nattered beak iheeld be .permitted te eistoplish a brew*.
outside the eily of looatisme et the parent bank, emempt by taking ever es
existleg usit bank 4r a beek airs* affiliate& with it, unless the breseili
eetabaished in e ellr, toss OP it11.4. *tore there is no national or state
beak regmlarly tommemetimg enrhomort benkimg Imeimese. Se believes mob a
reetrictiem (smelt es padded is the Yealeattati ememdmemt te the Slue Atli
prerecord in April, 19111 'heal te edisp4ed6
*
_
ireimainidas
The Committee resonated* that.
(I) Prevision* of law am& empervielem should require grasp system, to
battle as far as say be preetieable may astiesai sod state member bulks.
make all of their eligible sompemente members ef the federal reserve epstmelp
and facilitate the develops's% of biome& bemkimg within grew ernes, to
the limit of legislative grants of power te pessese beemilmo6
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Federal Reserve Bank of St. Louis
-5(2) Lesislatios Mould porhilit group banking systems from acquiring ad.
ditional emponat beaks of sere Ibis one federal reserve distrieti unapt
with special approval of reserve nutivritiee.
(3) Legislation ahould require that the bunks *ad retinas et shielding
sompany *lining or smatrolliag a natiosel Web sod/er a state member balk,
abeam appibed prior or esbeeneet to sadi lagielatime, be mode silkiest to
meminatise 11, the Oempleoller of Um
amdlor the federal reserve
setherities. lhere a group contains both
mad nosmember beihm, the
Forest eorporaties asd all itt oempossate Medd be sebOot to eammination by
federal authorities,'
(4) Insofar as sputa regulating eep le eroded for the purpose of sei..
Witte. emesimatimes ef group sipsins federal authorities Obelld be ampoterod
to require adielmate reports *f oreditime of the group bunking merporaties sad of
sash of its sompowate.
(6) in the ease of peep balking formation holding shares of ate*
of *no or mere siaboar beaks of the redeye' reserve metes, then sbeeld be
statntory requiremeate for the ortablishmeet and maintemesse of selletle reserves, targeted in readily marbeamble negotiable assets, other thee bosh
steaks, in order to assist the group spites in protecting the 'elven/ of its
sempeammts. Is gement. the onset of sob reserves Mould le net less thee
IS per cent of Oki bask's* capital epplered ommert that in oases where dembie..
liability attadies directly to the stook of the grow bothieg seeperatiot
somewhat smaller reserves might be &slanted. lb* reserves Obseld sot be
available as security for any fore of pledge ement fer the purposes ''or which
the reeervee are required.
(6) Legislation should require that after a reasonable tine ne omnipotent
of a group basking erstem would lend upon the ammourliciwt ibe stock of the
hafts, sempair of the group system.
(7) A sempenet balk fe a group mates OWL* be prevemted by law fres
lending to amethl,r osepotent of the same poop awe them 1(0 per cent, of the
lamas. bases eapital old surpbms. Its Inas to all somponate of a grasp
erotism ghesld be limited by lav to a reassemble provortint say SD per natio
of its eapital and serpbes. All lean of eme eseponest bask to anther see.
pease% sbeald be required its be seemed adeleate1y mad Pn14 tor reedil,
marbm'able seenities er paper ef the type sediseseetable w a reserve bemb4
(6)
sapital issues of a beldimg sempory of a group hankies motes
&sad
emerteed ts see slam of otoOki so debentures or other bead isnot
should be permitted.
0) Federal lor Ahead require that asy endertaking to merge or to offset
other amalgamation of lie stock interests of tee or mere grew booking systems,
contaisingestionl sr state member tombs as sempeents, be sihissied to the
ommient of the federal supervisory euthorities•
(10) Federal law
volisim that oply group bunking systole coataising
ufttiemal beak or state menhor bask soneeests, be prohibited from owning or
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Federal Reserve Bank of St. Louis
.0. 4 0.
controlling the steak et a corporation not emmagol te
usual business for
banking unless it hes the permission of federal authorities vested
with
pOWar to sunerviso hashing.
(11) Upon a ftedieg by the Federal %serve Board thRt the eoupossa
to Of
one or more group Spots** mentrol the eleetion of directors of a federal
renerv9 tmalk to, the eitrbiett of' the interests of other member
banks, the board
"sold have power to Limit or suspend the voting prtvileges of swab
group
esepeasete.
* * ** ****
Se business of a corporation which *patrols banks throne) stock oweership
pertekee so much of the eater* of banking itself thbt it is prop*?
to amtdest
it to yublic regulation similar to that imposed upon banking institutional.
If
such regulatiom is to be *Motive, eupervisory authoritiee meet bees
pees, to
inspect ea& aospenent of a group systen in addition to the holding
esupeur,
A single holding amapammr am contra motional banks end menher amid miasmember state bulks of the Nodose' reserve *Woo. Its national banks
would be
smbjest to the supervision of the Gemptroller of the Curremay, as well as of
the tOderel reserve anthoritieso sod Its state banks to the sapervision of tbe
antbsritios of the states In whisk the banks are located as veil as of reserve
authorities if member beaks. If ite eational basks and state member banks are
Issated le nere thee sne federal reserve district, they meld be subject to the
esPervisies of Ito reserve amthorities of their reerective distriets.
* * * * *****
I% allow grew baskiag to develop under diverse lave and peculation. silk
smsponents subjeot to examinations by different sets of authorities, fedmill
and state, presents possibilities of grove &Woe through shifting of asseis sed
throedh failure or supervisory authorities to diseern the *fleets of see ose.
peesetin althlittill wpm the safety sad strung% of other eonponmnts. rt is
desirable that all seeher banks of tbs Morel reserve system and the system
itself be protected tree seehmesses Vat alglit be visited upea lbs. through
improper operstions
esemieember bulks met sew subject to *sutra sepervioisn.
If group bank organisations are to be permitted to include mow weak beaks,
or through diversity oP law cad revelations to visit upon entire ',stems in am
aggravated manner the veekneeees that um develop in seme eeppememts, grave
bare would recruit to bank depositors and to largo gelation' in Ala sea erste**
are eperating, Unregulated group limiktig hes such petentialitiee of oboes that
so far as
irsable its development ehenld be related ta the public interest
to the
intim, growth sled solidarity et the national beekteg end federal re.
serve systems.
•*
4—* *
10 sommtUar eppareet that the capitol structure of a group
bashing orpenientisu,
meads of obtaining its eporating feeds, sod the
establishment amid potecties of suitable reserves should meters to rigid
otsederds applicable to banking,.
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Federal Reserve Bank of St. Louis
* *- * * * * * * * *
«. ft * * * * * * The prohibitions whisk gemerally exist against the making of
loans by * bask upon the security of Its ewe stook should be recognised in
relation to the stook of a holding compamr•
* * * * * ** *
In its discussion of breach banking. earlier presented, the =mattes has
resommonded that administrative awtheritims gheald be permitted to require a
Ohewiag, in same of the application for ttle right to est6blish a brneeh, that
the gsmerel emmditime of the breech system as well :-.15 the osmditiees wader
which ths boom& essai eperute ludieate tbo probability of its suceeesf01
eainteasees: that the power to establish
broad' at any gives legation withis
a breeghlag area should be printed may after ea administrative Modiug that
emether boa, with or without bromghes, is not simemotely servicing lbw bolikkag
requirements of the district of the proposed bramiho end that fedora' supervisory
authoritiss shield be vested with nowt? to preseribe regulatiome with respect
to the greeting ef branch bAnking
It is only eonststents therefore, to usgs that group beiblug systoles
Should be subject to similar re-uirements when they uniertako to add sdditional
oseponent beaks..
* rt. *
*** *
In the asemittses judgment It is highly desirable to prevent group bknking
spOtossip insofar as they eau be made msonable to federal low and mulattoes,
frus eugaging in extensive, diverse latorests outsids of the usual field *f
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Federal Reserve Bank of St. Louis
*0** * ***
•
SOURCE:
17th ANNUAL REPORT, FED. RES. BOARD-1930
Pages U7-228
RECOMMENDATIONS OF THE FEDELAL ADVISORY COUNCIL
FEBRUARY 18, 1930
TOPIC.--H.R. 7966 (McFadden bill).
Recommendation.--The Federal Advisory Council having been requested
by the Federal Reserve Board to give consideretion to H.R. 7966 begs
to report that it is opposed to most of the provisions of this bill.
(1) The council sees no value in giving the Comptroller of the Currency authority to examine Federal reserve banks. It believes that this
authority should continue to reside in the Federal Reserve Board, as
provided for in the Federal reserve act. The board has a staff speciElly
trained to perform this function and it has been able thereby to harmonize
the operations of the Federal reserve banks under its supervision.
(2) The council believes there is decided objection to the examination of State banks and trust companies by the Comptroller of the Currency.
The result of such activity would be an unnecessary multiplicity of
examinations and probable resentment on the part of State banking departments.
The present system of examinations by State officials, supplemented when
necessary by an examination by the Federal reserve authorities, bas resulted
in satisfactory cooperation between the State and Federal reserve examiners.
(3) The suggestion that the expenses of the examinetion shell be
borne by the Federel reserve banks would, if carried out, result in one
more compelling reason for more active participation on the part of the Federal
reserve banks in the money market for the purpose of increasing their earnings
to meet the burden of this additional expense.
(4) The council deems it unnecessary to provide for a special examination of the condition of any Federal reserve bank, and, in any event, would
consider it desirable to have an application to do so supported by more than
10 member banks.
(5) // In the opinion of the council the officers end board of directors
of the several Federal reserve banks by reason of their intimate contact with
member banks are better qualified to judge the desirability of a given bank
acting in a fiduciary capacity than iE the Comptroller of the Currency.
Consequently it can find no merit in the proposal to transfer from the
Federal Reserve Board to the Comptroller of the Currency the power to grant
permission to a national bank to act in a fiduciary capacity. ,t
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Federal Reserve Bank of St. Louis
isoni3
X-6665
July 26, 1930.
SUBJECT:
Examination of Member Banks.
Dear Sir:
By an act approved by the President under date of June
26, 1930, Section 9 of the Federal Reserve Act as amended and
the third paragraph of Section 5240 of the United States Revised
Statutes, as amended by Section 21 of the Federal Reserve Act,
was further amended so as to provide that the expenses of all
examinations made by Federal reserve banks may., in the discretion
of the Federal Reserve Board, be assessed against the banks examined and, when so assessed, shall be paid by the banks examined.
In view of this amendment. the Federal Reserve Board has
reconsidered and revised the resolutions adopted by it on October
10, 1928, (set out in X-6223 dated January 26, 1929) so as to
read as follows:
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Federal Reserve Bank of St. Louis
TEE IT RESOLVED, That the Federal Reserve Board
recognizes its duty under the Federal Reserve Act to
keep itself informed as to the condition of all member
banks;
"BE IT FURTHER RESOLVED. That the Board is of the
opinion that it is justified in relying upon the Comptroller of the Currency for such information as to
national banks;
"BE IT FURTHER RESOLVED, That whenever the reports
of examination of State member banks furnished by the
State authorities are not deemed satisfactory either to
the Federal reserve bank of the district concerned or to
the Federal Reserve Board. the Federal reserve bank or
the Board shall cause to be made at least one examina
tion
or investigation each year of such Character as to furnish satisfactory information;
"BE IT FURTHER RESOLVED, That any entry of a member
bank made for the purpose of informing the Federal reserve
bank and the Federal Reserve Board, (1) rhether the member
bank is complying with the terms of the Federal Reserve
Act, the Regulations of the Federal Reserve Board and the
conditions of its membership in the Federal Reserve
System and/or (2) as to the loan and investment practices
X-6665
-2-.
ond policies of the member bank and whether its uses
of Federal reserve credit facilities are consistent
with the purposes of the Federal Reserve Act, as
these h,..tve been or may be defined by the Federal
Reserve Board, shall not be termed an examination.o
The Federal reserve agents are charged with the duty
of seeing to it that the Board's views, as covered in the above
resolutions, are carried uut in their respectivo districts.
This does not mean that the Board is attempting to relieve itself
of responsibility and it will continue, through its examining
force, to check carefully the Federal reserve agents' examination
departments.
While the Board realizes that it is not possible to lay
down a uniform detailed procedure applicable to each Federal
reserve district, the following instructions will serve as a guide
to the Federal reserve agents in the performance of their duties:
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Federal Reserve Bank of St. Louis
1. The Comptroller of the Currency is a member of
the Federal Reserve Board and under the law is charged
with the responsibility of enforcing the terms of the
National Bank Act and also of the Federal Reserve Act.
The Board therefore relies upon the Comptroller of the
Currency to perform his duties and it will not be
necessary for the Federal reserve agent tc duplicate
the work.
2. In the opiaion of the Board, State reports of
examination can be relied upon in the great majority
of cases to furnish the necessary information to the
agents.
3. If a State examination is unsatisfactory, and
an investigation will not provide sufficient information
upon which the agents may act intelligently, a complete
examination should be made for which the member bank
shauld be charged. It is realized, however, that in
same instances unusual circumstances may exist which
would warrant the Board's exercising the discretion
vested in it under the recent amendment and waiving
charges for specific examinations. Any case which, in
the opiaion of the Federal reserve agent, warrants such
special consideration should be submitted to the Board
in advance, with a complete statement of the reasons why
it is considered desirable to have the examination charges
waived by the Board. Examinations of State banks incident to their admission to membership in the System may
be made without charge.
X,-6665
-3-
4. Any investigation of a member bank made for
the purpose mentioned in the last paragraph of the
resolution of the Board set out above may be conducted
by the Federal reserve agent rithaut charge and without
reference to the Board.
5. The Federal reserve agent will continue to
furnish the Board with an analysis on F. R. B. Form
212 of each state member bank examination report
received by him whether made by State authorities or
under his own supervision, unless in some exceptional
case it is desired that the Board should have before it
the camplete report of examination.
6. If the Federal reserve agent has evidence in
the form of letters or otherwise, that officers and
directors of State member banks have had their attention
called to violations of the law and unsound banking
practices by State authorities, it is not necessary for
the agent to duplicate this work.
7. If this supervision is not conducted by State
authorities the Federal reserve agent is directed to
take such action, as in his opinion, rill discharge the
responsibilities of the Board.
8. When a State member bank fails to correct
irregularities within a reasonable time so as to show
material improvement in its condition, the Federal
reserve agent will be expected to lay the information
before the directors of his bank and ask them to make
a formal recommendation to the Federal Reserve Board,
with reasons, as to rhether or not the State member bank
should continue as a meMbere
This letter supersedes and repeals the letter of January
26, 1929 (1-6223) on the same subject.
Very truly yours,
R. A. Young,
Governor.
TO ALL FFZERAL RESERVE AGMTTS.
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Federal Reserve Bank of St. Louis
tAi
Answer
or
Jacksonville Branch (Atlanta Bank), to
X-9115 - In File !!?.7.-5
k
' ,t•
S. 2atters affectAng admission of nonaember banks to Federal reserve
syAem.
(a) We are opposed to nonmember banks being permitted to charge
exchange after they beclme member banks.
(b) Nonmember banks becoming members should comply with the
present rules, regulations and conditions now ritplying
to member banks; or, in other -words, they should not be
given any special privileges.
(c) Extension of membership to banks lochted in insular
possessions only should be permitted. Banks in foreign
countries should not be allowed membership.
We recommend that the Federal Reserve Board cause a Call Loan
Department to be estsblished in New York that would permit member banks to
make loans in 3er York through said agency, and require every inember
placing call loans in lew York to make them through the Federal reserve
agency. This in our opinion would give the Federal Reserve Board a better
knowledge of and control over the securities market and afford members
this service at a minimum risk and expense.
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Federal Reserve Bank of St. Louis
:107013,
Pe7tonts Answer, P-2e-Fs, to X-0115
In File 327.-3
** *
*****
9. B. Examination of Banks
1. It would be desirable to centralize the control of examination of becks in the hands of a Natienal committee. This
Ex,,.mining Committee would consist of one repreeentative each
fro73 the Reconstruction Finance Corporation, the FPderal Reserve Board, the Comptroller of the Currency and the Federal
Deposit Insurance Corporation, who, together with four men
elected by the National Association of Bank Supervisors of the
United States, would elect one additional member. The Examining Committee should control and Kiake all exaeinations
of banks in the United States, all represented organizations
to be allowed to use these examinitions as they deemed fit;
this Committee to formulate all procedure and oversee the
rork.
2
. In view of the fact that the Federal Reserve Bo,:.- .rd grants
trust porers, the Federal Reserve Board should have the
power to take away trust po-eers, and this oller should cover
both National and State Aember banks, the natural corollary
to which would be that the Federal Reserve Board, through
the Federal Reserve examining agency, should make examinaJ tions of National as well as State trust companies.
'1/
C. Other Relations with Commercial Banks
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Federal Reserve Bank of St. Louis
The Federal Reserve Board should alter the form of published
bank statement in use by member lassiks so that such statemente
woul] give the actu31 present appraised values of assets, :ind
so that the titles of assets would give the public a clearer
idea of just what classes of assets are being carried by the
bank such as pledged assets, second mortgages and contracts,
and defaulted bonds.
1
4. The Federal Deposit Insurance\Corporation should Charge for
its examiantions so that the non-member banks will have no
advantage over the State member banks in this matter if we
begin charging for our examinations.
L____
5. Regulation D should be changed to avoid the conflict with
Regulation Q by eliminating the provision that certain tLie
deposits must be classified as demand deposits within thirty
days of maturity. The amount involved for reserve pur7)oses
as to each bank is comparatively small. The change would
eliminate mach confusion and expense inciJent to the reserve
calculations, maintenance of records, etc., in country banks.
This is one of the most irritating linor regulsti3ns and
causes a great aass of corrective correspondence. * * * * *V7001:5
r
4.0
6. Bankers are burdened with the preparation of too many reports.
For instance, a State Member bank is required to report its
earnings and dividends to the Federal Reserve Bank, to the
State streervising authorities, to the Federal Income Tax department, and the State Income Tax department. While the
banker must necessarily file all such reports, it would seem
that the Federal Reserve Board might make arrangements with
all supervising mthorities for the adoption of a uniform set
of figures with reference to earnings and dividends. In this
way, the banker would be required to compile only one set of
figures. In this connection, it would seem proper to change
from two semi-annual earnings and dividends rerorts to one
annual report for both National and State banks. The semi- /
annual figures are almost never uped except il co4binations
to provide figures for the full calendar year.
7. Called reports are unnecessarily detailed and. contain several
schedules which are probably never used. We suggest that the
present form be modified to eliminate unnecessary schedules,
an,i that these long forms be required only twice a year. For
the intervening two calls, banks should be allowed to prepare
only the short form for Publication. Supervising authorities
with tro comnlete ealled reports and tie examinations for each
bank, annually, would have sufficient information for administrative purposes.
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Federal Reserve Bank of St. Louis
***
*
*****
,IMIIM1111.111111,11111,,
„
ihrsersolaa to the Pawl
A
Milt *Maim et lemelmetioas•
to ULLA is
memoractkie ea the appliaation
Tottag
Tars
PrOISS
'
ta Jet
, veto to
Irtertbeeet Saamosparatisa.*
liessepollast 11laasaits
Federal lleserm 11Istriet
awe 211, 19811. GArtalor 11. Perry, Vice Preoltaat of the &
limiorre lama essorip vegasstilag permits to vete Ike stedk
,
Ihe rTit iltitasal *ask ot Appleton, WA*.Illasesota. mat
lbribmeetera
lank of Dane% balmoset illammoota. at aectiess et shareheldera to be held ea or before
October le .1.336. by the Dollowlag imarpesses
*I. Ile *ppm,e plea et raergamilastime at the above named beak to be
ofteetod Vir
taw matimal bolt la vainnterf ligeldstkne or—
samisimt
SSW Mate Stet oder the lams at lb* Stato of Idaimootat
soder tbe ammo ot•••(1) tt)•• * with & anittel. surplus
aid undivided pleats at not lees this••(I) (2)•
•respeetivelye*
(1) ellarthwastsea hate Seek of Appleton.* 6,15.000. 01080011, mad
Mortionstibril
NW* Sisk et istiarike 04000, *MO. ad SSA&
*Se la Sago the shave meet lathenal Seek la inbuilt's? 114aliatismo
elh
euthertee the Isramster mat seaverameo se el% asoote et the Illatianal
leak to the Mato Rank, subjest to all at the liabillties et the Illittonal
leak.
*4. 10) 111111bNise UV sat all other soils* asseasary ar proper in emeasellea
toith
irobantemy 3,14ptidetion et the Notional bake the osimaisatiaa
at *a State leak mat the assliameat
ameeta to. sad aseaspties ot
liabilitlas by, the State
IX•
lattalIPS
dated Noe IN. leat. Aasietent
redosol Reserve Meat SIMMS reammseaded that the limited votlag peemits be mated.
rtt• figalagiatajUINNAMEM It to raesemeadad that a United permit be tossed ainbirtaial the applicant to veto the stook shish it ems we mistrals se
Me Mot Satioaal leak at agplitsail
Pasts% Illansoots
mad
L
sae ilortlivssimt latiesaal Bolt ot imiess.
Iliesat/
1
2 Illaaseets
ow•ring the PurP00111 IPot forth
Bastian X et Otte tommoreedesi prwidei that all
estims tabs' shall be la meoordsame with Axes patio/este!, to the Comptroller et lho
corral".
rirt.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Jew,
"
ICOR
liro files of the Organisation Division of the empty"Uses Wise ladle
re•
este that the plans for liquidating the eationel basks Ism born approved• APPorsistat
the ream tar liquidation of the astiosal banks owl siganisiog Oats broke to easeeed
thee lo 'be ananded kat *blab matresi the sarplas et netiaael bad. to be brewslit up
to 1030 et the eepitel. obi* wag malt la ovemeapitoilisatien in be* inetaneass
lbe Wort evailaide reports et anosissilAn show the fellotirgt
s 4dm t ma jai
louse *pita steak
ilosplue
Ifatividoll petits
lassorre for eratingensios. otos
Tetra sepitel ativolaima
Mot appreoletilou 111 essurittes
tom Lease olessitiod lam
Adjusted capital etrustire
Depeeite
MOW
SOO
4,11115
$10.000
.
4 000
SAS
4"iiit
415101
ligit
litIle
WO
°Will
2?1,441
MAI
adjusted *pita structure to total deposits
10
la
in both lettere fro% the Till* President et the applieent it was stateir
silo note that under OW prortsious of emetion SIM at the Devised
Statute. so saandel by Illestion 11131 Co) of the Ilhaddas Mt et 1965 it pew
id** that a belting earrpony affiliate *oh wittlont dlotainistg • voting
peratittivsta in favor of plowing the sameistion in volintery lignididion
er taking! ever other settee pertainirg to the vItwAsiir lignidation at MIA
41111101itettall*.
iv in tbe *Satan of the Issid of lkosemero of the Palma Ineerne
*sten the onion shore outLined la addition to the sleeks of the Noswarely *ether maim pertainieg
time& Mak in frobrobwr 141.1Alation
to the vaanntary liquidation* and no Vag paean to reoptivedip se would
be glad to he advised ef the ruling of the Nerd en this areetleas in
order that Iso rag sotto& eemneol ter DerisC. on the gustiest at en
eaLlAily et vet*: upon *see rotten without a voting persile.
Ike Semi hes net authorised tie lasionee et a gonaral votive permit le
lierihrselt liseesrpseatiess flineideration of the teausso et ash permit hos been
deferred la eesount of 4pemotiaeis as le ensgeosit Old
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Federal Reserve Bank of St. Louis
BeepeolftL7, sebnitted.
*11X=*lia"
eendittono
May DO, 1956
MFAOPANDUM FOR THE ORGANIZATION
Drvisms:
Re: Liquidation of 'The First National Bank
of Appletose, Appleton, Minnesota.
The last report of sommiaation of The First National
Bank of Appletoa eampleted March 10, 1956, shows it to be solvent,
and inasmuch as a new State bank is to be organiTed to succeed
the National bank, it is recommended that it be permitted to go
into liquidation.
This bank is a member of the Northwest Bancorporation
and while the records do not indicate the reason for liquidation,
it is probable that this action is being taken on account of the
law requiring the surplus fund to be built up to the amount of
the capital, in which event the bank would be greatly over—capitalized.
This is probably the reason a new State bank is to be organised to
succeed the present bank. The deposits of The rirst Natiosal Beak
of Appleton have decreased approximately 1100000 in the pest
sad
five years, the amount Mesa by the last report being $271,000,
be
lly
eventua
would
it
as the bank is on a dividend paying basis
required to have a capital and surplus of $70,000 which would be
out of proportion to the probable total deposits.
C. F. NILSON,
/watt. Chief National Bank Exaainer.
APPROVED:
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Federal Reserve Bank of St. Louis
E. H. GOPGH,
Deputy Comptroller.
copy
t\s
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Federal Reserve Bank of St. Louis
Nay 20, 3.956.
NIIMERITXTV MR THE ORGANIZATION
minions
Re: Liquidation of "The Northwestern National
Bank of Dawson", Dawson, Minnesota.
(Member Northwest BP.ncorporation 7roup)
Inasmuch As it is propoeed to organire a new State bank
to succeed the subject bank and the last rerort of examination
as of Januarr 14v 1956, short it to be solvent, it is recommended
that The Northwestern National Bank of Dawson be permitted to
go into liculdation.
It is apparent that a number of the smaller nationel baulks
control of which is owned by the Northrest Bancorporation
stock
the
contemplate the organi/cation of State banks to succeed the national
banks, the reason for suCh action tn all probability bent, due to
the amended ls_w requiring the surplus hind of national banks to be
built up to 100% of the capital, which would result in over.capitalisation. As of January 14, 191% the subject bank had capital
of $50,000 and sound canital structure of $41,000, with deposits of
say $291,000 and the EXaminer states that the volume of business
lea about as large as could be exrected crwidering the 81.70 of the
toga and adverse crop conditions.
C. F. WILSON,
Aoslt. °hie National Omsk boodner.
AF'PROVID:
E. H. GOUGH
Deputy Comptroller.
copy
1630
I-1
SOURCE:
k41.414 - ASSESSMENT (1933 - 1934) &tate Alember Bank Examination
(General Files)
Memorandum to the Board from Div. of Exam, dated July 14, 1934, re
Report of the Federal Reserve Agents' Committee on
Uniform Examination Charges.- R.F. Leonard
Page 3
In the Boston district, rather 4ausual circumstances account for
the relatively large costs collected. illae Banking Department of Ehode
Island makes no charge for examinations of Etate banks, is small and not
equipped to examine the larger institutions. The examiners for the Federal
Reserve Bank, therefore, assume responsibility for the examinations of the
large state member banks in Rhode Island and charge for the costs of the
]The Banking Department of the State of Maine makes no direct
examinationS
.i
charge for t e examinations, and the examiners for the Federal Reserve bank
assume responsibility for the credit work in the examinations made jointly
with the state examiners, and Reserve bank charges for the cost of such
examinations. * * *
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Federal Reserve Bank of St. Louis
16`14
v
3
SOURCE: 241.414 - ASSESSMENT (1935-1934) State member Bank Expmination
(General Files)
Excerpts from copy of letter to Mr. John 6. Wood, St. Louis, from Mr.
Wm. W. Hoxton, Richmond, under date of June 14, 1934
I received your letter of May 21, 1954, with reference to uniform
fees to be charged by Federal Reserve Banks for examinations made by them
of State member banks, which has not been replied to earlier because of
the press of other matters.
There is a large and important question which deserves very careful
serious
consideration. Federal Reserve Banks are vitally interested
end
condition
of the banks of the country, especially member banks. The
the
in
Comptroller of the Currency is charged with the duty of properly supervising National banks, but State banks are under the supervision of
forty-eight different State authorities which are without uniform laws
and which are not equal in standard of supervision.
In many StateE the
supervision MA is very ineffective. State member banks receive less
supervision from State authorities than do non-members, because Federal
Reserve Banks are expected to take the lead in the supervision of State
members.
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Federal Reserve Bank of St. Louis
V
SOURCE:
241.414 - ASSESSMENT (1929 - 1932) State gember Bank Examination
(General Files)
0
FEDERAL RESERVE BANK OF PHILADELPHIA
THIRD DISTRICT
February 1, 19P9
FEDERAL RESERVE BOARD,
Washington, D. C.
Dear Sirs:
Your letter of January 26th -.17-6223 subject "Examination of
member banks" - was duly received. 1.5e note that you express confidence in the reports of the Comptroller of the Currency and feel
justified in relying upon them for information as to the conditio
n of
national banks; also that the State reports of examinations
can be
relied upon in the great majority of cases to furnish the informat
ion
necessary to the Agents. We regret to say that, based upon
our experience, we do not feel that the reports whic:: we receive
from any
of the supervisory authorities give us all the information which
we
consider we should have, regarding the condition of our melaber
banks,
to enable us to comply with Sections 4 and 21 of the Federal Reserve
Act. This experience is supported by the information in our
filesg
We have worked out a very satisfactory plan of cooperat
ion with
the &tate banking departments, which we feel gives us the informat
ion
necessary to determine whether or not we can safely grant
the applications
of State member banks for rediscount, and also to furnish the Board
with
the information it might demand concerning the condition of such
banks.
If we follow out one suggestion of your letter, then, in case we
are not
satisfied with the examinations the State departments make, we would
have
to abandon our present practice of cooperation with them, and make complete
examinations ourselves, this would add very greatly to the expense of
our
member banks and we would not know sufficiently more about the banks
to
justify that great additional expense.
We know that it is not the practice of State examiners, in the
course of an examination, to see whether or not the requirements of
the Federal Reserve Act, the regulations of the Federal Reserve Board and
conditions of membership are beinE complied with, and quite a bit
of the
time of our examiners is spent in checking such matters; also we have found
that very few of the State examiners are able to compute accurately the
reserve required of State member banks under the l'ederal Reserve Act.
We feel it should be realized that the State bank examiners are not in the
least interested in seeing that the terms of the Federal Reserve Act etc.
complied with:3
*******
(S) E. L. .6ustin
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Yederal heserve AEent
Federal Reserve Bank of St. Louis
rt3
GENERAL FILES- 241.414 - ASSESSMENT (1929 - 1932) State Member Bank Examination
0
FEDERAL RESERVE BANK
OF CLEVELAND
March 28, 1929
Federal Reserve Board,
Washington, D. C.
Gentlemen:
If I am correct, when the Department of Examination was organized
some ten years ago by order of the Federal Reserve Board, it was done
with the idea of cooperating with the state banking departments, whenever
such cooperation was possible, to the extent of sending in one examiner,
sometimes more if necessary, for the purpose of determining the thoroughness of examinations conducted by the various state departments and for
the purpose of ascertaining the use members were making of their funds.
This was particularly pertinent when the member bank was borrowing from
us. In the early attempts to set up this contact with our state member
banks, I think it was true that each of the state banking departments in
our district felt that we were attempting to inject ourselves in a supervisory capacity. This feeling was overcome, however, and I elieve the
relations since have been regarded as mutually beneficial. During that
time a campaign for state members was made, and the question always arose
as to whether or not they would be subject to examinations and whether
or not additional cost would be imposed upon them. They were told in
each instance, I believe, that, while as members of the System they
were subject to examination, no charges would be made except in cases
where a complete examination was considered necessary. In our history
there appears to be no recold of this having been done. We have made
special investigations of banks where the cost was assessed to the member
bang
Regarding the present status of our state departments of examination: I believe Ohio has improved, although it is far from satisfactory in
my opinion. At least our relations with the department are satisfactory
and for the most part quite easy to maintain. Pennsylvania has a splendid
and thorough-working department of examination. The departments of West
Virginia and Kentucky, in which states we have very few stqte member banks,
are far below standard. It appears to me that it is up to each Federal
Reserve bank to establish and maintain relations to the best possible
advantage. In general, while our relations with all state banking departments are cordial, the degree of cooperation which we secure is not all that
could be desired.
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Federal Reserve Bank of St. Louis
Sincerely,
(S) Geo. DeCamp
Federal Reserve Agent
SOURCE: 241.414 - ASSESSMENT (1929-1932) State Member Bank
Examination
(General Files)
0
FEDERAL
OF
RESERVE
BANK
BOSTON
March 15, 1929
Hon. Roy A. Young, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Young:
* *'
,Now the only question that would arise is in such examinati
ons
where we have one or two men sit in to follow the character of the
examination and to secure certain information and records that are
not
covered by the examination of the Stat., Department. As an example,
we accept in Connecticut and Massachusetts the examination of the
State
authorities but always have one or two men sit in with the State examiners
,
the number varying with the size of the bank. For instancE, if the
State euthorities in
the Cad Colony Trust Company of Bocton
utflized the services of some fifty or ,iyt./ men from the State
Department, we would hLve tvo men sit in with the examin_tion, Lall L.
I said before, these two men are only procuring information and data for our
own examining department, and, although most of this informetion miE,ht
be procured at the State House, it is much easier and more satisfactory to
obtain this at the time of the examination, while at the same time these
men can acquaint themselves with the manner in which the entire examination
is being conducted. In the case of a small out-of-town trust company, only
one man is sent fbr that purpose from our examining department, whereas
the State authorities will probably have from five to six men.
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Federal Reserve Bank of St. Louis
Yours ver3r truly,
(S) Frederic H. Curtiss
Federal Reserve Agent
SOURCE:
241.414 - ASSESSMENT (1929-1932) State Member Bank Examination
(General Files)
0
FEDERAL RESERVE
OF BOSTON
BANK
February 26, 1929
Hon. Charles S. Hamlin,
Chairman, District No. I,
Federal Reserve Board,
Washington, D. C.
Dear Mr. Hamlin:
I think you know, from the very first I have realized the
Board's responsibillty under the Federal Reserve Act for charges for
these examinationrhave charged practically always where the onus of the
exhmination fell upon our expmining department. Much of the work that
our examiners are called upon to do is really to see that the examinstion i& conducted in a satisfactory manner by the State examiners and
procuring records of such examinations for our own credit files, and
it will be rather difficult to justify a charge for work of this
chsracter. Again,U1 some of the btates banks are already charged for
the examination by their State examiners, and in other Etates they are
not, so that it would seem to me that this might be a factor o be taken
into consicteration when the question of charge is considered.
.1
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Federal Reserve Bank of St. Louis
*** ***
Yours very truly,
(S) Frederic H. Curtiss
Federal Reserve Agent.
'/
SOURCE:
241.414 - ASSESSMENT (1929 - 1932) State Member Bank Examination
(General Files)
"FEDERAL RESERVE BANK
OF RICHMOND
July 3, 1929.
Hon. Roy A. Young, Governor,
Federal Reserve Board,
Washington, D. C.
My dear Governor Young:
Under the Board's new ruling that we must regard "credit investigations" as examinations within the meaning of the law, and must charge
for them, I am, as a starter this year, examining only thoce State member
banks in the district which the Federal Reserve Board's examiner listed
with us as requiring "special attention." I have not yet sent out any
bills for these examinations, but have warned the banks that bills would
be forthcoming later. Of course, if the board does not modify its old
circular, I will have to charge them under the terms of that circular,
but I am hoping that the modification referred to above will be made. If
it is made, it will not impose any great hardship on our State member banks
on account of having to pay for both our examination and the State examination, and
feel sure that we will hear no compliint from the State member
banks on that score. Our examination forces a higher standard upon all of
the State banking departments in the district, and I would very much like
to have our charge sufficiently reasonable so that we can regularly go into
all of our State member banks once a year.
L
Iwo of our Richmond Aate member banks have requested us to give them
the benefit of our examination, although neither bank is on the list requiring
special attention. The:y say they would rather have our examination and pay
for it than not to get it at all. Of course, these two banks, being in
Richmond, would only pay for the time of the examiners employedD If these
two banks were in - say Baltimore, and had to pay railroad expenses, hotel
bills, etc., I doubt if they would feel so eager to have the examination.
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Federal Reserve Bank of St. Louis
Always with best regards,
Sincerely yours,
(S) Wm.t. Hoxtan
Wm. W. Hoxton
Federal Reserve Agent."
11132
,•
ciY
^
9
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Federal Reserve Bank of St. Louis
MISCFLLANEOUS
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306S
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FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7598
September 21, 1933.
SUBJECT:
Liability of banks on deferred
certificates issued to depositors.
Dear Sir:
There is inclosed herewith for your information a copy of a letter tliE. Federal Reserve
Board has addroosed to the Auditor of Public Ac-
•
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Federal Reserve Bank of St. Louis
cokults of the State of Illinois with regard to the
liability
certlin banks in that State on deferred
certificates issued to depositors who waive their
ri9.;ht to demnd imnediate paymont of a part of their
claims ac;ainst the bank.
Yours very truly,
—
L. P. Bethea,
Assistant Secretary.
Inclosure.
TO ALL FEDERAL RESERVE AGENTS.
X-759E1-a
September 21, 1933:
COPY
Hon. Edward J. Barrett,
Auditor of Public Accounts,
State of Illinois,
Springfield, Illinois.
Dear lir. Barrett:
aeference is made to the conferences which you and members
of your sttff had with members of the Federal Reserve Board and the
Board's staff on September 11, and 12, 1933, with regard to the obligation of reorganized State banks located in the State of Illinois
on deferred certificates which they have issued to their depositors
who have waived their right to demand immediate payment of their deposits.
Reference is also msde to your letter of September 12, 1933,
inclosin,,, copies of the Depositor's Agreement and the Deferred Certificate which have been IA:A;(1 in the reor;anization of the State Bank
of Collinsville, Collinsville, Illinois.
It is understood that the
i:rovisions of this agreement and certificate are substantially similar
to the provisions of agreements and certificates which have been used
in the reorganization of many other State banks in Illinois, and the
Federal ieserve Board has given most careful and sympathetic consideration to the problem involved in this matter.
It has been observed that the Depositor's Agreement provides
that, in lieu of payment in cash of 50 per cent of his deposit claim,
the depositor will accept a deferred certificate issued by the bank
•
for a like amount, payable out of future recoveries on segregated assets and the net profits of the Bank, and before any dividend or
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Federal Reserve Bank of St. Louis
Hon. Edward J. Barrett
-2-
X-7598-a
returns of any kind or character are payable to stockholders.
The
Deferred Certificate which is issued by the bank states that the bank
agrees to pay the amount represented by the deferred certificate to
the holder thereof solely out of the future net profits of the bank
and recoveries, but, in all events, before the payment of any dividends
to the stockholders of the bank.
It further provides that, in the
event of liquidation, the termination of the bank's business, the consolidotion with or transfer of all or a major part of its assets to
another bankin6 institution prior to the payment of the deferred certificate, the holder of the cerUficate shall be entitled to share in
the proceeds of the liquidation, sale, merger, dor consolidation after
liabilities of the bank to its depositors and other creditors shall
have been paid or provided for and that, in any event, the holder of
the cert*I'icate shall be entitled to priority over any of the stockholders of the bank.
In these circumstances, it seems apparent that a bank issuing
such a deferred certificate assumes a definite obligation to pay the
amount of such certificate at some time, and that there is no way by
which it can be releaoed from ouch obligation except by the consent of
the certificate holder.
The obligation of the bank for the payment
of such deferred claim is a liability of the bank, to the same extent
as the obligation of the bank to pay the claim of any depositor.
The
only differences between the two classes of claims are as to time of
•
payment and preference of payment in the event of liquidation, and it
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Federal Reserve Bank of St. Louis
X-7598-a
Hon. Edward J. Barrett
seems clear that these differences do not ,justify a conclusion that
there is no liability on the bank for the payment of the deferred
certifice.tes described above.
The board has considered thf. sua:estion which has been made
that the stockholders of the bank have authorized the bank to act
merely as agent in dictributint; to cleferred certificate holders future
recoveries and earninc,s, to whic
'che stockholders would normally be
entj.tled, and that, accordinly, the liability for the payment of such
deferred certificates is on ine stockholders of the bank rather than
on the bank itself.
hariever, it does not appear how this can be true,
on the basis of the facts involved in the case presented, when the
stockholders of the bank are not parties to any of the agreements but
such agreements are between the bank itself and the depositors thereof.
It may also be noted the
(loos not Rppear to bo any way in
which a stockholder can relieve a bank from its liability to pay the
claims of depositors, but thLt a bank can only be relieved ef such
by the ar:reement of the depositor and in accordance with
the terms of any al;reement exeouted by the deuositor.
As noted above,
the deposiLors here involved have not relieved the bank of the obligation to pay their deposits but have merely entered into agreements
uith the bank, permitting a deferment of payment of such claims.
After a careful consideration of all the circumstances involved in this matter, tho Federal Recerve Board is of thc opinion
•
that a bank which issues deferred certificates such os the one inclosed
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Hon. Edward J. Barrett
in your letter of September 12, 1933, has a libility for the payment
of such certificates.
Under the provisions of Sectdon 9 of the Federal Reserve Act,
a Stai,e bank may not be admittod to _iembership in the Federal Reserve
System unless it hv.s an unimpaired esTital.
Accordinsly, in any ctle
where a bank has issued doferrod certificates of tho kind described
above and tho rmount of
on such certificates, toL;ethor with
tho othor lir.bilities of the bank to depositors and other creditors,
as comrared with the amount of the assets of thc bank, is sufficient
to impair the bank's capitol stock, it would not be olicible for udnis.
sion to memborship in the Dederal Reserve Systen.
su2;,7,ested when you conferred with members of the Board, the
fact that reors:,anized Illinois StLte banks may not at this tire be
eligible for admission to membership in the 2ederal Reserve System on
account of an impairment of thf=dr caldtal, as a result of liability on
deferred certifict,tes of the kind described above, need not necessarily
result in serious consequelLces to such banks.
It is possible that
these banks may obtain the benefits :1' the Federal Deposit Insurance
Corporation and, while entitled to svch lenefits, eliminate their
liability on deferred certificnten und become elicible for admission
to membership in the Federid Reserve Sysem.
It is understood that
you havo taken this matter up with the Federal Deposit Insurance Cor;Ioration.
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Hon. Edward J. Barrett
X-7598-a
_5-
It would seem that the liability of a bank on such deferred
certificates might be eliminated by having the bank transfer all
charged off ussets to truste:os for tlic benefit of deferred certificate
hol(lers and obtain irom each certificate holder an agreemlit releasing
the bank from any liability on such certificates and aceeptini;, in
lieu thereof, a certificate from the trustees entitling the certi:icate
holder to a pro rata share of any recoveries from the charL4ed off Lssets transferred to the trustees.
ir
deemed advisable, n;reements might also be obtained fram
the stockholders of the bank to the effect that, until all certificates
issued by such trustees have been paid in full, the s'_.ockholders will
transfer to the 1.rustees, for the benefit of tle cLrtificate holders,
any dividends declared on their stock by thc bank.
Tho Board questions
the advisability of a bank obtaining any suc'.. agreement from its stockholders, since it is apparent that, for a considerable period of time,
any dividends on the stock of the bank will not be for the benefit of
stockholders and that, for such period, the bank's stock will huve
little, if any, value from the standpoint of the earnings of the bank
and, accordingly, will not be marketable.
It appears questionable,
therefore, whether on such a basis the- people of the community will
retain confidence in thc bank so as to enable it to main'L.ain or increase its deposits in competition with other banking institutions.
The Board feels that, in any ease of a reorgaldzation of a bank where
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Federal Reserve Bank of St. Louis
-Huh. Edward J. Barrett
•
X-7598-a
the stodkhelders have doae everything possible to discharge their obligation
to the bank and to save the depositors from loss, the de-
positors arc not equitably entitled to future earnings of the bank.
However, there may be cirmLnstances where the stockholders havc not
have already
fully discharged their obligation and the depositors
oblii;ation of the
agreed to a plan of reorganization and accepted the
tors,
bank to conserve future net earnin,;s for the Lorefit of deposi
ion of
until their claims are satisfied, nhich justify the execut
to deferred
f-Igreements by stocknolders to turn over rue.y. dividends
to conserve
certificete holders, in lieu of thc agreement of the bank
s.
earnins for the benefit of such certificate holder
,
As you know, the State Bank of Collinsville, Collinsville
System, and tho quesIllinois, is now a member of the Federal Reserve
•
ary of the Treasury
tion involved in that case is whether the Secret
as a member bank.
should issue a lieense to that ban': to reopen
This
the Federal Reserve Board,
question is no': one for tu.c. determinetion of
of the bank on the probut, since it is understood that the liability
ntially impair, if not entireposed deferred certificates would substa
advisable to reorganize
ly eliminate, its capital, it would not seem
l is restored.
and reopen this membor bank until its capita
It is sug-
13ank of Collinsville and similar
gested that, in the case of the State
paragraph commencing on
cases, the procedure outlined in the first
to the reopening of the
page five of this letter be followed prior
of the bank on deferred cerbank in order to eliminate the liability
not entire elimination of
tificates and the consequent impairment if
•
its capital.
Of course, as you know, this bank might voluntarily
e System and reopen as
withdraw from membership in the Federal Reserv
the deferred cera nonmember State bank and, after its liability on
tificates
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Federal
has been eliminated, apply for readmission to the
•
Hon. Edward J. Larrett
Reserve System.
-7-
X-7598-a.
The Board feels, however, that it would be more cle-
aecomplished prior
sirable for such elimination of liability to be
to the reopening of the bank.
The Board fully appreciates the efforts you are making to efit desirer; to
fect sound reorsanizations of banks in your State, and
be of all possible assistance to you in this connection.
Accordingly,
g that proif there is any further information you desire or anythin
be appreciperly can be done by the Board to be of assistance, it mill
ated if you will advtse the Board.
V3ry truly yours,
(Sigied)
E. R. Black
E. R. Black,
Governor.
•
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Federal Reserve Bank of St. Louis
CH.B.
Sept. 8, 1937
I. The report on Governmental Financial Agencies prepared by the
Breoktngs Institution for Senator Byrd's committee reoommends the
continuance of two Federal institutions for the control of banking: the
Boerd of Governors of the Federal Reserve 4stem and the Federal Deposit
Insurance Corporktion. It thus recommends tilt. abolition of the office
of the Comptroller of the Currency, rejects the theor:, thet there should
be a single Federal control agency to deal with banking and credit, and,
incidental to the farmigoing, sagf, sts that the Board of Governors should
relinquish certain pipers it now exercises.
In brief, the re2ort recommends thpt the F.D.I.C. be granted
the functions at present performed by the Boftrd of Gavernors with revrd
to (a) holdine company affiliatee, (b) interlocking directorates, and
(c) the examination of banks, with the reservation thet the Board of
Governols tJuld have authority to examine Federel Reserve banks and to
make su?plementary exeninsti-ns of member banks and banks applying for
membership in the System, when necessary. Beyond such complete trenafer
of authority, very close cooperation between the Board of Governora and
the Y.D.I.C. would be necessitated by the following reoommended requireAleuts:. lop) Consent of the F.D.I.C. before
&tete beak member can be
admitted to the Federal Reserve System; (b) consent of the F.D.I.C.
before any insured bank can establtsh braacLes, whether or not the
bank is a member of the Federal Reserve System, and thc consent of the
Board of Governors in the ease of a member bank, whether national or State,
(c) consent of the Boerd of Governors before the issuance of charters to
national banks, the charterint operation to be under the F.L.I.C.; (d) the
enlargement of the Federal Reserve Bulletin to include stutistics issued
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Federal Reserve Bank of St. Louis
-2-
by the F.D.I.C.; (e) the housing of the F.D.I.C., if 2ossible, in the
Federal Reserve Building; (f) the fixing of rates of interest on time
and savings deposits of all insured banke by
committee of five, two
members beint designated by the Board of Governors, two by the F.D.I.C.,
and the fifth being the becretary of the Treasury or his representative;
and (g) the collection of call reports by F.D.I.C. on forms approved by
the Board of Governors.
II.
The crucial point in this program is the rejection of any plan
to consolidate all Federal control acencies relating to banking and credit.
The recsons for this view are contained in the following quotations:
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Federal Reserve Bank of St. Louis
(1) *The principal arguments for oomplete consolidation of
the Comptroller's office, the Federal Deposit Ineurance
Corporation, and the Federal heserve 6ystem„ however, have
to do with economic advantages of it. unified banking system AM
egainst the present system of dual control.
Consolidation of
the control agencies in Washington would be a long etep toward
such unificetion of the banking system.
This question involves
political and ecomomic issues more than administrative efficiency and economy. It would be beyond the assigned !Unction
of this report to weieh the advantages and disadvantages of such
fundamental reform'.
Our recommendations are made on the assump-
tion that it is the established Aolicy of the United States,
at least for the present, to divide the responsibility for
bank supervision between the Federal Government and the Ststes,
leaving to the commercial banks the choice between :Ante and
national charters, and between membership and nonmemb.-rship in
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Federal Reserve Bank of St. Louis
-3-
the Federal Reserve System." (pp. 37-38.)
(2)
°There are over 7,000 insured State banks not aembere of
the Federal Reserve bystam *Leh are subject to Federal
examination only because they halve elected to take Avantage
of the insurance of deposits which is atiministered by the
Federal Deposit insurance Corporetion. It would be aut of
tbe queettan to place the examination in either the
Comptroller's office, the Board of Governora of the Federal
Reserve System, or the Federal Reserve banks.
°As to tbe member banks of tne Federal Reserve System,
there nay be, difference* of opinim. But our recommendation
that the examination of theae bankr be placed in the Federal
Deposit Insurance Corporation is not besed merely on the
advantages of unification, but on the fact thet examination
is mare important to the Federal Leposit Insurance Corporation
than it is to the Federal Reserve Spites.° (pp. 39-40.)
(3)
*The Board of Governors of the Federal Reserve 6,7stee exercise
quasi-legislative and quasi-judicial functions of a character
which is a matter of long-established policy are regularly entrusted to boards representing divergent interests, rather
than to single administrators. The Federal Deposit Insurance
Corporation could be ndminietered by an executive head inetesd
of a board,... (p. 380
All of the activities of the
Reserve taystem so far enumerated have to do with the control
of the general credit situation, making money abundant and
cheap when it is deeired to encourage expaneiou of business
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Federal Reserve Bank of St. Louis
-4_
activity, and raising rates mad making mammy scarce and
deer when restriction is deem,A necessary. This is the
main function of the Board of Governors of the Federal Reserve System. It is quasi-legislative in &erecter. .
(po. 15-16.) Our recommendation is based sinoly on the
desirability of freeing the Board of Governors, as far as
possible, from purely adminivtrative responsibilities. .
(p. 44.) One desirable effect of the recommr-ndations made
above, if they are carried out, would be to reduce the volume
of administrative work of the Board of Governore of the Federal
Reserve System and leave it free to devote more tine tD the
study of credit conditious and the foromlatims of credit policy.
iver since the cref,tion of the System, Uwe has been a tendency
for it to absorb administmtivf, 4obs, sue as the control of
interlocking directorates kind of the establishment of branches
and supervision of holdingikompany affiliates, ... A large
beard im not an ideal body to carry on administrative taeke.
Moreover, the policy-Asking functions of the Board have grim
in importtnce with the inereaeing public reliance on credit
control as a panacea for business ills.
We believe that there
vill be a cAssiderable gein in the effectiveness of the Board's
more important work if it is relieved of much of ite adninistrative
responsibility." (p. 4C.)
(4)
The authors of the report feel that the F.D.I.C. ". .. iv
the Agency ehich is responsible for the maintenance of bank
solvency.' Again, the report speaks of ". .. bank solvency,
•
which is the center of the Federal Deposit Insurance
Corporation's function." (ps
III.
rhese excerpts fairly indicate the reeeons advanced to ex)lain
why the Federal Reeerve bystem is not abolished or placed under an
edministrative agency such as F.D.I.C. They also exolain iski the Boerd
of Governors, according to the theory of the report, should be stripped
of some of its present duties and why the functions of the F.D.I.C. are
not placed under the Board of Governors or a new single agency to handle
the duties of the Board of Governors, the Comptroller, and the F.D.I.C.
In short, the Federal Reserve *yetis it preeerved because its board—type
a organisation is regarded as proper for the exercise of its semi—
legislative relation to the quamtitative aspects of monettry management
and the performance of its responsibilities in this connection can be
best accoaplished, the thought is, by removing from the Board as gamy
administrative or other routine dutirs as possible.
The F.D.I.C.„ on
the other hand, is almost wholly an administretive agency concerned with
bank solvency amd is, because of ouch reesons, rer.Lerded ne the proper
place for nearly all administretive detail.
Unificution of Federal
comtrol agenciet is precluded bectuee the United States ie oresumably
committed at preeent to
division of responsibility between the Statee
and the federal Government.
(1) The explanation of why a unified regency for the Federal oomtrol
of benking is not now recommended is either badly expressed or seriously
confused.
There is an implication that a fundamental bankimg reform
needed in the United States is a umifioatiom of the banking system; and
it it correctly suggested that a unification of the systea involves
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Federal Reserve Bank of St. Louis
.
OP
"fro.
1".•
t
*, SA.*
-6-
& 41,
AAA, -Al-
6
"4"41.4.
;141z 4 ,
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feet
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0.14,
le AN,
political questions, which cagy well have been outside the terms of
reference of the Brookings Reeort.
Thus it say have been also tree that
the authora of the report felt thcm.selvez compelled to assume thy
continuance of o. bankini recponsibilit-,,, divided between the Federal
Government anc the Ltatc owernm nts taw to prewuppoze the continued
existence of whet ir called "dual control,"
However, there seems t be a noneequitur in the report's
apparent opinion that divided responsibility between the Federal and
State governments of itself necessitates a division of the agencies by
Which the Federal Goyerrysent ahall exercise Ile relationship to the
banking eystem.
The proper question with respect to executive re-
organization is, "Should the functions of the Federal Government with
reepect to banking and credit be exercisod by one or more egencies?"
And if, am the Brookings Report seems to think, it is neeessary to
assume the contieuence of both :,:tate and Federel c)ntrAs in banking
then the ;second euestion is a restatement of the first: "Granted a
division of authority between the State anr:. Federal Governments, is
there anything In that circumstance to prevent a proper expression of
1-t
yea-`1
4 i
tyre
the ,Federal powers through c single agency?" The Brookings Report hake
the first question but never addressee itself to the second. Ineteod,
in the only place it defile witn the proble:4 explicitly, it seems to
same that divided Federal supervision of banking and credit is required
by the fact that State banking systems 7.2ay continuo. Snob a comelmsias
is entirely too important to be accepted merely by the proeess of assumption; and, if the other chief points made by the reiaort &re intended to
support the conclusion by implied adplicstion, then the case for &
divided Federal :supervision must be judged on **eh of theam arguments
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Federal Reserve Bank of St. Louis
* tr•
st4 g
CA
,at
r.
t
( t—
ee,
fti
,e*
specifically.
(0
4,-, •
It is true, of course, that aeny insured
ate brinks are not
members of the Federal Reserve 4stem. It ie also true that these banks
are subject to Federal examintAion only because of deposit insurance.
Having made these observatione, the Brookinke Report goes on :simply to
take for granted thet nit woulc be out of the ikuestiop
to place the
examinetion in either the Comptroller's office, the Board of Governors
of the Federal Reserve System, or the Federal Reserve Banks.*
The report
emphasises its point by egying that there may be differences of opinion'
'concerning member benke of the bystemi but, though acknowledging the
possibility of differencee of opinion in the case of metber banke (which
differencee of opinion are apparemtly not thought of as even :)oseible in
connection with nonmember banks) goes on to recommend that the Reserve
Systes rely on the F.D.I.C. for the exemination of member brake.
Just why it would be "out of the question* to place the exaeimetion of State insured banks within the Federal Reserve Lystem needs clenr
amd direct exposition.
Doubtless the insurance of deposits, in view of the
present organization of American banking, implies the necessity of bank
examinetions. But the mere allegation that the Federal Reserve 6yetem, if
it tock over the function of depovit insurance, would then be compelled to
deal with nonmember banks is not of itself convincing on tnis point.
After
all, if a Federal agency ie to inoure the deposits of State bknics, .c22._ste
Federal agency muet invade the privacy of insured 6tate banks through the
examination procese; and, unlese there is something very mystical about thie
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Federal Reserve Bank of St. Louis
Miphasis eine, through:mt.
problem, there must be an explanation of why it would be proper for
one
Federal agency to examine insured State banks in connection with the
function of deposit insurance and improper for another Federal
;.gency,
such as the Board of Governors, to eyamine insured State banks
in connectima with exactly the sank function. Perhape it would be imprope
r, and
„
kr
perhaps politically impossible, but the point needs demonstration.
It may
be recalled in paseing that the 4stem already duels with
N
very large
i'e
number of nommember State banks that have mum within the par clearance)
p44""‘”:
arrangements of the byaten.
(
(!) The thought that the Board of Governors should be lsreely relieved
of administrative detail is plausible. In connection with deposit insurance,
however, the Brookings Report haa supdlied in a meksure the answer to its
own contention. It has insisted that. the operation of Federal deposit insurance iv largely and administrattve task.
Mat point is questionable and
may turn out to have minimized too greatly the problems and difficulties
that will in the long run attach to deposit insurance.
Nonetheless, if
deposit insurance is, as the Brookings heport suggeste, largely a matter of
routine administration, in which there are few policy-making decisions, then
it could. be handlsdi ander the Board of Governors by an administrative officia
l
without serious inflationist upon the time of the Board.
The adninistrs.tive work of the Board of Governors is by no memo
a negligible problem. It does not appear, however, to be an insuperable
obstacle to
A.sn of reform that might otherwise be u sound syatem of
Federal banking and credit control.
Even if thf., administrative work of the
Beard of Governors more slibstantially expanded, it does not sees at all
pessiblE to reersemise the administrative aspects of the Board's work along
lines
that would eentime the Deerd, settng as
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Federal Reserve Bank of St. Louis
body, to the sort of quasi-legislative
-9-
deternination of general dolicy thet the Brookines Report indicates as
a proper Board function.
To be sure, the habitri of the Board might need
alteration in order to hhndle e considerably expanded administretive
load, and probably legislation oermitting the Board to delegate functions
might be required; but an enlargement of the Board's duties would of its&
probably compel an expedited manner of dealing with detail.
It may bc acknowledged, moreover, that the general ider of those
who desire to reduce ,ts far as possible the work of the Board is genuinely
attractive.
Behind nearly all such plans appears the belie. that the
Board's naln function, sanely, monetary management, will thus receive
an improved and sore constent attention.
The opinion secas to be that
the Bonrd should sit in its suite in -41 uninterrupted condition of
reflection regarding the st.te of buoiness and credit.
Unfortunatelyy while
the quality of thinking may have sone relition to the time s2ent upon it,
the identity between the oualitative aspects of thought and the tine factor is
by no means complete.
In the lonr. run, the quality of the Board's reflection
is probably dependent more upon its experience Lad upon the accuracy enc. coapletenoes of the fLcts passed up to it by the staff than by time available for churning
over end over agein a body of incomplete and inaccurate information.
It is
Arobable that the future of the Boerd's functioning as an organisation for
nonetary nanaeement eepenos more nearly upon the ability of the staff to extend
the frontiers and precision of the information upon which the Board must ect
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Federal Reserve Bank of St. Louis
-10-
than upon atimpla extension of the time available for unadulterated
logic. This is not to minimise, of course, the difficulty of the
problems the Board must decide, nor to allege that tine for full consideration is not requisite; but it is to say that a simple extension
0. it.
of the time available for discussion and debate will not of itself insure
iv"Ille Board.* succese.
In any event, it met be noticed that the recommendations of
the Brookings Report would call on several scores for the very closest and
most harmonious of relationships between the F.D.I.C. and the Board of
Governors. low, it can be hoped that Each wutaelly helpful cooperstion
would continuously exist.
Considerable disagreement, however, is by no
means unknown between financicl agencies, sod fer reasons that will be
indicated below, the F.L.I.C. awl the Beard of Governors will each be in
a position to handicap the other, so that it may be Questioned why tbe
establishment of two organizations dealing with Federal bankinf, fUnctions
should be advocated when these ,,,rganizatione will necessarily be in the
process of more or lege continuous negotiation. Such procedure will be
time coneuming, occasionally groductive of disagreement, and, on the basis
at least of general cansideratione, it would appear more desirable to
place all Federal functionS relatini, to banking under the same argmaimatiemel
control, so that various problems impimging repos each other are autonptically
a part of the conociousnese and intelligence of the same controlling body.
It may be esked whether the problem of administrative legislation, properly
1
organized, would represent a greater load on the Board of Governore, if
deposit insurance were placed under the Board, than would the necessity of
'continuous dealing with P.D.I.C. in autual problems, which is necessitated
by the Brookings proposals.
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Federal Reserve Bank of St. Louis
-11-
(4) Sith regard to examinatioms, the report saye Um?ly thEA
F.D.I.C. is sore conzeraed with beak exemin-tioa the-, 'ziae Fc eral Rec.erve
Ihet c4nclusian seLaz to rest ups-n the thought that there
is a cieer diatinctioa between the functions of the Board of Governors
and tho question of bank solvency, which is presumed to he the problea
/1.4
of
These points kat attractive; but countervailing considerations
4°' ars available.
4,1 4tA
.
In the first place, the Federel Reserve banks have need of
'44:44,4,,41„)
exaskimations.
Xit
That fact is Lcknowledged in the re'rort. The Reserve banks
most deal with seaber baaks as borrowere; ane, ia the extension of credit,
the Whole polic
ant history of a borrosing bz_nk may sell be in r.liestion.
it ie hardly satiefector3 simply to va4 thet the ezamination reports
eeseaolec under the cirect control of the F.D.I.C. rould be availeble to
the Board of Governors and to the Reserve banks.
Lnformation of importance
that could be conveyed in informel conferenct:. e between Re'..3erve bunk officiels and exeminers uey not apveer in rxeminetion reports.
Each in-
formal &venues of information and =ULU sui4estion can hsrdly opercte
sell sham the exeminere u.re not ree)oneible to the Federal Reserve Eyrtem.
A:4
&
The mere fact thet the rederal Reserve Zystem, moreover, aust new rely in
large measure upon the e-1,:,mination reports of the Comptroller of the
Cirremay, and thus would be no worse off if forced to rely on the F.D.I.C.,
is set wholly to the point. That &ay be tn.:co aat!
. it ,74y
that emeninations have uot in tte paet boos pr.parli used
true
an eclunct
to mesetary policl. But tine examinetion fmnetion ems owl should be ea
used la the friars, and the eepization of exeuinationA from the centrrA.
banking euthority is, et the time at least, an impediment to effective
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Federal Reserve Bank of St. Louis
-ip-
monetary easegesent is a unit banking symtea.
Of mere general significance. however, is the ouestion of
credit control.
It is on this point that the Brookinga Report is weakest,
for the basic idea, apparently, iz that a definite distinction exists
1,etween the fUnction of the Board of Governors in !,uantitatively "caking
money ,Ibundant and Cheapr or in "making sow scf.xce and dote, and the
function of the F.D.I.C. in examining the qualitative character of bank
assets to determine tne solvency of banks.
Astmaily, the two problems
tend to become very complete]; merged at various stages in the business
cycle and for marginal aseete of banks at elmoet spy stage of the bnaiaess
cycle.
The character of banking essets is by ao mesas subject to ciutomatic
determination by rule-of-thumb methods. A judgment of bank assets uutt
necessarily tele into .r,ccount ouch factors as Use quantity of meant of
payeent that ere to be edded to or subtracted fres the economy by the
policies of central basking and fisca
agencies, snd upon the coarse of
the price level, of business, and of economic conditione in particuler
communities and regions. abet is true for a substential body of bank
assets at the extreme peaks and extreme vtlleys of a business cycle, when
decisive chenFee in economic direction occur, is elso true for the judgment of borderline apsets et almost any time in the business cycle. The
quality of bank asmets, in other wordy, depends in considerable measure
upon the course of business, of the price level, and other factors that
are presumably to be inflneneed by the euantitative areeit decisions of
the Board of Governors. The point le, the F.D.I.C. stagy eannot examine
beaks generelly with a view to determining their esuadmems iltboat aa
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Federal Reserve Bank of St. Louis
-13-
intivit,1 knowledge of the actions and p-Aicies of the centml bPnking
authority.
eormethin
like nn
eknolldment of th,:: fregoing fact is msde
when the Brookinr,s Re?ort remarks that, 'Wader the present system it is
im7)ssible for the Federal De?osit Inntrance Corporation to
bE certain, in the case of banks Which are close to the margin of
solvency, *hen it should toke action to protect the interests of its
depositors snd its own interest ns the insurer of thr de7osits of less
than 15,0)0.' In tht. case of such a bank, many factors might end probably
would be involved: The generF,1 epplivltion of expeinsionirt or restrictionist
naasures by the, central benkinc authority, the businers cycle, the extent
to which the Ferderd Reserve .tank yould be yillint to lend to the. benk 1*
difficultht, the economic position ane tendencis of the communit7 involved, including the bslfmce of payments, the credit policies of surrounding banks, and n1 on.
Meny of thes
points on rbich P sound judgment concern-
ing the closing of a benk must rest are normaly ptrt end parcel of the informstinn and consciousnerr of a centre,' benking system. To make generally
sptisfactory ludgments the F.D.I.C. wou/d need to heve the most intimete
cne continuous knowledge of the Reserve Oyster's operations nne rrn.77-mr
tnd either to avail itself of the fPcilities for ecrynomic investigetion
now possevsed. by the System cnd in process of development or In w,rt to
estatlieh eullicate fecilities for its own use.
On. the other hAnd, the ezsminint ?rocess, ostensibly derignee
determine the quality snel squndnese of bank assets, osn and normally
would have an exceedingly importtint impect on the quantitetive policier
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Federal Reserve Bank of St. Louis
th,t
F(!dervl Rezerve Lyotom
been -tit by ProfeNvor Vine/.
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Federal Reserve Bank of St. Louis
aappoaed to iurs‘ue.
Thia t)oint has
followv:
"It IF cvidcat, thercfores th4A
pulvision. and examination ere neither necessary nor
*,fficient condition4,
tlk.t the benkilLz
system will be strong enough to withstand a severe
r7spreesion without Wholle collai)se, although it
may be presumed that the record of the American
brking 4444;:a would have. brec,f1
wa.ae if it had
been Wholly free from supervision and regulgtion.
But unless it ie directed with thL; daa‘cr in mind,
the nature of the examining process is itself ouch
tie to impose upon the activitif_s of tlIcf b6lika a
perverse myolleal pattern from the point of view of
rtJ.ilisation. ?he erilners, through quLlit4itivc
credit stamdards which they impose au banks, indirectly influence the c:w,ntity of bank credit. 7114,4 businc,,bic
is prosperous and optimism prevails, examiners, like
the bunkers thenelli, must tcad to apprtise craCit
risks in terms of the favorable conditions of the
rolent. The bankcm,
the EL111 1.24.akerc,
confident that what is good enough to pass the serutiny
e)f the 7.f.imineriE, Dhculd be g L)od
anougn to meet their
own standards, persist on their career of credit expanoion. Leter, titan tbe tide of busine4o turns, When
banks begin to fail and loans which were passed without criticivu curng the boou day2.
v;riterl
JL:
off as bad debts, the examiners are blamed. Reacting
in r2 perfectly nntu7e1 =Inner, tEt5:. becomk ;stricter
and more exacting in the standards they apply., and
thqfpreer the bt,nks
liciuidLte loana end iuviAvtment
*Joh the banks, if left to their own devices, would
be hal-Ty
kee; in their portfolios. Tht proceac of
bank examination thus tends to encourage credit expansion during the up..zring of the buzinue;;
und, Aore
seriously, to intensify credit contraction during the
downmIng.
"Thixe
un obvious cure for tLit. pc.rvorse
effect of bank examiention, romiring three innovetime in the ie.dmlniStrictioa ‘A"
eNiainetiono;
unified control of bank supervision and examination;
co-f.,rdl.nf,tior- 01 inanimation ,Jolic) with e.reUt
control policy; and systematic and continuous supervision ;:nd instruction of tLe Eauminers in terms of
a uniform and flexible policy. Pally to attain ell
of theEe objectives would require the centralisation
of all bank axasining functions under the direction
cq' the Federal Rererve Board."
-15-
In other 7:ords, th
lik04
work of a central baaldng autharit,: /6
to be seriously ispeded and dirturbed if it d.:.;e!; not control the
exAminstion
Aich
,
nJad disturbfict:
wall have
i;reeter significnnce in the future than in tile 1,:at, rince it is only
in recent yenrs in the United f3tates VIA the roU of centre' banking
in economic stabilit: hos been generally omi*asized, aore or less
recocnized by itit and by the Governors of tne System, and popular
expectation reordini its effectiveness arouced.
tions cp•..rating in a wei that permits the one
And with two organiza-
interfere witn the <Wier,
the possibility of rucrImination and conflict tg,cosos, in the. long runi
falsest u certainty.
:,:eraJver,
There is
ail
inevitabi
cwifusien of respensibtlity.
divielon of r#:,-sponibilit4 and poter, unavoidably
the public mine, tir
e,oecifically t1L': effect im su)ervifory 6imcios
thuireive. It enconrae
ttut developmkat
called-for setia tends tl
are all humbn, thire
to
lon
rgoken
or
Aent4:. attitude by which
.4,eferrc,d, !,ad atellvard,
wa
unsy;;L:n ten,lency, 11.at-aver the: ficts,
the cith4-r
to ftscribe the onus of failure ,.7! cf an uupul:lr
tigeniCy•
Aside froo
fDregoi% gcnert41 cJnaidkratica:, it shouL..
observed thnt the examination functim, if vested in th2 Board of GovcJrnors
*mild be a valuable inatrumust for dealing with ?robleas thc,.t
e;.'.1113,CA
no;:
be satisfactorily :.naud. For tastAlce, th.:$ Board af Covernors and tIla
Reserve banks are not A 2rosont
the nevi& boos, the Ohief effects
t.,J control sila
4
tiaen444.4.1 a
*hicn viere in evidence in only
small seograpitteal area. Bono of tlae provcnt tootraacntaliti4J.s of tiA41
Board or of the Banks ean br ueed to ap?ly presaure in such e. situation
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Federal Reserve Bank of St. Louis
!:
without at the same tine applying pressure elsewhere.
in the economy when
sucn general pressure may neither be necessery nor desirn
ble. It cannot
be pretended, of: course, that even the process of bank
examinations mould
*holly control such e situation es,existed in Florida; but the examin
ation
process could have been ueed, both directly and by indirect
influence, to
hove forced Florida banks rigidly to clean up their portfo
lios as the
boom progressed, and the whole banking situation in the State could
hove
been kept an a mob more conservative basis.
Much the same sort of thing cen be said regarding booms
that
art not geographically confined but thet tend to direct themselves
toward sone particular Obese of the economic syetem. In this
connection,
there will be remembered tie enxiety regardine security loans
in the
late twenties.
Leaving aside ell eueetIone concernine whether security'
loana were or were not mede In greater volume then a sound
development
of the banking system and the economy would have called for, it
may eimely
be. observed thee a control of bank examinetions would have allowe
d the
Federal Reserve Board to deal with the problem by the procese
of direct
action.
githout the examining authority (or sone authority similar in
effect), the Board was practically powerless insleas it used control
nnesnres that would have an impact far beyond the objective eimed
et.
It is not necessary, of worse, that tho Dowd of Governors
hem control of the eeemination function in order for that faucti
on to
be exercised in conjunction with monetary Jolley.
All that ie necessery
is theat it atiould be exercised with an intimate knowledge of moneta
ry
deeeeeee
)
policy and with full cooperation. buch a davelopnent may devr.fti
p under
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Federal Reserve Bank of St. Louis
-17-
the arrangement suggested by the Brookings Report. It may even follow
sore or less automntically from thf, responsibilities of F.D.I.C.; but
that is to be doubted.
What is more likely is that, during the upswing
of the cycle, the F.D.I.C. will apply someshat more stringent stendards than
the Comptroller's office hk.s been wont to do, and, in a downswing, having
its insurance et stake, as the Comptroller's office hae never hed, will
apply sUndards still more severe.
To expect it to do otherwise is to
exect that the F.D.I.C. will, When a downturn had gotten under imy, shift
its examining standards.
(5) The Brookings fieort contempletes that the liquidation of insured failed banky would be in the hkinds of the
Eleelhere in
the report the fact has been emphasized that the Federal Reserve System
is equipped with all of the. facilities, personnel, and experience
requisite for the conduct of banking. operbtions (p. 20, and it is recommended that the Reserve banks act for the Government as liquidating agents
in oonneetton with Reconstruction kinance Corporation louse.
At least
from the operatine standpoint, it is difficult to understood Iihy the
Federal Reserve banks ere not the proper agencies for liouidating the
affairs of closed banks.
They possess, as the Brookings Report has
indicated, practically all of the facilities for doing this work satisfactorily ane mast either undertake the task in behalf of the F.D.I.C.
or else the latter must duplicate the facilities of the Reserve banks.
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Federal Reserve Bank of St. Louis
REPORT
S.M.
PROCEEDINGS
ON
MOM.
CONFERENCE
PRELIMINARY
0 N
STANDARDIZATION
OF
CALL
REPORTS
AND
EARNINGS
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Federal Reserve Bank of St. Louis
iLND
DIVIDENDS
REPORTS
May 22, and 23, 1935
National Press Building
Washington, D. C.
1501
Attendance at the preliminary conference on the standardization of
Call Reports and Earnings and Dividends Reports.
AMERICAN BANKERS' ASSOCIATION
Mr. Herman H. Griswold, Pres., First Nat'l Bank & Trust Co., Elmira, N.Y.
Mr. R. G. Marx, Comptroller, Riggs National Bank, Washington
Mr. George 0. Vass, Vice Pres. & Cashier, Riggs Nat'l Bank, Washington
Mr. Howard Wolfe, Cashier, Philadelphia Nat'l Bank, Philadelphia, Pa.
COMPTROLLER OF THE CURRENCY
Mr. William P. Folger, Chief National Bank Examiner, Washington
Mr. E. H. Gauch, Deputy Comptroller of the Currency, Washington
Mr. W. A. Kane, Chief Statistician, Washington
FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. J. Forbes Campbell, Division of Research & Statistics, Washington
Mr. Mortimer J. Fox, Jr., Chief, Div. of Research & Statistics, Washington
Mr. W. M. Taylor, Division of Examinations, Washington
Mr. Donald S. Thompson, Division of Research & Statistics, Washington
Mr. M. G. Tucker, Division of Research & Statistics, Washington
FEDERAL RESERVE BOARD
Mr. J. E. Horbett, Asst. Chief, Division of Bank Operations, Washington
Mr. R. F. Leonard, Asst, Chief, Division of Examinations, Washington
Mr. Leo H. Paulgur, Chief, Division of Examinations, Washington
Mr. Edward L. Smead, Chief, Division of Bank Operations, Washington
Mr. Woodlief Thomas, Asst. Director, Div. of Research ana Statistics,
Washington
NATIONAL ASSOCIATION OF BANK AUDITORS AND COMPTROLLERS
Mr. E. H. Brandon, Asst. Secretary, Irving Trust Co., New York, N. Y.
Mr. George D. Grimm, Auditor, National Shawmut Bank of Boston, Mass.
Mr. Arthur J. Linn, Secty-Treas., The National Association of Bank
Auditors and Comptrollers, Hamilton Nat'l Bank, Washington
RECONSTRUCTION FINANCE CORPORATION
Mr. Thomas H. Davis, Examining Division, Washington
w
RESERVE CITY BANKERS ASSOCIATION
Mr. Leslie B. EcMahon, Asst. Vice Pres., City Nat'l Bk & Trust Co., Chicag)
Mr. J. W. Massie, Auditor, Republic National Bank of Dallas, Dallas, Texas
Mr. K. M. Morrison, Comptroller, First Nat'l Bk & Trust O., Minneapolis
Mr. J. A. Will, Comptroller, Chase National Bank of New York, New York
STATE BANK CObLISSIONERS
Mr. M. E. Bristow, Commissioner of Insurance and Banking, Richmond, Va.
Mr. John D. Hospelhorn, Deputy Bank Commissioner, Baltimore, Md.
Mr. Logan R. Ritchie, Examiner-in-Chief, Bureau of Insurance and
Banking, Richmond, Va.
Mr. H. B. Wells, Secty, Deptt for Financial Institutions, Indianapoli3,
TREASURY
Mr. George Eddy, Division of Research & Statistics, Washington
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Federal Reserve Bank of St. Louis
1
REPORT ON PROCEEDINGS - PRELIMINARY CONFERENCE ON STANDARDIZATION
CF CALL REPORTS AND ERNINGS AND DIVIDEITDS REPORTS
General session was called to ordor by Mr. Fox at 10:00
A.M. on Wodnosday, May 22nd, 1935 in tho Board Room of tho Fodoral
Deposit Insurance Corporation, Washington, D. C.
A welcoming address was made by Senator Phillips Lce
Diroctor of the Fodoral Deposit Insuranco Corporation.
ugh,
Goldsboro
Sonator Goldsborough called for the nomination of a chairman. It was moved, soconded and carriod that Nr. H. B. Wolls, Socrotary, Commission for Financial Institutions, State of Indiana, preside. Mr. Wells appoinbed Mr. Loslie Mcrahon secretary, and Nessrs.
M. G. Tucker and R. F. Leonard, assistant socrotarios.
Mr. Wells accopted tho chairmanship.
Mr. Violls:
I think it is vory timely that tho Foderal
Deposit Insuranco Corporation has arranged this conference. Tho call report is the oldost supervisory implement that wo havo in point of historical dovelopmont.
it was in goneral uso about the middlo of the last contury in tho state systoms and from thc boginning in the
national system. Tho history of suporvisory machinory
has boon that, if a situation aroso ncoding a now implomont, we promptly institutod that new implement and loft
all tho old ones. As a result, wo have at tho prosont
timo a great hodge-podgo of machinory which may or may
not be offoctivo. I think it is safo to assumo that
with tho improvomonts in &moral conditions, tho bankint; fratornity will soon bocoro vory active in protesting against this complicatod systom. Tho mon who reprosont tho banks can toll us about that bettor than I can.
I think that such a protost will como. A group reprosonting tho banks and a group roprosonting tho suporvisory officials can well afford to spend somo timo discussing thoso problems. I think wo aro all azrood that
we want as simplifiod a systom of supervision as possiblo
wlthout sacrficing any officioncy or any protoctivo
moasuros for tho gonoral welfaro.
It was suggostod that some roactions from
tho roprosontativos of tho suporvisory agencios bo roquostcd.
Mr. Folgor:
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Federal Reserve Bank of St. Louis
Roports of Condition havo boon required of
national banks sinco tho Act of Fobruary 25, 1863 which
2
was repealed and reenacted with certain amendments
June 3, 1854. It was subsequently amended so far as
condition reports were oenCernod under the Acts of
March 3, 1869, December 28, 1922, February 25, 1927
and June 16, 1933, as follows:
Act of February 25, 1863 - ProVided for
of
reports
condition on the first of each quarter before commnncement of business.
•
-let of June 3, 1864 - Provided for reports
on the first Monday of January, April, July and October,
boforo commencoment of business, on form prescribed by
Comptroller (in addition to reports on first Tuesday of
each month showing condition at commoncoment of businoss
rospect to certain itoms; i.o., loans, specie,
doposits, and circulation).
Act of March 3, 1869 - Provided for not
less than five reports per year on form prescribed by
Comptroller at close of business on any past date by
him specified.
Act of December 23, 1922 - Minimum nunber
of calls reduced from five to three per year.
Act of February 25, 1927 - ,luthorized vice
president or assistant cashier dosignated by board of
directors to vorify reports of condition in absence
of president and cashier.
llot of June 16, 1933 - Provided that each
nationalbank shall furnish and publish not less than
threo reports oaeh yoar of affiliatos other than member banks, as cf dates identical with those for which
the Comptroller roquires roports of condition.
•
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Federal Reserve Bank of St. Louis
Tho act roquirin7, call reports is Section
5211 of the Revised Statutes which provides in part as
follows:
Etvery ascoc4 ation shall make to tho Comptrollor of tho Currency not loss than threo reports
during each year according to tho form which may bo
proscribed by him, vorifiod by tho oath or affirmation
of the prosidont or of the cashier or of a vico prosident or an assistant cashior dosignated by tho board
of diroctors to vorify in tho absoneo of tho prosident
and cashior, takon bofore a notary public properly
authorizod and commissioned by the Stato in which such
notary rosidos and tho association is located or any
3
other officer having official seal, etc. Each such report shall exhibit in dotail and under appropriate heads
the rosourcos and liabilities of the association at the
close of business on any past day specified by the Comptroller and shall be transmitted to the Comptroller's
office within five days after the receipt of a request
therefor from him; and the statement of resources and
liabilities, together with the acknowledgment and attestation, in the same form in which it is made to the
Comptroller, shall be published in the place where such
association is established, or if there is no newspaper
in tho place, then Ln the one published nearest thereto
in the same county, at the expenzo of the association;
and such proof of publication shall be furnished as may
he roquired by the Comptroller.
Section 5211 provides further that the Comptroller shall have power to call for special reports
from any particular association whenever La his judgment
the same are necessary to obtain a full and complete
knowledge of its condition.
Section 713 of the District of Columbia Code
Provides that Section 5211 of the Revised Statutes shall
apply also to banks other than national in the District
of Columbia.
4
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Federal Reserve Bank of St. Louis
The last sentence of Section 5211 above referred to, namely, that the Comptroller shall also have
power to call for special reports fram any particular
association whenever in his judgment the same are necessary in order to obtain a full and complete knowledge
of its condition, is apparently the only authority for
requiring semi-annual earnings and dividends reports.
However, Section 5212 which was adopted March 3, 1869,
requires national banks to report in addition to the
condition statements, and within ten days after declarinP; any dividend, the amount of such dividend and the
amount of net earnings in excess of such dividend. The
report is to be attested by the oath or affirmation of
the president or cashier of the association.
Section 5213 - Provides that every association which fails to make and transmit the reports required under sections 5211 and 5212 shall be subject to
a penalty of $100.00 a day for each day after the period
that it delays to make and transmit the report. Whenever
any association delays or refuses to pay tho penalty after it has been assessed by the Comptroller, the amount
thereof may be retained by the Treasurer of the United
States, upon the order of the Comptroller, aut of tho interest, as it may become due to the association, on the
_
A
4
bonds deposited wdth him to secure circulation. All
sums of money collected for penalties under this section
shall be paid into the Treasury of the United States.
The law requiring dividend reports went into
effect in March, 1869, and since that date abstracts for
semi-annual periods have been compiled and published.
It is understood that in addition to the special ten day
report of a dividend on Form 2129-A (now 2133 and 2133-A),
regular semi-annual reports have be,tn submitted since
1869 on Form 2129. Prior to July 1, 1907, banks, regardless of uniformity of dates, selected periods for closing their books and making reports of earnings and dividends on Form 2129 at irregular dates. With a view of
having returns made at uniform periods, beginning July 1,
1907, and continuing until this time the reports have
been rendered for tho semi-annual periods ended June 30
and December 31.
The law provides that whenever the lawful reserve of any association required to be carried with the
Federal Reserve Bank shall fall below the requirements,
tho bank concerned shall not make any loans nor pay any
dividends unless and until the reserve required by statute
is fully restored.
Section 5199 - Provides that the directors of
an association may semi-annually declare a dividend of so
much of the net profits of the association as they shall
judge expedient, but each such association shall before
the declaration of a dividend carry one-tenth part of its
not profits of the preceding half year to its surplus fund
until the samc shall amount to twenty per cent of its capital stock.
•
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Federal Reserve Bank of St. Louis
Section 5204 - Provides that no national bank
shall during the tino it shall continue its banking operations, withdraw or permit to be wdthdrawn either in the
form of dividends or otherwise any portion of its capital.
This section provides further that if losses havp at any
time been sustained by an association, equal to or exceeding its undivided profits then on hand, no dividend shall
be made. In addition no dividend shall ever be made by
any association, to an amount greater than its net profits
then on hand, deducting therefrom its losses and bad debts.
Bad debts are defined as all debts due to an association
on which interest is past due and unpaid for a period of
six months, unless the same are well secured and in process of collection.
Section 333 of the Revised Statutes - Requires
the Comptroller to make an annual report to Congress at
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Federal Reserve Bank of St. Louis
5
tho commencement of its session, exhibiting among other
things the following:
A summary of the condition of every association from whi.ch reports have boen received the proceding year. There is included an abstract containing the
whole amount of banking capital, debts and liabilities,
circulating notes outstanding, total means and resourcos,
lawful reserve held and such other information in relation to such associations as in his judgment may be useful. A statomont exhibitinp: undor appropriate heads the
resources and liabilities and condition of banks othor
than national organized under tho laws of the sevoral
States and Torritorics; such information to be obtained
by thc Comptrollcr from the roports made by such banks
to tho legislaturos or officors of the difforont Statos
and Territories. When such roports cannot bo obtained,
the deficiency to be supplied from such other authontic
sources as may be availablo.
As provided for in Section 5211 of tho Rovisod Statutos, the Comptrollor has made 343 calls for
reports, in no caso loss than throe oach year. These
statomonts aro considorod primarily for statistical purposes and furnish tronds of tho national banks at tho
difforcnt soasons of tho yoar. Summarios of thc call aro
tabulatod and publishod in abstract form forty to fifty
days following tho call data. A pross roloaso is issued
based thoroon including a comparison with tho provious
call and figures for tho corrosponding call in tho prior
yoar. The individual roports of banks aro published in
tho nowspapor whoro ouch bank is located. The totals
for each call in abstract form aro mado public to banks,
othor financial institutions, public and univorsity librarios. Tho roturns of oach call aro also includod in
tho annual report of tho Comptrollor to Congross as required by Section 333 of tho Rovisod Statutos.
7°/'°
acrecord
office
an
as
serve
reports
These
n
contained
informatio
supplement
and
cessible to exariners
in the reports of oxaminations of banks which are made
twice a year. The report of examination, however, and not
- ,urposos. The exthe call roport, sorvos for supervisory ;
amination report includos not only most of tho itoms requested in tho condition statement, but several other
items and commonts by the examiner, as woll as an appraisal
of tho bank's assets. Publication of the condition report
of each national bank in a nowspaper is also roquirod by
law and is the LLeans by which tho layman or other croditor
obtains a knowledge of tho book value of the bank's assets.
\
Tho examiner at each oxamination is roquirod
to vorify and to detormine the accuracy of the last condition roport rondorod to tho Cogiptrollor. Tho banks
aro informod of important criticisms and aro roquestod
to ronder a now report or aro instructod to proporly
classify the itoms in subsoquont roports.
It would bo advisablo if somo arrangemont
could bo mado whoroby all states could uso report forms
in agrooment with thoso of tho Fodoral agencios. This
would enable tho Comptrollor to include in his annual
report to Congress satisfactory information with respect
to banks organized under tho laws of tho sovoral statos
and torritorios.
The earnings and dividends statements (Form
2129) which are rendered semi-annually are primarily for
statistical purposes. However, the reports of examination of banks now include data taken from the bank's file
copies of the semi-annual earnings reports for the previous five years. Theso roports are useful to examiners
in the Comptroller's office to determine whether adjustments have been made such as charging off losses recommendod by the examiner. The earnings roport furnishes
a basis for publication of statistics concorning banks
by groups in rosorve cities and statos, and frequently
aro callud for by other Govornmontal agencies in connection with their activities.
Mr. Wells called upon Mr. Smead, Chiof of tho Division
of Bank Oporations, Fedoral Rosorve Board.
Mr. Smoad:
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Federal Reserve Bank of St. Louis
Calls for information from banking institutions have incroasod in recont years. The numbor of
govornmental offices intorosted in obtaining information from banking institutions has incroasod substantially in rocont months. At tho present tim tho Reconstruction Finance Corporation, tho Socuritios Exchange
Commission, tho Troacury DoparUmont, the Comptroller
of tho Currency, tho Foderal Dopocit Insurance Corporation and tho Fodoral Rosorvo Board aro all asking for
information, and rocontly the Dopartmont of Agriculture
and tho Fodoral Housing Administration havo roquostod
us to obtain information for thorn. This has incrcased
tho work of tho mombor banks considorably. Many of
thom rosont quite vigorously tho extra worh that is
placod upon them. Anything thot can be accomplished
to brin7 about uniformity and simplification in obtaining tho necessary information will bo a stop in tho
right diroction.
7
The Federal Rcserve Board is charged under
tho law with the general suporvizion of banking and it
has to have curront inforration to be able to function
properly and to assume the dutios placed upon it by
Congress. As you 17now, within two or threu years after
tho Fodoral Rosorvc Act was passed the Board felt it
nocossary to have a closer contct with stato member
banks, and since 1917 call roports of such banks havo
boon rondered to thc Board.
Tho Board also soon found that call roports
alone were not sufficiont for its purposes and in 1918
it callod upon membor banks in -Ill of the larger citics
of the country to submit mokly roports, showdng tho
amounts of their principal assets and liabilities.
Changos which take placo from wool< to wook aro at
timos particularly significant and it is necossary for
the Board to know the amount and character of the
changos. These rcports hnve been in7aluable to tho
Board and it would be difficult to function without
thom. Modifications have boon madc from time to timo
and we now recoive vory informative reports each wook
from the seloctod member banks, which reports aro to a
large extont tiod in with tho call report.
"Je believe the call reports could be simplified and modified somewhat to get information wdth which
the Board is charged. The condition reports which have
been submitted to the Board by state bank members have
nevor been roquired to be published but there is a prowhich
vision in the Banhing Act of 1935 (Omnibus Bill)
that
me
would require thoir publication. It seems to
isupervising authorities have a very docided respons
bility with reforenco to the reports that are published.
Reports of national banks have boon requirod to be published since tho inception of the national bank systom.
Since publication is for tho benefit of tho customers
of tho bank the statements should bo such as to give
tho reador an adequate grasp of tho bank's condition.
I hopo that before this session js °vox. wo shall havo
considnred tho matter and made some progress toward a
botter form of published report.
Mr. Wells called upon Mr. Woodlief Thomas, Division of
Research and Statistics, Federal Reserve Board.
Yr. Thomas:
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Federal Reserve Bank of St. Louis
BanI:in7 statistics are needed in analyzing
ments because of the tmportance of
develop
cconomIc
on of the economic system. It
operati
banking in the
has become a truism that some 90 per cont of monetary
transactions in this country are effected by checks on
deposit accounts. Agriculture, commorce, and industry
are dependent on bunks for short-berm werking capital.
To an increasing oxtent have the savings of the country been intrustod to banks for investmont. Transfers
'of funds from one soction of the country to anothor
pass through tho banking system. Evory day Govornment,
private enterpriso, and individuals must make docisions
which faivolvo a knowledge of tho condition of banks.
A difforonco between tho use of bank condition roports for gonoral statistical analysis and
their use for supervisory and public informing purposes
is that in tho lattor case thc reports of individual
banks aro ossontial, whoroas in tho fornor, mass information for a number of banks is moro useful. For
this reason quostions of confidontial naturo of data
bocomo loss important and reports may be obtainod more
frequently than rdght be desirable in casc thoy wero
all publishod.
Anothor difforonco is that roports aro
noodod moro fragrantly and moro regularly. This nood
varios with tho naturo of businoss of the roporting
banks and with tho various itoms on tho report. Sono
items which change infroquontly, such as co.pital, surplus, roscrvos for contingcncios, otc., and others
which are rolativoly unimportant may im Q obtained at
infroquent intcrvals. Itoms which fluctuatc widely
aro noodod fragrantly, o.g. bankers' balancos, brokors'
loans and, at timos, borrowings at tho Rosorvc Banks.
For tho samo roason moro froquont roports arc noodod
from 'panics in contra]. moncy markots, whoro changos arc
broad and froquont, than from country banks which on
tho wholo show much moro limitod changos.
A
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Federal Reserve Bank of St. Louis
Any numbor of quostions in oconomic analysis roquiro information rogardin2,- the banking situation. Somo of tho moro important typos of devolopments
rovoalod by banking str.tistics aro as follows:
1. Moans of paymont - Basically it may bo
said that bank doposits indicato tho size of what is
somotimos callod the 'money supply' or the volumo of
'moans of paymonts' of the country. Monoy in actual
circulation is also includod in this supply but is loss
important. Doposibs include the supply of money that
may bo used to mako current purchascs and also savings
that are placod in banks. It is difficult to draw a
sharp lino botueon those two elemonts in deposits bccausc
thoy aro intorchangoablc; thoy aro roughly shown by
figuros for domand and timo doposits.
The e:ctent to which changes in the amount
of bunk deposits may affect business conditions ur the
national income is known to vary from time to time. It
is important to know something al- out the turnover of deposits, the extent to which they are used in business
transactions and pass from hand to hand. But this results from different factors with varying significance.
A large number of purely financial transactions or transfers of funds may increase velocity wlthout having an
effect on the movement of goods or on national income.
More information is needed about the
amounts and turnover of deposits of different sorts of
depositors -- bankers' balances, deposits of brokers and
busidealers in securities, bills, and the like, other
attempt is
ness deposits, and personal deposits. Some
figures
made to Eet at such differencos by the use of
cities but
for different regions and for different size
total voltho
t
presen
At
.
actory
rosults are not satisf
as large
about
und
1932
in
than
ume of deposits is larger
and
1932
in
than
r
greate
no
as in 1925, but turnover is
bution
distri
the
e
becaus
much less than in 1925. Is it
is
of deposits among tho various types of depositors
their
using
are
tors
different or becauso individual deposi
funds loss froquently?
2. Use of bank funds - It is important also
to know how banks employ their funds and what types of
loans and investments they are making. This information
either
is needed not only to reveal the condition of banks
tion of
individually or in groups, but also as an indica
out of
types of demands for bank credit that have arisen
banks.
tho economic system and are being supplied by the
A
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Federal Reserve Bank of St. Louis
Most of the statistics of bank loans have
loans. Probbeen classified according to collateral for
was easier
it
e
bocaus
part
in
up
ably this practice grew
and, in
banks
from
nature
this
of
to oUtain information
o of
a
moasur
ored
consid
beon
part because it may have
ts have
years
attemp
roc:lent
In
thc socurity of the loan.
into
idod
subdiv
loans
of
s
boon made to obtain the figuro
tho
From
ers.
open-market loans and loans to custom
subdivision of
standpoint of economic analysis the next
loans classishow
would
loans to bo dosirod is ono which
or at any
mado
aro
fied as to the purposo for which thoy
of
rate as to typos of business or oconomic function
borrauors.
Tho throe broad classifications of bank oarnusoful aro opon-markot loans, customors'
most
ing assets
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Federal Reserve Bank of St. Louis
10
loans, and investments. The first of these is indicative of two developments - (a) the extent to which
banks aro keeping t1-.emselves in a liquid condition,
and (b) the extent to which banks have surplus funds
not need.xi to supply the demands of customers but not
considered by the bunk to be available for investments.
Investments may also be said to have two
general uses - (a) they are sLailar to open-market loans
in that banks may purchase securities, especially shortterm or readily marketable securities, to provide liquidity or to employ funds not needed to supply customers'
demands and (b) they represent the use that banks make
of savings that are intrusted to their care. In analyzing the business situation it is important to know
what types of investments banks are buying and if possible, whether they arc bought for purposes of liquidity or to invest savinLs deposits.
Customers' loans are of various sorts.
Practically all that ye know about them at present is
in regard to their collateral. It will be necessary under the Securities and Exchange Act for the Federal Resurve Board to know what loans are being made by banks
for the purpose of purchasing and carrying securities.
The Banking Act of 1963 directed each Federal Roserve
bank to
'keep i'vself informed of the general
character and amount of tile loans and investments of
its member Lanks with a viuw to ascertaining whether
unaue use is bcing mcdo of bank credit for the speculative carrying of or trading in securiti-s, real estate, or commodities, or for any other purpose inconsistGnt with the maintenance of sound credit conditions;
and, in determining whether to grant or refuse advances,
rediscounts or other crudit accomodations, the Federal
Reserve Bank shall c;ive consideration to such information."
In order tJ NrforL this task it may be
necessary in the future to have nore information than is
now avaliable regarding tno purposes for which bank
loans aru made. Such inforwiation presented in the form
of aggregates will be of use not only to the Federal
anyone attempting to analyze
Reserve System but also
busLiess and credit developments.
3. Money rates - Most of the available information on money rates has dealt primarily with rates
in the open market. This has been due to the fact that
open-market loans aro relatively uniform in type and comparable rates nay be obtained frequently and regularly.
11
Tho Fodoral R000rve Board has attomptod for
somo yearo to obtain figuros on rates charged customors
by banks. Bocauso of tho tromendous difforoncos between
customors and as to the conditions of loans it is excoodingly difficult to obtain comparable rates on thcso
loans. Tho boot that con be said for tho figuros that
havo boon colloctod is that thoy show in a broad way
difforencos ovor periods of timo and as among various
classes of citios and geographical rogions. Such figuros
aro important as indicating costs of monoy to borrawors
in various soctions as moll as roturns to banks. Some
attempt should bo made to obtain figurcs that aro moro
uscful.
4. Rogional difforoncos - In a country as
largo as tho United Statos thoro aro ',road rogional difforenccs in business conditions that affoct and aro affectod by tho banking situr.tion. Becauso of our systom
of unit banks, tho movomont of funds from ono region to
anothor is somowhat mon; involvod than in a country with
a naUon-wldo syston of branch banking. For this samo
roason, houovor, it is possiblo to analyzo availablo
statistics for tho purposo of dotormining rogional variations. Thoso difforonces occur not only as to goographical areas but also as to differont sizos of cities.
Chanos in doposits by cities or rogions indicato rolativo
dogroos of prospority and tho oxtont to which funds may
bo flowdng from ono rogion to anothor. Figurcs for loans
and invostmonts subdivided according to opon-markot loans
and investments, an tho ono hand, and customers' loans on
tho other, indicato tho oxtont to which funds aro boing
usod at homo or boing scnt into tho contral monoy and
invostmont markets for uso.
•
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Federal Reserve Bank of St. Louis
Thcso aro only somo of tho genoral usos of
banking statistics for oconomic analysis. Any numbor
of individual casos may bo montionod and discussod at
longth. In summary, it may bo said that from this
standpoint tho moro important dofocts in availablo banking statistics aro as follows:
1. Roports from all banks arr not sufficiontly frequent and rogular. Frequont and regular reports aro obtainod from banks in leadin,. cities but at
timos figuros for those banks may bo misloading as to
trond of devolopments. Data for country banks,
which arc availablo only at call datcs, aro noodod at
more froquont intorvals.
12
2. Classifications of loans and doposits
aro not sufficiontly dotailod to facilitato analysis.
Moro informtion is noodod as to whom the money belongs to and also as to who the borrowors aro.
3. Additional information is noodod as
to voluile of oporations. Figures an debits or chock
pavmonts aro obtainable but have cortain dofects, (a) They aro not subdivided as to typos of doposits,
(b) They do not apply to the same banks for vhich deposit figuros aro reportod and, therofore, are not
diroctly comparablo, and (c) Thcy arc not availablo
fDr banks in smallor places.
Thor° is no information at all regarding
tho volumo of loans made or crodits to dopositors accounts. During rocelit yoars banks havo boon severely
criticizod for not making new loans -whon thoy wero, as
a mattor of fact, making such loans. It happened that
repayments exceeded new loans made and no information
is available regarding the amount of new loans made
and the amount of repayments.
This is not a program or a promise or a
threat. It is simply a statement of facts that are
needed for proper economic analysis. In seeking information from banks it is of course desirable constantly
to avoid placing upon them too heavy a burden of reporting, and information requested should be limited to that
which can be more or less easily obtained. It should
be recognized, however, that every day decisions are
being made by Governnent, by business, and by banks
themselves, based upon supposition as to many of these
facts. Certain theories which are the basis for
policies and action have never really been tested and
cannot be tested except by experience or except by
reference to factual information. It is always necossary to consider whether tho cost for mistakes that nay
be mado 'without facts is greater than the cost of reporting accurate statistics.
•
Mr. Wel]s:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Thank you vory ruch, Mr. Thomas. Your remark-s contain much food for thought. They suggest that
our present system of call reports is not offcctive
from the standpoint of tho collection of economic data.
Thor() is a groat noed for this information and much can
be said about Lhis particular problom. In my opinion
the call roport as a supervisory neasurc is out-nodod
and out-dated. Shouldn't we consider drafting the call
reports purely for the purpose of collocting statistical
data and abandoning them as a supervisory implement?
We have already started to do that in our state. I
do not know how it will function. It is a fortunate
thing that one state can experiment without involving
other states in what might be an unhappy experience.
we believe that it will turn out satisfactorily in
Indiana but only time will tell the result.
Call reports began in Tndiana in 1855. At
that time direct contact with the banks was difficult.
There were no other instruments of supervision and no
examinations. What is the condition today? We have
corps of examiners representing the Federal Reserve
Board, the Comptroller of the Currency, Federal Deposit
Insurance Corporation, and the state suporvisory
agencies. Any bank in Indiana is now within five minutes of my desk by telephone.
That does the average supervisory department do with thu call report? It is generally given
to the statistical division and the examining division refers to the examination report. The call report reflects only book value and the supervisory departments are not interested in book value, except
under special conditions. The call report is a vestigal remain of an earlier date as far as supervision is
concerned. We hod legislation enacted at the last
legislature in our state to make it possible to call for
only two reports a. year under ordinary circumstances.
In special cases it is necessary to act
differently. A doctor does not always prescribe the
same medicine. Some of them always give aspirin, but
each disease calls for a special medicine. So it is
with banks. Some banks, in my opinion, need to have a
weel-ly report, some monthly and some quarterly. I am
not su,;gesting that all of the banks have these frequent, special reports. Supervisors should be conservative. in the use of that type of authority. By using
special report forms for banks under special conditions,
good banks will not bear the penalty of reporting too
frequently.
Mr. Wells called upon Mr. Bristaw, Commissioner Of Insurance and Banking, Richmond, Virginia.
I have no set speech but shall make a fua
Mr. Bristow:
general remarks. I belive that I have the honor of being the thir oldest supervisor in consecutive service.
Mr. Mc2herson of Colorado and Mr. Brock of Louisiana
are my only seniors.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Uniformity of the call report is desirable
14
from the standpoint of state banks. They are called upon
to make one form of statement to the State Department
and another to the Federal Reserve Board if they are
state member banks; if a non-member bank they must prepare a separate statement for the Federal Deposit Insurance Corporation. You can see why the banks object
to this procedure. In speaking for the state banks of
Virginia I want to say that we work in close cooperation with the Federal agencies. As regards our sister
system, that is, the national banks, we are all soldiers
for the same cause. It se-ms to me, therefore, that we
should be able to use practically the same forms. In
regard to the frequence in requestinP: statements, we
have a law in my state that I heartily commend to the
other states. This law provides that we request a report whenever the Comptroller of the Currency calls on
national banks. We can make as many calls as we wish,
but we have called only when the Comptroller of the Currency makes his calls. I am now speaking of the call
statement. Our law in regard to call statements has
probably been in forco for fifty years. We have already
adopted the Federal Deposit Insurance Corporation call
statement form and wo are using very much the same material in our earnings and dividends statements. We
should like to continue this practice. The only change
that we would suggest is that the physical form be so
arranged as to leave some blank space. We need some
additional space for information to comply with the
Virginia statutes and to provide for the name of the
state so that the reports will come back to us and not
be sent to the Federal Deposit Insurance Corporation by
mistake.
•
We should try and get together on the basic
information necessary. With the organizations represented here we should be able to compose a satisfactory statement. However, we do want to avoid as many changes as
possible.
Mr. Wells:
I got my first bank job 20 yoars ago, standing in front of a new-fangled posting machine, and it
seems that ever since then I have been reading in banking
literature, the American L-nkers Association Journal and
the Burroughs Clearing HOUS9 Journal, articles written
by Mr. Wolfe. Probably he was not writing articles 20
years ago but I know of no one better qualified to give
us the viewpoint of the banker.
Mr. Wolfe:
One thought suggested is that the banks Prepare this report solely because the law requires the report to be made. As stated by Mr, Folger, these reports
are put to very little of the use for which they were
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Federal Reserve Bank of St. Louis
15
originally intended. It strikes me that as we discuss
this matter, we ought to keep in the foreground the
purpose of these reports. Why are we asked for them?
There are two types of report, one solely for statistical purposes and in addition the report of the examiner. Each report should be carefully checked because
it is the trend that counts and the reports indicate
the trend. Te know then what kind of medicine to prescribe. It would seem to mo that the problem faced by
the Reconstruction Finance Corporation, tho Federal Deposit Insurance Corporation, thc Federal Reserve Board,
the Comptroller of the Currency, and the Supervisory
agenciGa is to detormine among themselves the type of
report to be used. That would be a tremendous step in
advancement of this purpose. The time might come when
we co'lld reward the good banks by making examinations
less frequent, or perhaps penalize the weak banks by
making examinations more frequent. The 'problem' banks
might have to be examined three or four times a year
and the good ones only once a year. Personally, I do
not have the confidence in examinations that the public
seems to have, because we must remember that the banks were
heretofore examined at least twice a year and yet many
of them failed. ':Jhile I was manager of the Philadelphia
loan agency of the R.F.C. I found things going on in
banks that I was astonished to see haw an examiner could
prepossibly have passed. The report of an examiner is
one
no
whereas
,
auditor
pared from the standpoint of an
should say, should be) better
could be (or perhaps
qualified to pass on credit risks than the man who made
the loan. The real work of examination will be done
here by experts, highly paid, I hope.
Call reports could be received three timos a
year or as often as necessary. Decide among yourselves
the type of uniform report you would like to have and if
any bank objects, and you may expect that, do not be upset. They object for two reasons; (1) lack of time and
help, which is quite true; (2) sheer laziness. In offsetting this sales resistance, the banker should offer
no objection to a roal report. This is, briefly, all that
occurs to me to say and if Mr. Griswold, chairman
It
of our group, has other suggestions to make, I will bo
glad to hear them.
Mr.
ells:
Mr. Will:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'ant have you to way, Mr. "dill
I realize how ridiculous our reports are in
giving information to the public. If any group came to
a bank, giving so litfle information, it could not borrow a dime. We do not show preferred creditors our pledged assets and other items of this nature. Maybe I am a
16
advanced but I think it is time that bani4ers gave the
customers informative statements so that they would
know where they were at. I hope this meeting will
bring forth something of thrct kind.
Mr. Wells called upon Mr. Arthur J. Linn, Secretary
and Treasurer of National Association of Bank Auditors and Comptrollers, Tashington, D. C.
Mr. Linn:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I have been asked to make a brief statement on Section III D of the preliminary conference
agenda, dealing with the functions of the two reports
now boing considered as aids to individual bank operations. It was surprising to me, after having given
nearly 25 years of my life to the banking business,
not to be able to reaaily find an answer to the first
proposition dealing with the present uses of these reports by the individual banks. My first reaction, and
I am speaking for myself and not for my associates on
this committee, was to state that the reports are of
no use, and so far as the banks with which I have been
connected are concerned, such is the case. I have personally never seen either the condition reports or the
earning and dividend reports put to any good internal
uso. However, one of my col2eagues finds the earning
and dividend report of considerable value in that it
places the income statement of any given bank on a
basis strictly comparable with the operating ratio reports issued by certain of the Federal Reserve Banks.
I think it safe to say that as accountin departments
become more highly organized, banks find less uselbr
these two required reports. In the larger banks, earnings and expenses are statea at not less than monthly
intervnls and the information required by the condition
report is always available. However, in the case of
the smaller institutions, I am inclined to believe that
the very act of preparing the earning and dividend report may be a helpful influence and may bring to the
signing officer a realization of conditions that he might
not otherwise acquire. The same comment applies to the
report of condition - especially Schedule "A" of the report. Undoubtedly, the information called for in Schedule "A" is accumulated by thousands of banks only on the
occasion of the call and it is the call Laid only the call
that affords an opportunity to directors to review, without personal embarrassment, the liabilities of officers
and fellow directors.
my personal conclusion, therefore, is that
from an accounting viewpoint the value of the reports
is relatively unimportant, but I do feel that they do
17
have value physchologically, so to sneak.
As to tho question of improvement and insafe
creased utility to the individual bank, I feel
radicis
g
thin
some
that
t
emen
d
stat
broa
in making thc
st equal
ally wrong unless these reports aro of almo
think this
I
ion.
sact
the
tran
to
es
value to all parti
ing and
earn
the
to
arly
icul
part
observation applies
operatof
d
recor
ent
curr
a
is
h
dividend report, whic
e' to
s
valu
'new
more
ably
ider
ing results and has cons
n as
itio
cond
of
rt
repo
the
the individual banker than
of some past date.
I feel that this committee is particularly
earning
well qualified to suggest improvements in the
and dividend roport.
nts,
Such banks as he,ve statistical departme
good
mako
dly
Ubte
undo
Ls well as many private agencies,
of
rts
repo
from
uso of thc statistical th,ta compiled
To have
condition and earnings and dividends reports.
in
anged
-,,rr
its maximum utility, this data should be
.
ions
ivis
subd
size groups and by reasonable geographic
standardiThere can be no question but that
ization in aczation of reports, will promote standard
this sub-comcounting procedure. In this connection,
'manuals of
mittee strongly recommends the review of
matter dealing with
instructions' or other instructive
d by supervisory
these reports which are now being issue
a thorough exploraaggncies and it further recommends
terminology as a
ng
tion into the subject of accounti
ing.
focal point of this entire undertak
orm treatUnless we have a well defined unif
nding of
rsta
p
unde
grou
ment of accounts based on a sound
ization
if
dard
stan
tful
doub
account classification, it is
vithe
to
indi
value
much
of forms will in itself be of
ion.
an
as
itut
inst
business
dual banks or to the banking
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
on the
I would appreciate your suggestions
at
of
least
t
be the firs
method of procedure. This will
disthe
be given over to
two meetings: this one will
problems as brought out in
ral
gene
broad
cussion of the
to be appointed to work
then
are
es
itte
the agenda. Comm
re conference shall then
enti
The
.
on individual problems
of this preliminary
ing
meet
d
secon
re-convene for the
of the committees.
ons
esti
sugg
the
conference to act on
it is agreeable
if
e,
rabl
Such a procedure is very desi
to the members of this conference.
Inasmuch as there are no objections I will,
18
therefore, proceed to appoint the comr.ittee that are
to formulate general, desirable objectives from the
four different via7points.
Mr. Wells appointed the following committees:
COMMITTEE ON THE PUBLIC INFORMING FUNCTION OF CALL R7PORTS
Mr.
Mr.
Mr.
Mr.
H. H. Griswold, Chairman
J. W. Massie
George 0. Vass
J. A. Will
COMMITTEE ON FUNCTION OF REPORTS AS kN AID TO INDIVIDULL
BANK OPERATION
Mr.
Mr.
Mr.
Mr.
Mr.
Arthur J. Linn, Chairman
George D. Grimm
H. H. Griswold
R. G. Marx
K. M. Morrison
COMTAITTEE ON SUPERVISORY FUNCTIONS OF REPORTS
Mr.
Mr.
Mr.
Mr.
Mr.
M. E. Bristow, Chairman
John D. Hospelhorn, Alternate Chairman
T. A. Kane
R. F. Leonard
Logan R. Ritchie
COLTrITTEE ON GEITERn ECONOWIC AND STATISTICAL FUNCTIONS
OF REPORTS
.•
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Federal Reserve Bank of St. Louis
Mr.
Mr.
Mr.
Mr.
Mr.
'oodlief Thomas, Chairman
E. H. Brandon
George Eddy
J. E. Horbott
Donald S. Thompson
COMMITTEE ON RESOLUTIONS
Mr. Arthur J. Linn, Chairman
Mr. M. E. Bristow
Mr. M. J. Fox, Jr.
Mr. H. H. Griswold
Mr. John D. Hospelhorn
Mr. 'J. A. Kano
Mr. goodliof Thomas
Mr. rolls:
Thoso committoos will conveno the first
morning. There wtll be no genoral sossth-thing in
the
ion until 11 o'clock A.M. tomorrow. At that time
will
ssion
discu
and
ts
repor
thoir
make
will
committoos
follow.
Tho committoo on rosolutions, will bo askod to report at the aftornoon scssion. Thoy will bo
roquostod to prosont an outlino of tho gonoral objoc
If
agree
.
agree
can
rence
tives upon which this confe
to
nted
appoi
be
will
ttee
commi
ment is reached, then a
forms
translate these genoral objectives into concrete
wo
time
which
at
during the next two or three weeks
shall reconveno.
7e shall now start at tho beginning of tho
agonda and take up such matorial as has not yot boon
specifically discussed.
Under tho titlo I.- "Tho Problom"- quostton
ion No.
No. 1. com bo disposod of without comment. Quost
of
that,
and
ng
2. was only briofly discusscd this mor.ni
that
me
to
scorns
courso, is a wry important itom. It
the nasome of the men in washington, who have viewed
offer. Your
tional situation, might have something to
this matagenda, Mr. Fox, suggests that you have given
ter considerable thought.
7r. Fox:
dices in
A brief reference to the two appen
report standardthis agenda will answcr in part whother
ed with the
draft
was
A
dix
ization is possible. Oppon
Hospelhorn
Mr.
ttee.
co-operation of Mr. Wells' commi
cted all
conta
and
work
l
did a large part of the actua
statos
eight
t
excep
the state commissioners. In all
is
ation
ardiz
stand
t
the statutes aro such that ropor
dix
in
",ppon
listod
aro
virtually possiblc. Those eight
B.
Nino states arc now using a form that is
al Deposit Insursimilar to the ono in uso by tho Foder
s could uso it.
anco Corporation and 31 adclitional stato
that rcport
is
ion
quost
tho
to
forc,
thore
Our answor,
ding only
ble,
dopon
possi
itoly
dofin
stand-xdization is
bank
ers.
ssion
state
thc
commi
of
upon tho cooperation
,r
Mr.
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Thot would moan that eight states would have
Thoy
to ronder additional reports on cortain items.
al reement
sting
by
suppl
reque
this
could, of courso, do
ports.
Would the bankors like to have uniform reports? I would also liko to ask some of tho Foderal
people what has boon dono horetoforo in an endoo.vor to
20
achieve this end. Is this the first effort at unification, or have there been others?
•
Mr. Folger:
Ls Mr. Fox said this morning, the Federal
Corporation, the Federal Reserve
Insurance
Deposit
Comptroller
of the Currency are all inBoard, and the
terested in unification.
Mr. Fox:
Te had our first meeting last November and
as a result several definite conclusions were reached.
The Federal Deposit Insurance Corporation wrote all
st:cte bank commissioners, and unclosed a copy of the
call form in use by the Corporation. It was pointed
out that the form was practically identical with that
used by the office of tho Comptroller of the Currency
end the Federal Reserve Board. They were invited to
use these forms, and we offered to furnish the same
to them. Yine states accepted our invitation. The
balance did not accept but many indicated their willingness to do so when the present supply of their own
forms was exhausted. Another conclusion of that conference was that the form should not be altered until
me had decided what would be the oventual form for all
Federal agencies.
Mr. Wells:
Check what I say, Mr. Bristow. The hositancy of many of the states to use this form was because some felt that the form was not the ultimate in
a call report schedule. I believe if this conference
were to come to some conclusion, and re-diroctions
and changes were to be made, we would find that many
state supervisory authorities would bc more hospitable
than they have been heretofore.
Mr. Bristow:
I am now speaking from experience. We have
used the form for our ]ast two calls and found it was
necessary to supplement it in order to get certain additional information. Our disposition, as indicated
this morning, is to use the uniform form. We are very
much in favor of it. Ifoa won't have any trouble in using any uniform form adopted.
Mr. Wells:
May I check another point2 We have a human
factor which is very important. The men in our national association of state bank supervisors know that.
What ought this assembled group do to sell the idea of
uniformity to the state supervisors' group? I ask Mr.
Bristow this quustion because of his long association
with thu supervisory group.
Mr. Bristow:
tion.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I don't know just how to z:.nswer your quesI em looking at it from the standpoint of the
21
and
bankers. We supervise Federal Reserve member banks
we
if
e
prepar
to
ents
statem
two
have
Each
non-members.
te
ents.
separa
statem
of
idea
the
to
adhere
continue to
If we could use a uniform form they wouldn't complain.
Mr. Wells:
Would we be able to get the supervisors who
haven't fallen in line to do so?
Most of them would probably fall in line and
Mr. Bristow:
eventually all of them.
If your committee which represents the state
commissioners would endorse the form, would it be readily adopted?
Mr. Fox:
I don't know.
Mr. Wells:
What do you think, Mr. Bris-
tow?
Won't your endorsement carry considerable
committee
weight with the National association and their
on co-operation?
Mr. Fox:
of
I should think it would have a great deal
Mr. Bristow:
that
weight, Mr. Fox. Mr. Hospelhorn is chairman of
committee.
It would probably carry the majority?
Mr. Fox:
Mr. Wells:
Mr. Wolfe:
Mr.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
:
said To add to what Mr. Bristow has just
g - I,
willin
be
Would
w
if Mr. Hospelhorn and Mr. Bristo
this
of
t
though
for one, would bo willing to take the
have a special
group to our own particular group. We
and I think
weeks,
meeting convening within tho next six
that much
make
and
we could got a majority in agreement
progress.
lvania
I will undertake to speak to the Pennsy
and I think he would do
commissioner. I knew Luther Haar
it if I asked him to.
The next question is an important one. It
s from Standpoint
is - "The Appraisal of Present Report
of:
ts
and
consis
se",
of FUnction and Purpo
Supervisory Function of Report.
Statistical Function - General P,conomic
Analysis.
c. Call Report and General Public - Public
Informing Function.
d. Function of Reports as Aid to Individual
Bank Operations.
a.
b.
22
Mr. Nolfe:
Those particular functions are more propetby the examining division. We are the
discussed
ly
patients, and they are the doctors. They should tell
us what they want. The bankers ha -ve no right to decide this question other than to make helpful suggestions. When it comes to the publicity part of this
question we should be heard from, but we, as bankers,
should not tell the examining divisions what we want
to get from them or give them - but we will tell them
if it will be practical.
Mr. Fox:
One of the main reasons for assembling
representatives of all interested groups is so that
we will be able to take a broad view of the questions
at hand and to receive the benefit of several points
of view. It is not a question of one agency against
the bankers, but a question for all of us to consider
mutually. We solicit thc opinions of the bankers.
Mr. Wolfe:
I can offer you a suggestion. Some bankers may be angry at me for saying this. Forms should
give the history of a bank's loans. Especially for
statistical purroses. We should show the number of
loans made, number partially paid, number renewed,
number paid in full, etc. The trend would be very
significant. For example, say there are three banks
in one tawn. The loan reports of one bank would
shaw a h3althy condition, some reported being paid,
some reported being renewed. Another bank in the
same town would show an entirely different picture.
That should mean a lot to the groups in Washington.
That is an exceedingly instructive sug-
Mr. Fox:
gpstion.
Mr. Wolfe:
Some banks and bankers are fearful of
their depositors and borrowers. Such a loan record
would show the history of a bank's loans, That, I
think, would be very useful to the departments.
Yes, that would be very helPful. CerMr. Morrison:
tainly it shou1,1 be helpful to Nashington, because
re do it in our awn affairs.
Mr. Wolfe:
Mr. Will:
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Federal Reserve Bank of St. Louis
It would not be hard.
It is very simple.
We compiled and submitted such figures
for the first half of last year.
Unless such figures were forwarded regularly, rather than spasmodically, thywould be of
little value.
23
Mr. Smead:
Mr. Wells:
Mr. Folger:
They would servo as a basis for administrative action and would inform us as to just what
is taking place with respect to loans.
Mr. Folger, would they be useful in your
opinion from a supervisory standpoint?
Depending upon how far we would want to
for those things.
vrould it be burdensome to the banks?
Mr. Wells:
Mr. Tucker:
Very possibly most banks represented here
could obtain that information very easily, but the
small country banks would have a more difficult time.
Mr. Marx:
My experience has been that when the call
condition papers are sent out, there is a lapse of a
few days before we get the actual call. There may be
a couple of schedules that aro new. If we could have
the information two or three weeks in advance, that
a certain schedule is going to be called for, the
banks would nerhaps be ready to give thqt information.
On the last call theras was two or three weeks time
we
elapsed from the receipt of the call until the day
the
of
ation
weru informed to proceed in the compil
schedule.
Mr. Wolfe:
Mr. Tucker:
rr. Smead:
Mr. bin):
Mr. Folger:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
That suggestion was carried out on a faw
if a
occasions. It would be good for country banks,
the
that
notice was sent out several weeks in advance
a
of
next call report would havo to show the number
bankls loans, etc.
I don't controvert that such information
would be extremely valuable both from the point of
viau of the sup)rvisory authoritios and tho statistians. My point is that thu books of a large number
of country banks are not arranged to reveal information of this type.
We called for that information in 1934 new loans made and old. loans paid. 7e called for it
from all member banks.
My first work was in a country bank and we
no trouble in furnishing such informahad
have
would
tion.
I just know about national member banks.
24
Mr. Grimm:
I should think that no difficulty would
be experienced in any of the small banks. They
would have to change their method of operationsin
the loan department and make a journal record of
paid loans, but information could be compiled in a
short time.
On our weekly "board reports" we labol
types of loans as to new loans, renewed
various
our
renewed loans, etc.
partially
loans,
Mr. Taylor, you see a lot of small town
Mr. Wells:
banks.
Mr. Taylor:
Mr•
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Federal Reserve Bank of St. Louis
It could be obtained from all banks but
vary, deT)ending on their accounting
ease
would
the
systems. If the will was thore, it could be obtained from every bank without a great deal of trouble.
Largo banks would not experience any
Ritchio:
troublo. Small banks would be in a more difficult
position. we have boon working for ye-Irs on these
small country banks to put in ledgers of a cartain
kind and it has taken years for them to do it, I
say this so you can see what happens when you do
not have the statutes to back you up. It is a matter
of education.
25
Mr. Wells:
We have received many ideas which the
comrittees will want to consider when they go into
their sessions.
How frequently should we have reports to
quarterly,
fulfill the supervisory. function - monthly,
,
think
you
do
What
wise?
semi-annually or other
quaryear,
a
three
be
ts
repor
Mr. Folger? Should the
?
terly, or more frequently
Mr. Folger:
Mr. Wolfe:
Mr. Folger:
Mr. Wells:
Mr. Wolfe:
Mr. Folger:
Certainly not more frequently.
three a year.
I think
Is there anything in the law, Mr. Folger,
which would decide the number of examinations per
year?
Yes. Not less than two or as often as the
are to
Comptroller of the Currency wishes. If there
would
be less than two an amendment to the present law
have to be made.
Starting July 1, 1935, with the co-operan, we
tion of the Federal Deposit Insurance Corporatio
an
on
banks
best
in Indiana are going to put our
secondary
annual examination basis; those banks in a
such a
not
in
those
;
position on a nine months basis
lem"
"prob
the
anct
;
good position on a semi-annual basis
banks on a quarterly basis.
be very
Two examinations a year can either
gena
y
purel
complete or very perfunctory, that is,
to
hing
somet
oral check-up. We might be able to do
only
is good,
reward good banks. If their record
d be necessary
shoul
year
n
one detailed examinatio
cursory. I
lege
or
more
n
and the other examinatio
ded for
rewar
bu
d
shoul
bank
believe that a man or a
excellency.
They must have had your idea in mind when
nations or as
passing thu law, requiring two exami
power to penalize
the
often as necessary. This implies
a poorly managed bank.
Are the call reports for the help of the
Mr. Morrison:
for superstatistical department; or are they used
require twelve
mii;ht
work
l
stica
Stati
visory purposes?
require
would
work
y
visor
super
reports a year, but
point
of
this
ion
ficat
only two or three. A clari
y.
tivel
more
cffcc
will enable us to function
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Federal Reserve Bank of St. Louis
26
Mr. Wells:
The appointed committees might make recommendtAions on this point. Detailed forms would be
based upon the general recommendations we adopt tomorrow after the committees report.
Mr. Smead:
The monthly reports should be in a condensed form. The supervisory anthoritius might wish
to expand two of the monthly reports and accept these
expanded reports as the regular call report for supervisory and public informing purposes, so that the
banks vrould have to make out only two detailcd reports.
This matter goes back to the question of
what is a report for. It seems to me that the constructive suggestion has been made that call statements, as published for public information, be considered one type of report and that reports submitted
more frequently for statistical purposes should be of
and entirely different nature. If it is decided to
proceed on that basis, we could work out report forms
which undoubtedly would fulfill each purpose. Until
the fundamental question of purpose is decided we
cannot determine whet should be included or what to
omit in the report forms.
Mr. Leonard:
•
Mr. Wolfe:
I would like to see tho reports go into
somc detail as to the make-up of deposits. Most
country banks have demand and timc deposits. What it
really means is deposits on which they arc paying interest and tnoso on which they are not. There should
be a break-down to show which are thrift accounts and
which are business accounts.
Mr. Wells:
The reports in our state contain a comprehensive analysis of the deposit structure and size
of the individual accounts.
Mr. Wolfe:
I don't think the amount is as important
as the nature of the account. If the depositor is a
busine3s man he should be ablu to have a time deposit
but not a savings "business" account.
hir. Wells:
Large accounts from any one group might
embarrass a bank.
That information could be determined once
Mr. Wolfe:
a year.
Mr. Wells:
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Federal Reserve Bank of St. Louis
For supervisory purposes should dates of
call be regular or irregular?
27
Mr. Wolfe:
If on regular dates there might be a tendency toward "window-dressing."
Mr. Wells:
They should, I presume, be on regular
dates for statistical purposes.
Mr. Tucker:
At our November meeting it was stated
Lhat banks "window-dress" for the public and not
for statistical or supervisory purposes. If the
information is to bc roquired at regular monthly
intervals, but not published, I think it would do
away with the "window-dressing." Do the banks in
the 91 cities which render weekly reports to the
Federal Reserve Board "window-dress" in these reports? I believe the answer is "No".
Mr. Will:
I have seen a lot of seasonal deposits
and "window-dressing". Unknown date is a preferable
procedure. We now have June 30 and December 31 and
two dates unknown.
4
Along that point let us get back to the
Mr. Leonard:
question of the report. There was a good deal of
discussion as to the date of the month to procure
reports for statistical purposes which would reflect the averages and do away with certain fluctuations. There is a difference between a report for
statistical purposes and one for publication. Statistical reports could be called for as of regular
dates and reports for publication could be called
for as of irregular dates. If it were decided, however to use a combination report in the months when
the call is made for reports for publication, two
of the calls could be on fixed dates and the third
on an irregular date.
Mr. Wells:
Thu Comptroller now has one movable
date and two fixed dates; that is, practically fixed
- June 30 and December 31. Do you have any suggestions on this subject, Mr. Griswold, and will you
speak for the American Bankers Association committee?
I think regular reports are the logical
Mr. Griswold:
thing. Banks are in the habit of expecting the
June 30 and December 31 calls.
Mr. Linn:
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Federal Reserve Bank of St. Louis
In Mr. Folgeris remarks this morning he
were used largely for statistical
reports
these
said
that Mr. Smead emphasized the
ng
Followi
s.
purpose
. This leads me to wonder
reports
weekly
of
value
al value in any of the reports
practic
any
is
if there
for supurvisory purposes.
28
The weekly reports requested by the
Mr. Horbett:
Federal Reserve Board are received from about 350
banks in 91 leading cities.
•
I believe the Comptroller of the CurMr. Bristow:
rency says he can call three times a year. In
Virginia we have a companion statute so that whenever the Comptroller calls, we also make a call.
I think that would be a good thought for uniformity
for all the other state bank commissioners to
follow. The Federal Deposit Insurance Corporation
and the Federal Reserve Board aro, I presume, more
or less following the Comptroller of the Currency.
I do not refer to any irregular requests for information. A good system of uniformity to follow, it
would seem, is to call whenever the Comptroller calls.
He determines whun it is best to make a call from
the national banks in the United States, and I
think it would be well for us to follow suit.
Mr. Wells:
Unless someone has wishes to the contrary, we will leave this matter to the committees
and expect them to bring coherence out of it. The
statistical function is absolutely essential, but
as it was well presented this morning we won't
conoider it further at this time, unless someone
has something they can volunteer.
Mr. Wolfe:
If reports are submitted monthly for
statistical purposes, Mr. Foiger, wouldn't the
June 30 and December 31 continue to follow? They
have been used to some extent on those dates. If
monthly statements for statistical purposes were
adopted, then irregular calls would be quite the
normal thing, would they not?
Mr. Folgcr:
Yes.
Mr. Wells:
The next matter is the appraisal of report forms from the standpoint of the general public,
that is, the public informing function. What should
be the basic requirements for such reports? How
frequcntly should thu public be informed? Mr. Will,
you have given a groat deal of thought to this
matter. What do you have to suggest?
Mr. Will:
Quarterly statements should be sufficient for the public. The statements should be
more detailed so they would mean something. Do
like they do in Cqnada and England - publish an earning statement.
.
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Federal Reserve Bank of St. Louis
29
Would that be desirable?
Mr. Wells:
Mr. Will:
It would be from the standpoint of the
stockholders and the depositors. The present published statement is meaningless. The question is
how far we want to go.
I would suggest that the assets be
grouped under pledged and unpledged, and the liabilities under sccurud, preferred, ordinary liabilities, and capital funds - the same as a commercial
house, when it shows a statement to procure credit.
Mr. Folger:
Relative to pledged assets, Mr. Will,
don't you think the present statement is OK?
Mr. Will:
Footnote items are almost always overlooked. Do like a great many business houses and
show the ordinary depositors just where they stand.
Mr. Smead:
What is the purpose of published condition reports?
Information and advertising, both.
Mr. Will:
Mr. Smead:
Vthat is the real purpose of publishing
the statement of an individual bank?
Mr. Will:
To show the public the statement and
for advertising purposes.
lithy does the law require it to be
Mr. Smead:
published?
Mr. Will:
Legal statement is published in a
bankers' magazine or newspaper.
Mr. Smead:
If we aro going to discuss the publication of reports, we must know at what we are aiming.
Mr. Folgur:
The intent of Congress was probably to
givu public information as to the condition of the
bank.
Mr. Grimm:
I am for the showing of valuations as
they should be. Thu average published report of
banks in newspapers never means a thing. When we
classify deposits we should denote which are normal
and which are for a certain specific purpose. For
exemple, a deposit of fifty million dollars to retire an issue of bonds is for a special purpose and
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Federal Reserve Bank of St. Louis
1
30
it should be shown that way in the statement. The
public is certainly interested in the decline of
deposits.
Mr. Wells:
Mr. Griswold, what have you to say?
Mr. Griswold:
As regard Mr. Grimm's remarks, I
the dividing line is. Our statewhere
see
don't
reflect
what we thought about our dements would
posits.
Mr. Grimm:
I grant you that possicility. The individual would suffer, but not the supervisory authorities. I don't want to be panalized, if I
choose to throw out a special deposit in order to
give the public the truth. It eould be optional.
For instance, deposits cf tax funds which have been
in for a period of one or two weuks and then withdrawn. This, however, is not shown in the specialized report.
Mr. Griswoldl
Who makes up the form of report you are
talking about?
Mr. Grimm:
Many banks do. We should havu the practice encouraged as Indiana does.
Mr. Wells:
You defeat the purpose of published
statement unless you have regulations covering the
reports that are publishc4, with the same information used in one publication as in another. In
Indiana we have it oo regulated that banks must
adhere to certain break-downs in any published report.
Mr. Vass:
The present published statement, it is
true, does not give much information. Thu question
is how far an. we going to go into these things.
The people in Washington know the banking situation
as a whole and they must consider any elaboration
of the printed statement to be used in publication.
I have not studied it enough myself. Some of the men
in these agencies would have a lot of weight in determining what should be published.
•
I am inclined to wonder as to the value
Mr. Brandon:
of published bank reports. Why waste the money
that is spent on publishinj them? Deposit insurance
protects the little follow so we might as well
cease publication altogether and furnish to those
wao can understand it a detailed statement that would
be sufficiently elaborate to be intelligently under-
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Federal Reserve Bank of St. Louis
41=1111111111MINEM
31
stood by the average man.
Mr. Smuad:
The stockholders' liability is well reflected in the statement. I think that is an imPortant thing. If the statement ruflccts the condition of the bank, that is what the customers are
interested in.
Does the average man in the street
Mr. Brandon:
know that? I again refer to comments in newspapers,
their comments based on condition statements.
Mr. Wolfe:
Will Mr. Fox tell us if the Federal
Deposit Insurance Corporation would like to have a
bank advertise that it is very weak.
Mr. Fox:
Deposit insurance protects in full 98
per cent of all depositors.
Mr. Wolfe:
chronism.
Mr. Tucker:
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Federal Reserve Bank of St. Louis
Publication of a statement is an anaIt doesn't mean anything.
To determine from published condition
statements whether individual depositors could have
made a reasonably accurate differentiation between
banks which remained open, and banks which were
closed during the depression was the object of a
study conducted by B. M. Giles and F. L. Garlock.
This study analyzed certain ratios obtained from the
published call statements of selected banks in
Arkansas for a period of many years through 1932.
During the period approximately 50 per cent of the
banks studied were closed. The title of the survey is "General Indicators of the Conditions of
Arkansas Banks."
The most interesting conclusion of the
stuay was that the ratios of book capital to deposits for the banks which aere closed were practically identical with the ratios for banks which remained open. This is perhaps indicative of the
extent to which bank statements do not show an
actual evaluation of assets. However, the authors
did discover certain indicators or ratios which,
in their opinion, would have becn sound criteria
for depositors. Those indicators in the order of
their reliability are as follows:
(1) Loans, other stocks and bonds, and
real estate (minus capital funds) to deposits;
32
(2) Cash resources and net United
States securities minus borrowed money to deposits;
(3)
to deposits;
(4)
Loans and othor stocks and bonds
Loans to deposits;
(5) Cash resources minus borrowed
money to deposits;
(6)
Borrowed money to deposits.
(7) Cash resources and not United
States securities to deposits.
(8)
Cash resources to deposits.
It will be noted that each indicator is
a complex liquidity ratio or its inverse. Carried
to its logical conclusion, the argument of this
survey is that banks, with a large proportion of
Government bonds ana cash ana with a small volume
of loans and discounts, and wIth no borrowed money,
are thc soundest. It is doubtful if liquidity in
itself is c complete formula for distinguishing
sound from weak banks, but such is the apparent
conclusion of this study.
Undoubtedly, few depositors have a
sufficient understanding of balance sheets to make
detailed analyses, and with the advent of the FDIC
the small depositors are largely relieved of this
responsibility. The fact that banks themselves
havu lost sizable sums deposited in other banks
indicates that bankers themselves have often not
beon able to differentiate between sound and unsound
institutions from published statements.
From the survey of Mr. Gile and Mr.
Garlock, a differentiation on the basis of the margin
of capital protection is apparently subject to misgivings, because bank statements are not and could
not be actual evaluations. For obvious reasons a
summary of examination reports cannot be published.
Then, too, to differentiate purely on a basis of
liquidity is on thu whole unsound. It would seem,
therefore, that the use of the call report to depositors, from the point of view of their protection, is open to serious question.
Mr. Wells:
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Federal Reserve Bank of St. Louis
That was very good, Mr. Tuckur.
Mr. Smead,
33
do you agree with the first conclusion of the two
made by Mr. Tucker?
Mr. Smead:
The answer is obviously, no. Whether
it is desirable or not I am sure I don't know. True
valuations should of course be published.
Mr. Wells:
Is it mechanically possible to have true
values published, correct statements of equity, etc.?
Mr. Smead:
That is the desirable thing, you think?
Mr. Will:
Exactly.
Close the bank or let it fail.
Mr. Smead:
If published statements reflect the true
condition of banks there will be no difficulty in
the Federal Deposit Insurance Corporation's taking
care of depositors.
!Ars Fox:
For the record, would you, Mr. Wolfe,
bring up the matter of thc Internal Revenue Department.
Mr. Wolfe:
I tolc: Mr. Fox that I thought we should
have had a member of thc Internal Revenue Department present at this conference. The bank examiner
comes in and says, "Charge off this item." Then
the field examiner from the Internal Revenue Deitem
partuent examines our bank and says, 'Tut the
beare
You
loss.
back on the books -- it isn't a
a
as
and
sea
tween the devil and the deep blue
result the average banker doesn't have the respect
he should have fur the supervisory authorities.
You fellows in Washington should get your heads together on this matter.
4Ir. Wells:
We were discussing item C on page 3 of
the agenda, Public Informing Function of Call Reports - frequency, regularity, and content. Are
there any suggestions before we move to the next
topic of the agenda?
We will proceed to item D on page 4 of
the agenda. Mr. Linn is ready to go into this
matter.
Mr. Linn:
I have covered this matter in my re.
morning
this
marks
Is there anything else to add at this
21r. Wells:
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Federal Reserve Bank of St. Louis
tirae?
34
Mr. Linn:
The details should be worked out by
the committees.
Bankers should have the privilege of
Mr. Griswold:
using their reports for publication purposes, also
havu the right to use those reports as a tool for
management rather than as a proof.
Mr. Morx:
I did not know that the banks used
the reports after they were preparud and sent to
the Comptroller or the Federal Reserve Board, except possibly for comparative purposes with othcr
banks in their own communities. That is done quite
frequently. My objection has buen tnat banks'
statements are nut reaCily used by clwtoAers of
the banks, excedt ?ossibly by some large corporate
=counts.
Mr. Wells:
Are all of you familiar with the studies
Mr. SL,ronck made, setting up typical data by districts? I do not know how widely different banks
use the data at this time.
Mr. Wolfe:
In our own bank we find the data very
helpful and useful as a basis for comparison. It
could be very useful, but not enough of the banks
use it.
Mr. Smead:
We have been informed from time to time
that a larger number of banks are looking into this
matter; particularly in cases where their profits
and loss accounts do not look so good.
Mr. Marx:
I have often thought that if a comparison could be made between banks of a like size and
typo of business, the comparison would have been
more beneficial.
•
Mr. Leonard:
Some of the Federal Reserve Banks have
for a number of years prepared an analysis along that
iinu and some of the forms had a blank column so
th4t the ban_c receiving the analysis could fill in
its own figures and obtain a comparison with other
banks of its own size. The Philadelphia Reserve
Bank recently prepared an analysis of earnings and
expenses of member banks in its district showing the
percentages by banks classified in several groups as
to size. The preparation of such an analysis entails
a large amount of work and in sending the recent
analysis to the member banks the Federal Reserve Bank
of Philadelphia requested an expression of opinion
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Federal Reserve Bank of St. Louis
35
of the banks as to the value to them of such an
analysis.
I think possibly the Boston figures
Mt. Brandon:
are the best I have seen, because they are much
more detailed.
Mr. Snead:
About half of the Federal Reserve Banks
compile and disseminate such information for the
use of member banks.
We use the Stronck reports quite freely.
Mt. Morrison:
We have not seen reports from the Federal Reserve
Bank at Minneapolis, and as I am very much interested, I will make it a point to check up with the
bank when I return home.
Mr. Massie:
We use for comparative purposes the data
compiled by the Dallas Federal Reserve Bank.
In Chicago the banks make wide use of
Mr. McMahon:
the data compiled by the Federal Reserve. On the
occasion of the last report, several of the large
banks made a comparison of their own banks and then
compared their figures with the compilations of
their contemporaries.
Mr. Fox:
Would it be possible to have thL various
clearing house associations co-operate in regard to
the use of any standard report form that is adopted?
Chicago, I am curtain, will be favorMr. McMahon:
able. The manager of our local clearing house
would certainly welcome any suggestions on methods
which would be progressive and would adopt the
final form for use by the local clearing house
asc,Jciation.
Mr. Grimm:
If the Federal Deposit Insurance Corporation should disseminate figures from Washington
which were country-wide in scope would they noT,
loose their significance because of the variance
in interest rates, etc.? The data would be valuable only if applied to districts.
Mr. Fox:
Would the New York clearing house association be favorable to the adoption of a standard
form, Mr. Will?
Mr. Kill:
The New York clearing house is favorable
to the whole procedure.
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Federal Reserve Bank of St. Louis
36
rhir•
-sie:
Dallas is favor-blu.
I have a form used by the Federal
Deposit Insurance Corporation in regard to point
rating analysis. I am sure it is a form not known
to the member banks. Wouldn't it be a good idea to
funds'. member banks with this form oo that they
can make their own analysis?
is a form wc have developed here
trial stage. Until we gut it in
do net think it would be advisable
hands of the member banks.
Mr. Taylor:
That
and iu is in its
its anal form I
to put it in the
Mr.
It would be splendid to put this in the
hands of individual banks to see how they stack up.
The trouble is that banks that need it the most
nut do anything with it, and I don't know of
anything at this moment Lo overcome this.
Are there any further comments on B?
Thu mattur of standar(lization has been very definitely Ciscussed, unless someone else has something further to offer?
Mr. Smead:
My general feeling is that the examination report has to be relied upon almost entirely
for supervisory purposes. The call report is made
up by the bank raid can be used for the purpose of
deterodning trends, but some information might be
incorporated which
be helpful from an administrative standpoint.
Mr. Folger:
As stated this morning the call reports
are used largely for statistical purposes, and for
supervision we rely upon th, reports of examination
which are more in uetail.
Mr. Taylor:
I think that we have to rely solely on
the exnmination report for supervisory purposes. The
function (if the call report is primarily f)r statistical purposes and does not incor,)orate enough detail
to be of any roal value. We must rely upon examinations reports almost entirely to dctermine the condition of banks.
We use the cali ruports in our departMr. Bristcw:
ment in connection widi our supervisory duties. I
fer31 somewhat like Mr. Taylor, that we like to rely
on ux,.tmination reports, but in our state we do make
usu of the call statements also.
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Federal Reserve Bank of St. Louis
37
I vould like to remark on one Dr two
things which have been discussed and presented at
this mucting, awl to statu the viewpoint of the
smaller banks. Aside from the representatives of
thu ardervisory agencius, all of yDu contleuon represent large banks. Some of thc things we,.have
discussed, I feel, aru too far a(lvanced for our
smaller banks, and we have to cmsidor the small
bLnKs because we have so many of them. I took over
the ..opartment in Virginia when Ile had about 350
statu banks; now they aro down to about 196.
Through failures, eliminations and consolidations,
they have been reduced to 196, and wu bolievo that
the ceneral condition of those rumaintng banks has
boon improved gruatly. The work is in process,
but I don't know if we aru ready as yet to try all
If the things you have in mind. I hope Ghe tine
will come whon our publishcd statements will reflect a fair vppraisal of the situation of our
banks. We aro, however, not ready to take
vanced steps at the moment.
I believe it was very well covered
Mr. Leonard:
this morning, when it was stated that supervision
by use of the examination report is best. At luast
until Mr. folfe's suggestion is adopted, I feel
that supervision is best uaintainod through tho
medium of examination reports. I might add in
this connection thai, so far as State member banks
arc concerned, tho immediate supervision on the
in
par.i; of the Federal Reserve officials is handled
Agents
Reserve
the offices of the various Federal
ual
as they have closer contact with the individ
ton
Washing
the
banks. Thu basis for the review in
thc
report
is
office of tho Federal Reserve Board
of oxamination. We use the call report in certain
cases to determine whether capitalaljustments and
capital programs have gone through as indicated.
iioever, in cases of particular problems, the various situations are followed by requests for definifte
information bearing on the particular problem rather
than by use of call reportc.
Mr. Will:
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Federal Reserve Bank of St. Louis
I think thu Comptrollor has given a fine
dufinition of the various items appearing in the
call report and the dividend and earnings report.
AS tO terminlugy, we have boon fighting over that
for 25 years, and it cannot be suttled today or tomorrow. The American Bankurs Association and the
associations of bank auditors can do a lot toward
ironing ou'', the difficulties of terminology, but
38
it is a long drawn out subject. The main principles of accounting systems in banks of any size
aro generally uniform as to the various classes of
earnings and expenses.
Mr. Smuad:
There should be detailed instructions
so that banks may not misinterpret items called
for and also a complete manual of definitions of
items appearing in the report. The Federal Deposit
Insurance Corporation's list of definitions is
about the same as ours.
Mr. Linn:
'I don't want to speak for the associapersonally urgc on my own group, the
I
but
tion
Naticnal Association of Bank Auditors and Comptrollers, their most careful consideration of the
question of uniform terminology. I know that it
is something that cannot be done in a short time,
but I do feel we should make a start in that direction. At a meeting hold here last November, Mr.
Will read into tho record his definition of "a
reserve for contingencies", and asked Mr. Kane if
his definition was in accordance with the Treasury
Department. Mr. Kane said that it was exactly the
reverse. It has been only a few years ago since
certain governmental agencies failed to recognize
the distinction between accrued liabilities and
appropriations of surplus. In other words, anything that might be earmarked reserve was, in the
viewpoint of these governmental agencies, considered
a liability. We know that this is not always the
case, and I think it quite important that terms be
clarified in any manual of instructions. I would
liku to also commonu this to the American Bankers
Association for consideration.
Mr. Griswold:
I was under the impression that the
association had set up a committee to make a complete study of this subject. It is a very proper
thing to suggest that the association have the
committee appointed and follow through to its objective.
Mr. V.:olfe:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I might sk that I have been greatly
as
I sat here today. Hero is one organizaimpresscd
F.
D. I. C., which gives consideration to
tion, the
the bankers' point of view. Me question of tic wcy
to liandle uniform accounting is the way you have
boon handling -tese other matters hero today. If
left to the bankers, everyone will have a different
method. If the bankers have confidence in and
39
sympathy for someone who knows their needs
they will co-opurato.)
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The various committees are requested
to function on their assignments and report to the
general session at 11 A. M. tomorrow, May 23rd.
Mueting adjourned at 4:15 P. M.
40
General session May 23, 1935.
at 11 A.M. by Chairman Wells.
Meeting called to order
Mr. Wells:
It might be wise to have some expression on
the future procedure for the conference. It has been
suggested that we have the committee reports now, followed by a full discussions of each report. The reaction of the conference to the cormaittee reports will be
for the guidance of the Resolutions Committee which is
to meet immediately after the a6journment of this session. The Resolutions Committee will function until
perhaps 3:30 this afternoon, and as a part of the deliberation of that committee, it is to make recommendations to the conference as to the machinery for the
next three to six weeks. !fter the general principles
and recommendations have been erumerated by the Resolutions Committee and finally considered and adopted in
full or in part by the conference, we might also wish
te set up the machinery to carry these general principles into actual forms. Are thore any reactions as
to the kind of procedure to follow? Would such a procedure as I have outlined meet with your wishes?
Mr. Linn:
Te should have an expression from the representatives of banks that are quite some distance
from Washington. Their presence lere represents a substantial contribution on the part of theseindividual
banks.
mr. wells:
That is the reason why we wish to have expressions as to the future proceedings of the conference.
I would suggest that we hear from the men from the more
distant points. Mr. Massie, Texas always seems far away to me.
Mr. Massie:
Texas believes that it is in the center of
things. I was in hopes that we would be able to arrive
at some definite conclusions on this matter without another trip. However, I am willing to do whatever the
committee as a whole thinks best. If it is necessary,
in the opinion of the committee, to have a meeting in a
month or six weeks, it will be satisfactory with me.
Mr. Wells:
Mr. Grimm:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
A generous expression.
The presence of the men from the banks, in
itself, indicates the cooperation that we may expect.
However, can we justify our commuting back and forth?
T do not imply that the bunks begrudge this expense.
As to the committee's work on revised report forms, it
will be very difficult for a man in Washington to talk
to a man in Dallas at intervals of two, three or six
41
wooks. We shall havo to consider this problem. We
aro taking those men away from thoir bunks for a
long while. We must organizo the work so that they
can go back to their various groups and find out
what approach will bn best, and what they will submit at the next meeting. We must break down tho reports after wo find out whothor the rcports servo
their purposo or not. Personally, I don't think a
call report means much from the standpoint of supervision. We are going to have a difficult timo as
certain logal requirements must be mot. We want to
draw up tho idoal roport and givo ample consideration to all points of view.
Yr. Wells:
Do you have any suggestions to offor to
the Resolutions Committoo in making rocommondations
to tho general group, Tako into account tho problems
you havc outlined as to time, distanco, and manpowcr
available.
Mr. Grimm:
The next mooting should bo relativoly
soon. The longor you postpono it thc cooler wo get,
and tho hottor it will got in Washington. Perhaps
it is not a problom to be solvod in throe woeks, but
I think we can draft somothing that would bo acceptable and satisfactory.
Mr. Wells:
Thank you, Mr. Grimm. The matter boforo
us is our procedure for the remainder of today, and
the recommendations which the Resolutions Committee
shall make as to future procedure. Is thero any reaction to the suggestion which has been made by Mr.
Grimm?
Mr. Smead:
:Jr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
One inquiry, please. As far as the Resolutions Committee is concerned, is it suggested
that bank men draw up suggestions for the supervisory
authorities or that the supervisory authorities draw
up suggestions for the banks?
After we have had the reports read and
hoard the reactions of tho conforence to them, thon
tho Resolutions Committee will go into sossion and
try to draft the principles which this group endorses. Then a small committoe will work for six.
weeks or so on the problom of translating thesc principles and genoral objectivos into concrete forms.
Tho committee will submit its rocommended forms to
oach mamber of the conferonco somc two wooks before
wo reconvono, so that oach mombor will have an opportunity to study thm. Upon roconvening tho general conference, we will attempt to draft thc final
42
forms and to put the wishes of this group behind persuading all agencies to recognize our recomrendations.
Mr. Smead:
That is all true, but I want to know the
combinations of these various committees. Will the
supervisory authorities be represented, or just bank
representatives?
mr. Wells:
That is a matter on which the conference
should instruct the Resolutions Committee. It will be
necessary to work out the details of that machinery.
For the brnefit of tho Resolutions Committee, Idr.
Smead, what are your further ideas in this connection?
Mr. Smoad:
I haven't given any amount of thought to
it. My feeling would be that the committee should be
made up of bank representatives who would work in
close cooperation with the supervisory bodies. The
supervisory authorities could make suggestions from
time to time as to the feasibility and desirability
of certain items and with the object of bcing as helpful as possible. The bank rk-presentatives would submit the report. That is the thought that runs through
my mind naw.
tr. Grimm:
It occurs to me that thc committee should
of the various points of view. I
representative
be
have a representative from
committee
suggest that the
a
member who will vim it
some statistical division,
from tho requirements of the law, and one who will
view the report from thc standpoint of bank operat3ons
and the ease with which the figures may be secured.
Each man, as it were, will protect his own interest.
Otherwise we might exclude something which is very
vital to a particular point of view; for instance, the
statistician will want a lot of things which the bank
operations man would object to on practical grounds.
Mr. Wells:
A very good suggestion and it suggests
something else to mo. This conference will enumerate
certain desirable objectives this afternoon. 7hy not
delegate to a small general committee in 7ashington technicians in these Federal agencies - the job of
getting together the form which will mcet these general
objectives, then have these forms scnt out to the mambors of this conferonce with amnlo time to study them?
We could then reconvene for our final session and make
the necessary recomTendations. 'Would that be deleFating too much to the Federal authorities?
Mr. Grimm:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Most logical thing to do.
A
43
Mr. Wells:
They would have the reactions of the state
bankinr commissioners at hand. They could always get
hold of Mr. Hospelhorn if they wanted the reaction from
that group. Bankers and auditors in tho District of
Columbia could furnish the bankers' point of view. If
general objectives are not c2ear at any timo, the small
group would be as close to any member of the conference
as it would be to the telephone. That is one possible
way of doing it. Are there other suggestions that the
Resolutions Committee mi -ht take along with them into
their meeting for setting up the proper machinery?
We have two or three things before us today.
One, the procedure for today; Second, whether or not
consider future machinthe Resolutions Committee
ery; and third, the various suggestions for future
machinery.
Mr. Grimm:
That would the Federal agencies think of
having this delegated to them?
Mr. rens:
That do you think, Mr. Smead?
Mr. Smead:
I would like to discuss it with some of the
other Federal representatives. It is a difficult problem to handle. If the representatives of the various
Federal agencies should prepare the form, it couldn't
easily be submitted to the State supervisory authorities and others in advance of its completion. If it is
recognized as the product of a joint staff of the Federal agencies and any of the authorities in Washington
should later decide to have nothing to do with it, it
would be an embarrassing situation all around. It
might be a good idea to hear from othurs.
Mr. Wells:
If the suggestions of this staff are good
an-' this group concoorg,thr, agency that dissents is the
one under which we must put some heat. So we don't
have to worry about that particular phase of it at all.
Nhat are your reactions, Mr. Fox?
Mr. Fox:
We are comnaratively new at the game and
Mr. Smead speaks with a great deal of experience and
with more authority thn we do. I will say this, however, that our method of approach has been different
from that of the other Federal agencies. Our method
has been to subject much of our material to the criticisms of bankers. Whether that method can be employed
by the other Federal agencies, is another question.
The ideas outlined by Mr. Grimm are suitable to me.
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
What have you to say, Mr. Thomas?
m11
44
Mr. Thomas:
Someone said yesterday, "You toll us what
you need and we will give it to you. We don't know
what the various agencies need and they don't know
what we have to give them." It is our job to make the
form complete from the point of view of what is needed, and then find out if it is feasible from the point
of view of the banks.
Mr. Vall
Speaking for the Reserve City Bankers
Association, I feel sure we vimuld endorse whatever the
Government agencies could get together on. Until they
do we are up a tree.
Mr. Grimm:
To are getting a little out in the open
field perhaps, due to the fact that I did not make
clear the suggestion which I had in mind. I did not
mean that the drafting committee would be represented
by men from each of the groups at this conference, I
would have as a representative a statistical man,
though he may even be a banker, a representative from
anyone of the supervisory groups, and a legal expert.
The bank auditor gets statistics in his own bank, and
he isn't concerned with the problems that affect the
general economic structure of the country. His point
of view would be frequently different from the point
of view of the Federal agencies, and often the statistical expert and the legal technician. If I suggested
that every Federal agency be represented I want to
make clear th:.t I did not have that in mind.
Mr. Wells:
Vle were having a discussion as to whether
the Resolutions committee would make recommendations
as to the set up of this general machinery. Could we
have some reaction as to whether or not wo should
have the Resolutions Committee work on this problem?
Mr. Will:
I so move.
Mr. Grimm:
I second the motion.
Mr. Tells:
The 'ayes' have it and the motion is carried.
Mr. Tolls:
Mr. Vali:
Mr. Tells:
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Federal Reserve Bank of St. Louis
Next point - do wo wish definitely to instruct the Resolutions Committee as to the machinery or
lot them deliberate - keeping an open-door this afternoon?
Put it in the lap of the Resolutions Committee.
Shall we now receive the committee reports,
then adjourn for a sufficient time to let the Resolutions
Committee outline possible future objectives and set up
of the machinery necessary to carry these objectiires in-
45
to effect?
Mr. Linn:
I so move.
Mr. Will:
I second the motion.
Mrb Wells:
The 'ayes' have it and the motion is cerried.
Mr. Wells:
We will now have the report of the committee
on the public informing function of call reports. Mr.
Griswold is chairman of that committee and will present
the report.
Mr. Griswold:
REPORT OF THE COMITTEE ON THE
PUBLIC INFORMING FUYCTION TO CALL REPORTS
Your conmittee appointed to consider the pubthe
lic informing function to call reports believes that
the
of
ller
form of call report prescribed by the Comptro
esthe
s
Currency and the Federal Reserve Board contain
sential items that furnish the public an accurate stateof the banks' resources and liabilities as reflected by
its books.
While it is true these items may or may not
be fully illuminating as to valuations of assets, this
Committee does not feel that it is within its province
to make a recommendation on this subject.
The Committee believes it is highly desirable that the various State Banking Departments adopt
the above mentioned form.
(signed)
H. H. Griswold
John A. 7111
J. T. Massie
George 0. Vass
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The committee believes that the form of call
report prescribed by the Comptroller of the Currency and
the Federal Reserve Board contains 2ufficient items for
the public informing function,. and the committee doesn't
feel that it is within its province to make changes in
46
the forms which will require changes in the law.
Our procedure calls for a discussion rather
of this report and all of the other
adoption
than an
reports that will follow. Is there any discussion on
this report? Are there views to the contrary?
Yesterday there was considerable discussion
Mr. Leonard:
as to whether a call report should be published for
general information and whether the public actually received much information at the present time. It was
pointed out that the call report form was often :mblishsod in a rather obscure manner, and a condensation which
was rather uninformative was given the emphasis. I
wonder if we shouldn't clear up th:,t point.
We considered it hardly within our province
Mr. Griswold:
to suggest changes which are against existing laws.
Mr. Eddy:
my impression is that the form now used
does not inform the /Dublic.
Mr. Wells:
Are there any other reactions?
your idea, Mr. Folger?
What is
I am in agreement with the committee's re-
Mr. Folger:
port•
Mr. Wells:
Any other suggestions or reactions? If not,
we shall then hear from Mr. Hospelhorn, chairm-n of the
committee on the supervisory functions of reports. I
want to introduce Mr. Hospelhorn who is an active member
of the National Association of Supervisors of State Banks.
He is Mr. Ghingher's right-hand man.
Mr. Hospelhorn:
We had a conference which lasted about one
and one-half hours and the following report was adopted
by the committee.
Mr. Hospelhorn:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
REiORT OF THE COrMITTEE ON
StPERVISORY FUNCTIONS OF REPORTS
1.
We believe that the primary supervisory report is
that of the examinor.
2.
We feel th',
..t the primary purpose of the repOrt of
condition is for statistical information and for
tho use of the public.
3.
That the call reports as presently constituted are
usod to some extent in a supervisory capacity.
AIMMEMMil01.1.
47
4.
In many cases, however, the supervision recpires
obtaining special reports dealing more particularly with individual problems.
5.
That the form as presently constituted serves the
general purpose of supervision and in view of the
fact that the primary purpose of the report is for
statistical and public information, wo believe
that any form adopted for that purpose which would
contain substantially the present information
would meet the needs of the various stmervisory
authorities.
6.
It is recomr-ended that the form be kept as simple
as possible.
(signed) J. D. Hospelhorn
M. E. Bristow
L. R. Ritchie
R. F. Leonard
W. A. Kane
Mr. 1Vells:
71e huve heard the report of that committee.
there any questions, suggestions, or criticisms
which you would like to offer?
Mr. Fox:
.7ould the committee care to enumerate more
srJecifically what it had in mind? aat aspects of the
call report are now used as a supervisory medium and
what aspects are used for statistical purposes?
Mr. Kane has an article which he wollld like
Mr. Hospelhorn:
to read which may clear up those points.
Mr. Kane:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
MEMORANDUM FOR THE COM1ITTEE ON THE
SURERVISORY FUNCTIONS OF REPORTS
As a result of a complete reorganization
and rec9pitalization of national banks which were not
licensed to reopen aftor the holiday and as a result
of the capital structure strengthening in a very large
percentage of the other banks, which program has provided in most instances for the elimination of losses
in the banks, it is felt that the rational b,nks as a
_A
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
48
whole are in stronger and better condition than they
have been for a long time and, of course, is reflected by their books and in reports of condition and published statements.
Examiners are for supervisory purposes and
the personnel of that force including assistants under
the Comptroller's supervision number more than 500.
liv-ith a competent examining force in the
field and their work supervised by the Comntroller's
office in Washington and the chief national bank examiners in the field, it is not believed the Comptroller
should undertake to supervise national banks by reports
of condition except to supplement information appearing
in the examination reports. In fact, it was probably
not the intent of Congress that such should be done
when we consider that Section 5211 requiring the call
report was provided for in the Act of June 3, 1864,
and Section 5240 of the National Bank Act also approved
June 3, 1864, provided for the appointment of examiners
by the Comptroller, with the approval of the Secretary
of the Treasury, to examine every member bank at least
twice each year and oftener if considered necessary.
Section 5240 provides further that examiners making the
examinations of national banks shall have power to make
a thorough examination of all the affairs of the bank
and shall make a complete and detailed report of the examination of each bank to tho Comptroller.
It is interesting to note also that Section
5240 as amended June 16, 1933, provides in part that
"The Comptroller of the Currency shall have pauer, and
he is hereby authorized, to publish the report of his
examination of any national banking association or
affiliate which shall not within one hundred and twenty
days after notification of the recommendations or suggestions of the Comptroller, based on said examination,
have complied with the same to his satisfaction."
Of course, as indicated by Mr. Folger in
his remarks yesterday, these reports are used in connection with examiner's reports but certainly are not in
such detail as to classifications and could not be expected to include appraisals and comments by officers
of banks with the samo degree.of value to a supervising
authority as would be obtained from a report of examination. True, if we had no examining force visiting
banks under Section 5240 or no other means of knowing
the condition of a bank, we might have to resort to call
reports for supervisory purposes, in which event it
would be necessary to enlarge greatly the latter reports.
49
Such a procedure, however, would probably result in
such a burden on the banks that may rightfully provoke criticism.
Schedule A in the present condition report form, calling for the liability of officers and
directors, Schedule B, for excescive loans, and
Schedule C, contingent liabilities, are of course
more in the nature of information to the Comptroller
for supervisory purposes instead of statistical as
in the case of most of the remainder of the report.
Two of these three schedules, namely A and B, aro referred to frequently,in the office.
My opinion, therefore, is that the Committee on the Supervisory Functions of reports should
recommend that the call report should continue to remain as one primarily for statistical purposes.
(signed)
Mr. Fox:
W. k. Kano.
Mr. Kane's report has answered my question
in part. What are the supervisory aspects of condition
statements which in your opinion should be emphasized?
One was the cash position of the instituMr. Hospelhorn:
tions reporting. We can certainly get that information.
Other items are trends in deposits, borrowing power, if
any, classification of securities but not the grade of
securities. Mr. Ritchie has a few thoughts on this
subject.
In our State we have had a little additionUr. Ritchie:
al information. One is the question of compliance by
the bank to the requirement that examinations be made
periodically by directors. In our State wo find it
difficult to have examinations made twice a year on
schedule and the question of examination by directors
is quite important. We also like to know something
about overdrafts, and past due paper. We have also included a schedule of excess loans. This schedule is
more elaborate than in the present FDIC form. vle also
have space for tho indirect liabilitios of officers and
directors. These arc tho principal supervisory itcms.
I amitted the question of capital structure
Mr. Hospelhorn:
in my consideration of the supervisory function of call
reports. It gives a chance to compare charge-offs and
adjustments.
Mr. Tells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Are there other roactions? If not, we
should be glad to hear from Mr. Linn's committee, the
committee on function of reports as aids to individual
bank operations.
Mr. Linn:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
REPORT OF THE COMMITTEE ON FUNCTION
OF REPORTS AS AIDS TO INDIVIDUAI BANK OPERATIONS
In considering the report of condition form,
it is the consensus of opinion of this committee that
the preparation of this form is of doubtful value to the
management and that the subsequent use of the form as a
function of management is of no value. In reaching this
conclusion, the committee has ccnsiderea that no doubt
all banks prepare, at more frequent and regular intervals, information in a form to suit the internal requirements and that the call report as such adds nothing of
consequence thereto.
With respect to the earning and dividend report, the committee suvests that the preparation of
this report is of no value in banks having properly organized accounting departments. However, with banks
not so organized, the mere fact that the report has to
be prepared may lead to standardization of bank accounting principles. It is the opinion of this committee
that the value of the report could be augmented by making certain changes. Specifically, we recommend that
Item 6C (Treasury Department form #2129), Depreciation
on banking house, furniture and fixtures, and in fact
all fixed assets, bc treated as a current expense and
included in Section 2 of the report. In addition to
the recommendation of this committee with respect to depreciation on fixed assets, we further recommend a thorough study and clarification of the accounts commonly
known as "reserve accounts" which generally include both
accrued liabilities and appropriations of undivided profits. It is the further feeling of the committee th.kt
the Governmental agencies have taken a forward step in
the preparation of "manuals of instructions" on the preparation of reports and recommend a review of existing
instructions.
This committee has briefly reviewed the
statistics prepared by the various Governmental agencies and several of the Federal Reserve Banks. It has
in mind particularly the "Comparison of Member Bank Income and Expenses," prepared annually by the Federal Reserve Bank of Boston, and commends the compilation, as
the use of these statistical comparisons can be of material value to all banks when prepared in this, or a
similar form.
51
(signed)
Geo. D. Grimm
H. H. Griswold
Raymond C. Marx
K. M. Morrison
Arthur J. Linn
Chairm-n
Mr. Wells:
Mr. Smead:
We have heard the report of the committee.
Are there any questions, suggestions or criticisms?
For your information, Mr. Linn, I wish to
state that we have issued a "Manual of Instructions"
which is similar to the manunl of the FDIC, only theirs
is in a printed form.
Mr. Wells:
isms?
Are there any further questions or criticNow is the time to make them.
We will now have the report of the commitons of
tee on general economic and statistical functi
ready?
report
reports. Mr. Thomas, do you have the
Mr. Thomas:
Mr. Thomas:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I have a report which was rapidly dictatcommittee
ed as a result of a general discussion. The
the oarnconsidered only the condition report and not
ed to recomings report. The committee is not prepar
recommending
simply
is
it
;
report
mend changes in the
commdttee
the
by
ered
consid
points which shoulii be
ence.
this
confer
of
-Tork
that is to continue the
REPORT OF THE COVIIITTEE ON G7NERAL
ECONOMIC AND ST_TISTICAL FUNCTIONS OF REPOTZTS
In the limited time at its disposal the
e some of the
Committee has been able only to explor
en of the
minati
(leter
considerations involved in the
for
meeting
ble
types of reports of condition desira
ic
analysis. It
the needs of statistical and econom
had no opportunity to review problcms connected w*th
earnings and condition reports, nor is It prepared
to recommend any changes at prosent in tho system of
reports. It recommends the creation of another committee to work out in detail recommendations for
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Federal Reserve Bank of St. Louis
52
adapting rcports of condition and earnings to the requirements of ecnnomic analysis, such recommendations
to be submitted to a future meeting of this body.
Considorations involved in adapting reto meeting tho requirements of stacondition
ports of
economical analysis:
general
and
tistical
A.
B.
General Considerations.
1.
The development of thc call reports for the
production of needed banking statistics has
been retarded in the past by the attempt to
have the call report serve not only the statistical function, but also the supervisory
and public informing functions.
2.
The present call reports provide considerable
information of great value for analyzing
economic developments. They are deficient in
providing proper statistical data from the
standpoint of scope, regularity, and frequency
to permit a thorough analysis of changes in
the volume, purpose, and use of bank credit
and of bank deposits.
3.
It may be considered whether the conflicts of
function and the deficiencies from the standpoint of statistical analysis can best be removed by devising whore necess7ry separate reports to serve separate functions.
Points to be Considered in Devising Proper Reports
for Statistical Purposes.
1.
Frequency of reports should depend upon the
purposes to be served by reports required.
Consideration should be given to tho feasibility of obtaining monthly statistical reports from a larger number of banks on a form
similar to that obtained from weekly reporting member banks.
2.
Regularity of reports. Considerable part of
tho data must be reported at regular intervals.
3.
Content. Tho content of the reports should
vary according to the needs and frequency of
tho reports. General considerations regarding
contentin bo considered arc:
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Federal Reserve Bank of St. Louis
4
53
a. :_dequacy of nresent weekly report of member banks in leading cities.
b.
Necessity for more detailed figures at
frequent or infrequent intervals.
c.
The possibility of obtaining data on the
amount and turnover of deposits should be
investigated. The present classification
of deposits appears to be inadequate for
purposes of economic analysis. Consideration should be given to the following
typos of classification:
i.
ii.
iii.
iv.
v.
d.
Whether business or personal accounts.
Type of business.
Size of account.
Typo of account - demand, time, etc.
Bankers, balances.
Collected and uncollected funds. The
possibilities should be invostigated of
splitting the item "duo from banks" into:
DepOsit balances with other banks.
ii.
e.
Checks in process of collection with
other banks.
Consideration should bo given to the possirobility of obtaining more adequate data
garding the amount of loans outstanding and
perhaps their turnover. Possible typos of
classification to be investigated are:
Opon market loans - probably satisfactory now.
ii.
Customer loans.
(a)
Economic function of borrower.
(b) Purpose of loan.
F.
The possibility of obtaining more adequate
data on interest and discount rates affecting customers of banks should be investigated.
54
i.
ii.
g.
4.
Rates paid on deposits.
Rates charged on customers' loans.
Consideration should be given to the
analysis of the disposition of criticized assets.
Uniformity and standardization for the proper
fulfillment of the statistical function. The
reports should be uniform, all terms should
be standardized, and tabulation accomplished
under a uniform or centralized control.
It is to be emphasized that the foregoing
outline represents an ideal which is probably attainable only in part considering the present state of bank
acccunting practice. It seems to this Committee that
the important thing is to make a start toward these objectives. If a proper foundati7n of uniform practice
can be established, the product even though sketchy and
imperfect in the beginning, can be gradually improved
as the banks show themselves capable of producing the
information with reasonable expenditure of tine and effort.
(signed)
Woodlief Thomas
J. E. Horbett
George A. Eddy
E. H. Brandon
Donald S. Thompson
Are there any general reactions or critic-
Mr. Wells:
isms?
I am impressed with the number of points
Mr. McMahon:
brought out in that report. However, this will not
condense any Of the information now sought but will
augment the same. One of the purposes of this conference was to bring about uniformity by condensation. I
doubt very much whether the committee could accomplish
this objective and follow the suggestions of Mr.
Thomas' committee.
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Federal Reserve Bank of St. Louis
55
Mr. 'Neils:
1,7e owht to have a reaction from several
of the bank representatives.
Mr. Massie:
I am of the opinion that the present forms
place too great a burden upon the banks. I believe
that if the committee would boil down all the forms to
essential material and information, the banks would
not object to furnishing such information.
Mr. Will:
We break down these items in our foreign
department as to industries. The question is which
ones are to be enumerated. If you break down loans
and deposits by industry, where are you going to stop?
If all banks used punch cards and were highly mechanized, this would be a simple matter. You are placing
a big burden upon the banks. I doubt that it will be
of any great value to those who will try to digest it.
I wonder if there is not a tendency to conMr. Thompson:
fuse brevity with simplicity. Detailed reports are
simple if the items can be taken directly from the
books. A short report may be very complex if it requires an unusual combination of items not ordinarily
carried on the books. If it were known in advance
that given types of data were to be required regularly and frequently and the banks wore to set up control
accounts to yield such data, the reports might not involve so much work on the part of the banks, as is involved with the present infrequent reports. The committee should investigate the ideal requirements for
economic analysis and try to work out a form that
would meet those requirements insofar as possible and
still not be unduly burdensome to the banks.
Mr. Thomas:
•
The latter point which Mr. Thompson has
made is one in which we are interested. We want to
get the reaction of banks on specific points. This
probably isn't the place to do it.
We should point out to the committee that
Mr. Morrison:
it is highly desirable that nothing should be included
in the ruport that will tempt banks to guess at a figure. If it is difficult to arrive at the right one, it
will often put in a figure but it won't have meaning.
Mr. 'jells:
Very true of country banks.
Mr. Smead:
Yes.
Mr. Thomas:
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Federal Reserve Bank of St. Louis
For statistical purposes, if the banks are
good guessers it is bettor than nothing. 7b now do the
guessing.
56
Mr. Thomas' report contained a recommendaMr. McMahon:
tion as regards the frequency of reports. I believe
it was the object of the representatives to cut down
call reports as much as possible. If we are to encourage the number of calls it would be better that another
type of form be evolved which would more fully meet the
ideas of the statistical divisions.
That is the recommendation of this committee.
Mr. Thomas:
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Aro there any other suggestions? If not, I
want to suggest a change on the Resolutions Committee.
Mr. Vass has asked to be relieved and it was suggested
that Mr. Griswold be appointed. Mr. Bristow is here
now also, so he can act on the committee too.
So bn the Resolutions Committee, we will
have:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Linn, Chairman
Bristow
Griswold
Hospelhorn
Fox
Kane
Thomas
They will have these problems to consider:
(1)
General principles upon which this conference can
agree, such as: Should the report emphasize the
supervisory function or the statistical function.
(2)
The public informing aspects and the problems of
standardized accounts and accountinr, terms.
(3)
To what agencies should the report be submitted?
(4)
The problem of securing cooperation among the Federal agencies and the State agencies.
(5)
The proper machinery to be evolved which will translate these general objectives into specific proposals and specific forms.
I am reminded of two things. One is the statement of an
old Baptist preacher. He gave his Sunday-school children
the following advice: "Young people, you bet'-er shoot
pretty high, because you will fall low enough anyway."
And so there is no reason why we shouldn't be bold in enumerating and enunicating our ideas. Also Justice
Brandes has said: "If reason is to direct our economic
and social actions, we must let our minds be bold." As
57
I understand it, the Resolutions Committee is to keep
an open-door this afternoon. As soon as it is through
luncheon it will work on these matters in this room.
Mr. Linn is the chairman. Mr. Linn, how long do you
think you need? INhen shall the general group reconvene
to hear the resolutions?
Mr. Linn:
Mr. Wells:
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Federal Reserve Bank of St. Louis
I would suggest 4 P.M. this afternoon.
Then we shall now adjourn to meet again as
a whole at 4 P.M.
58
General session. Mr. Wells called the conference to
order at 4 P. M., May 23, 1935.
Mr. Wells:
Mr. Linn, as chairman of the Resolutions
Committee, will present the report of tilt committee.
Mr. Linn:
Mr. Wells, this committee missed your
personality and the enthusiasm which your personality
has braught to this whole meeting. My personal.feeling was that you should have been chairman of this
committee. I do not know who had the idea that I
should be selected. I will now read the first resolution.
BE IT RESOLVED that each of the groups represented here should appoint one member to represent that group and that such representatives
constitute a permanent standing committee to cooperate and work together toward the development
of the required forms.
This standing committee is to have the power
to delegate the performance of specific functions
to sub-committees, the membership of which committees need not be confined to members of the
permanent standing committee.
BE IT RESOLVED FURTHER that Mr. H. B. Wells,
Bank Supervisor and Supervisor of Research and
Statistics, Department for Financial Institutions
for the State of Indiana, be Chairman of that permanent standing committee.
Mr. Wells:
4111114416
You have heard the first resolution. I
should like to say in connection with the last part of
it, and before I go on, that it occurs to me that it
would be entirely logical to have someone in Washington
serve as chairman. Indianapolis is a rather distant
point. I frankly think that somebody here in Washington should be chairman of this committee. That should
be a very serious considetation.
How'is it planned, Mr. Linn, to have the
Mr. McMahon:
committee appointed? Is it by the suggestions of this
conference, by the suggestions of the chairman, if he
accepts, or by the appointive powers of the various
graups?
Mr. Linn:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
By the appointive powers of the various
at this conference.
represented
groups
I hate to leave you hanging up in the air,
59
Mr. Wells, but we still think it is a logical appointment. You spend a great deal of time here in Washington.
Mr. Wells:
That is just it, I spend too much time here.
Mr. Linn:
I move the resolution be adopted.
Niro. Tucker:
I second it.
Mr. Wells:
Mr. Fox, will you ad:for the question?
Mr. Fox:
The resolution is timaratiH.1 c'Lrric:d,
Mr. Linn:
BE IT RESOLV2D that the call reports
for gupervisory purposes be as few as is possible and as is consistent with existing laws,
and that the reports for economic rtnd statistical purposes, at the discretion of the Federal
agencies, be on a monthly basis.
Mr. Smead:
The only question which I would raise in
this connection is the montlily aspect and its overlapping with the present weekly reports.
Mr. Linn:
What would the probability be of monthly
reports to the Federal Reserve Board for all banks,
supplementing the weekly one from selected banks?
Mr. Smead:
It might supplement the weekly report in
part. However, the Board could not function properly
without some weekly data.
Mr. Fox:
In view of the fact that the present weekly service which is in effect in the 91 loading cities,
is a purely voluntary affair, the present proposition
wguld not interfere with the question at hand.
Mr. Wells:
41111
10011.
Mr. Smead:
Mr. Wells:
Mr. Linn:
Do you want to guggest an amendment or do
you simply want it clarified so that we will know what
we are voting on?
The latter.
I don't believe that the committee had
reference to the weekly reports.
That is my feeling about it.
I wguld su,ggest inserting the word "general!'
Mr. Leonard:
before the word "reports".
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
That might clarify the matter.
60
Mr. Fox:
I would like to suggest that if the Federal Reserve Board feels that it is important, we
insert a sentence which would eliminate the difficulty.
Mr. Smead:
As far as I am concerned, it does/lit make
a great deal of difference except that the resolution as
it now stands might give the impression that we were
asking for unnecessary reports. I think it would be
unfortunate to give that impression.
Mr. Wells:
Shall we have someone make a motion to insentence?
a
such
sert
Mr. Fox:
I move the following amendment to the resolution: that there be inserted after the phrase "for
economic and statistical purposes" the following: "exclusive of those weekly reports now being obtained by
the Federal Reserve Board from banks in the 91 leading
cities." The resolution as amended would read:
BE IT RESOLVED that the call reports
for supervisory purposes be as few as is possible
and as is consistent with existing laws, and that
the reports for economic and statistical purposes,
exclusive of those weekly reports now being obtained by the Federal Reserve Board from the banks
in 91 leading cities, and at the discretion of the
Federal agencies, be on a monthly basis.
Mr. Kane:
Mr. Wells:
Mr. Linn:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I second the motion.
It has been moved and seconded that we
amend this motion by that language. All those in
favor of the resolution as amended will signify in the
usual manner. The resolution, as amended, is car,-;,- ,
BE IT RESOLVED that it be the definitc
sense of this conference that insofar as possible the supervisory aspects of the call be
divided from the economic and statistical, and that
this general plan of division between the supervisory and the economic and statistical aspects
be carried out insofar as this is consistent with
simplicity and uniformity.
BE IT RESOLVED FURTHER that the existing call report be used as a basis for
the supervisory forms and tht the emphasis
be to delete that material from the present
form, which is inserted solely for statistical purposes and which is not needed for supervisory purposes
61
Mr. Wells:
Mr. Kane:
This resolution in a large measure embodies what we have all discussed. Is there any
discussion?
I didn't understand that resolution. Was
ng statisit understood that we should delete everythi
tical from the present report?
Does the resolution mean that the face of
Mr. Morrison:
"C" of the
the call reports plus Schedules "A", "B" and
is to
that
all
Comptroller's call would be practically
be maintained?
Mr. Marx:
Does it intend that we should Eo further
s may
than the "A", "B" and "C" Schedules as conition
rable?
arise or as gupervisory authorities may deem desi
I don't know.
Mr. Wells:
Is there any answer to that
question?
Mr. Linn:
Mr. Smead:
g to
The supervisory authorities are goin
on
cati
indi
an
just
ask for what they want. This is
ect to
of the opinion of this committee with resp
future reports.
opinion or
I have not reached a definite
to think
ined
incl
conclusion on the matter, but I am
d by
cate
indi
that we could work it aut on the line
that the monthly
the resolution. It iD just possible
Reserve Board
or weekly service which the Federal
ain all the
may consider necessary would not cont
wish to reld
shou
it
statistical information that
the case, the
were
that
ceive at longer intervals. If
rmation
info
iled
deta
logical place to .3et the more
d does
Boar
The
rt.
repo
would be in the regular call
which
hly,
or
mont
ly
week
not wish to ask for anything,
e
of
thos
ling
hand
is not necessary for the proper
that doesn't
problems which are before it. But
not call at longer
necessarily mean that it would
istical reports. This
intervals for more extensive stat
in separate schedtype of information could be included
ree;ular call report.
ules which cguld go along with the
I was under the impression that the ReMr. Bristow:
that the word "delete"
solutions Committee later agreed
t word substituted.
eren
diff
a
shoul(1. be eliminated and
Mr. Kane:
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I thought it was the sense of the Reld be no desolutions Committee meeting that there shou
letion.
Read the resolution again.
There is
62
nothing antagonistic in that statement. I think that
the last part simply stands as a desirable objective
if it could be obtained.
Mr. Kane:
I thirkwe are losing sight of the opinion
that the call report is primarily for statistical purposes instead of supervisory purposes. The intent of
the present resolution seems to eliminate anything that
is purely statistical.
Mr. Wells:
What would be ygur suggestion, Mr. Kane?
Mr. Kane:
I suggest that the resolution read as
follows:
BE IT RESOLVED that it be the definite
sense of this conference that insofar as possible the supervisory aspects of the call be
divided from the economic and statistical, and
that this general plan of division between the
gupervisory and the economic and statistical
aspects be carried out insofar as this is consistent with simplicity and uniformity.
iformity."
My plan wuuld be to stop at the word "unThat would eliminate this paragraph.
BE IT RESOLVED FURTHER that the ex,isting call report be useft as a basis for the
supervisory forms and that the emphasis be to
delete that material from the present form,
which is inserted solely for statistical purposes and which is not needed for supervisory
purposes.
Mr. Massie:
In the last paragraph I am of the opinion
we are overstepping aurselves. As long as we have uniformity what do we care whether it is statistical or
supervisory? We are here for uniformity, not to tell
these follows what to do.
Mr. Wells:
As chairman of the committee, Mr. Linn,
will you take charge of the discussion at this point?
Mr. Linn:
Our first duty, as I saw it, was to try to
put in a few brief paragraphs the opinions of this conference as expressed in the last two days. It is entirely possible that we haven't succeeded in this
particular respect.
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Federal Reserve Bank of St. Louis
I think that I can speak for the balance of
this committee when I say that the main objective in
this particular resolution was to draw a distinction between those reports which may be used for gupervisory pur-
63
poses and the reports that are strictly statistical.
NDne of us have any pride of authorship. I wonder
if the thought of the committee might not be fully
expressed by havirk; the seconcl paragraph of this
resolution read as follows:
BE IT RESOLVED FURTHER that the ex—
the
isting call report be used as a basis for
supervisory forms.
We cguld stop at this point. In other
7raph of this
words, we have expressed in the first para,:
stical
stati
the
e
divid
to
n
resolution the inclinatio
report.
call
the
of
t
aspec
y
aspect from the supervisor
r to
answe
the
is
stion
augge
It might be that the above
our question.
Yesterday, after hearing Mr. Folger and
tion was used
Mr. Kane point out that the report of condi
the sup—
unted
disco
lari;ely for statistical purposes, I
nc-z;
meeti
ttee
comi
ervisory function. However, at gur
tives
senta
the
repre
this afternoon, it was pointed gut by
re—
these
on,
opini
of the State supervisors that in their
my
od
it
chang
and
ports had considerable re6ulatory value
to
no
willi
aspect to a lari7e extent. Personally, I am
ution.
this
resol
of
on
secti
d
secon
e
eliminate the entir
I move that we eliminate the clause as Mr.
Mr. Bristow:
Linn suggests.
Mr. Wells:
Mr. Grimm:
Mr. Smead:
ed
It is moved that the resoluion be amend
as
:raph
parajl
last
by romovin,7 the last part of the
suggested by Mr. Linn.
I second the motion.
n for
I don't know whether I grasp the reaso
the call report in the
this elimination. Do you mean that
se of supervision?
future would be solely for the purpo
l
schedules in the
stica
stati
That would mean that all
.
nated
present report would be elimi
is
It is my tholOit that the last paragraph
Mr. Hospelhorn:
I
merely carrying out the idea of the first paragraph.
tion to it.
don't see where there could be any objec
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I don't see why the second paragraph wouldn't
clarification
be all ri,,ht. It is simply an elaboration and
r our bless—
to
showe
want
don't
We
of the first paraEraph.
discussion
other
any
thore
Is
ings upon the existing foru.
of the
half
7h
go
throw
to
upon this point? The motion is
last paragraph and stop.
64
Mr. Linn:
Would it be in order to ask for a discussion
for the adoption of the first paragraph only and take up
the resolution section by section?
Mr. Wells:
It wauld be in order if we could get the
present motion off of the table.
Mr. Bristow:
tion.
I withdraw my motion to amend the resolu-
Mr. Grimm:
I withdraw my second.
Mr. Wells:
We are now back to a consideration of the
entire resolution as proposed by the Resolutions Committee.
Mr. Linn:
I would like to move that the discussion
be confined to the first paragraph with the understanding that we proceed from paragraph to paragraph. I
move the adoption of the first paragraph.
Mr. Bristow:
Mr. Wells:
I second the motion.
The question before the house is the
adoption of the first paragraph of the resolution. It
has been moved and seconded. It is carried. We can
now proceed to the disaussion of the second paragraph.
Mr. Fox:
I move the adoption of the second paragraph.
Mr. McMahon:
I second the motion.
Mr. Wells:
It has been moved and seconded that the
second paragraph be adopted. Is there any disaussion?
Mr. Hospelhorn:
I can't see what difference there is between
the first and second paragraphs.
•
Mr. Folger:
Withaut the last paragraph the resolution
seems to be complete. The second one simply emphasizes
it a little more. Certain parts of the present report
are to be eliminated. The first part of the resolution
suggests that they be eliminated as far as possible.
Mr. Kane:
Later on, I believe it is the intention of
the Resolutions Committee to present for approval the
ideas adopted this morning by the committee on the
supervisory function of call reports. I was under the
impression that the committee recommended that the call
report should be a statistical report. Under the
language of the second paragraph of the resolution
before us isn't it to be a supervisory report?
feeib
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Federal Reserve Bank of St. Louis
65
Mr. Wells:
Mr. Kane:
•
Mr. Smead:
.
.
Mr. Grimm:
Mr. Wells:
It isn't quite that, Mr. Kane. The monthly
reports are to take care of the statistical aspects;
the regular call reports as now used will serve the
supervisory function and unnecessary statistical
material will be deleted from the regular call report.
The first paragraph of the resolution is
second paragraph is intended to delete
The
all right.
from the call report all statistical information. It
seems to me that this is oontrary to the ideas of this
conference. I may be wrong in my interpretation.
Couldn't we insert the word luniform"
before the phrase "call report" in the second paragraph? That wouldn't exclude any organization from
calling for any data. I think it would be unfortunate to put in the call report a lot of statistical information that a good many States don't see fit
to call for. The basis of our whole meeting is for
a call report which we can stand upon and follow
n
through. If the FDIC wants some special informatio
al
on the June call, they can include that in a speci
form to supplement and accompany the regular call.
I feel that the first paragraph adequately covers the situation.
Is there any further discussion?
I gather from the discassion that the
Mr. Leonard:
for
first paragraph recognizes that there is a need
a
t,
exten
statistical information and, to a certain
the
that
need for supervisory data. Now it may be
can be obstatisticians need more inforNation than
ts.
tained on the basis of the present call repor
statisent
frequ
more
the
that
This paragraph suggests
the
that
and
ately
separ
tical calls be considered
suppresent system of call reports be used as the
recall
of
use
g
makin
ervisory device. The people
month
in
certa
e
desir
ports for statistical purposes
nally
origi
as
ly information which this resolution
with
drafted seems to preclude them from collibining
for
basis
the
the call report which is to serve as
public information and, to some extent, for super
vision. Shouldn't such a call report include certain statistics which would be in lieu of the monthly report for tAlt month? I think that it should be
clarified whether the call report should come on
the same date as the statistical information that
the banks are to be called upon to furnish.
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Would some member of your committee
66
answer Mr. Leonard?
Mr. Fox:
In answer to Mr. Leonard, I believe it was
the feeling of the committee that for the purpose of
attempting to get through a standardized call form,
it would be necessary to get a medium which wuuld
gupply all gupervisory yurposes. Also the medium
which could bear the endorsement of this committee
would have to have a possibility of being adopted
by the whole conference. In other words, it is
necessary that we separate the statistical from the
gupervisory and that we concern aurselves with the
supervisory and try to get that in standardized form.
Mr. Wells:
That follows Mr. Smead's guggestion and
seems to coincide with his ideas. I don't know whether
Mr. Bristow and Mr. Hospelhorn agree. The report must
be a simplified one, if we are going to get it uniformly
adopted, then let the aupplements come as they may.
I find myself in disagreement with the enMr. Bristow:
tire resolution. I believe that substantially the same
form as now used shuuld be continued, otherwise we are
going to have diffiaulty in selling it to the various
states. I am extremely interested in bringing about
uniformity. If you are going to bring about Ilniformity,
it is going to have to be done with a call report something like uur present form.
Here is another thought. I believe that in
order that the gupervisory part of the report may be
useful and to the point, it must be part and parcel of
the statistical report. I don't object seriously to the
idea that you might have to have two different forms -one to have the supervisory information desired and
another to get the statistical information. In order to
mdke the whole thin stand up, we are going to need a
certain amount of statistical information. I am not
trying to carry my point at all, but I am in favor of
using the form now in use by the Comptroller's office
and the Federal Reserve Board, and the Federal Deposit
Inaurance Corporation. Because I thought that that
was as near to my viewpoint as I could get, I agreed
on the resolution as presented. The young lady who
took it down, todk it as it was originally dictated
and then someone guggested phraseology that just reversed it. We prectically agreed on what should go in
the resolution.
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
It seems we have a problem as to whether
the language should be negative or positive.
67
May I ask if the first
Mr. Morrison:
conflict with the requirement? The
be merely split into two pieces and
made in the first paragraph that we
paragraph would
call form would
no suggestion was
delete.
I dislike the order of the first paragraph,
Mr. Bristow:
but by having two parts to the same, I get substantially
what I want.
Mr. Wells:
•
The motion is for the adoption of the
second paragraph. Is there further discussion?
Is an amendment to the second paragraph in
Mr. Hospelhorn:
order? I move that the second paragraph be stricken
out and the following substituted:
BE IT RESOLVED FURTHER that the ex.r.
isting call report be used as a basis for the
adoption of a uniform report for supervisory
purposes.
Mr. Wells:
You have heard this amendment in the form
of a motion, is there a second?
Mr. Linn:
I second the motion.
Mr. Wells:
Is there any further discussion on this
amendment?
The proposed amendment seems to me to be
Mr. Thompson:
contrary to the sentiment of this body. As Mr. Smead
pointed out a short time ago in connection with another
motion to amend that paragraph this endorses the report
in its present form.
c'
pio.
a
Mr. Hospelhorn:
Change the wording from "basis" to "guide."
Mr. Thompson:
A distinction withgut a difference.
Mr. Kane:
Again I say the call report should not be
used as a basis solely for gupervision.
Mr. Wells:
Mr. Kane, do you imply that we are doing
anything like that?
The committee went on record definitely
Mr. Hospelhorn:
of the call report was purely a
function
that the
statistical one.
Mr. Wells:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mr. Hospelhorn has a motion for an
amendment to this second paragraph. There is also a
second to this motion. Is there further discussion
68
is your pleasure?
to amend the second paragraph? What
a motion to
Yes, 5; No, 8. Motion is rejected and
.
adopt the second paragraph is in order
I don't understand your objection. Mr, Kane?
Mr. Brandon:
Mr. Kane:
A
Mr. Wells:
was
I have in mind another resolution which
visory functions
adopted by the committee on the super
that the call report
d
mende
recom
it
of the call report and
visory pursuper
not
and
l
be primarily for statistica
was statisthat
ing
anyth
e
poses. We were not to delet
tical in purpose.
This resolution seems to be exactly in
keeping with that report.
A short time ago we adopted a resolution
Mr. Thompson:
ble, of a
favorable to the adoption, insofar as possi
ses.
l
purpo
stica
system of monthly reports, for stati
for
need
the
t
If that resolution were put into effec
visory
super
for
statistical data in the infrequent report
not
would
purposes would be largely eliminated and we
lose through the deletion of that material.
Mr. Wells:
what
Is there further discussion? If not,
of the second
is your pleasure in regard to the adoption
you
paragraph? The motion is carried, 8 to 5. Will
Linn?
Mr.
t,
repor
continue with the Committee's
BE IT RESOLVED that it is the sense of
the meeting that the various delegates here,
representing the National Association of Super
rs
visors of State Banks, the American Banke
Association, the Reserve Cities Bankers Associatdon, ahd tht - National Association of Bank Auditors and Comptrollers, recommend to their
national associations that aggressive and
ambitious educational campaigns be outlined
for the purpose of bringing about greater
standardization in accounts and accounting
terms, and that such programs, for the snke
of uniformity, be cleared through the permanent standing committee created aut of this
conference.
Mr. Linn:
Do yau move the adoption of this resolu-
Mr. Wells:
tion?
Mr. Linn:
I so move.
Mr. McMahon:
I second the motion.
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Federal Reserve Bank of St. Louis
69
Mr. Wells:
The matter is now up for discussion. Are
the question? The resolution as just
for
you ready
offered by Mr. Linn is carried. Mr. Linn, will you
continue to read your report?
BE IT RESOLVED that this committee and
the individual members in attendance desire to
thank the staff of the Federal Deposit Insurance
Corporation for their personal efforts extended
in preparation of this meeting and for their
many social courtesies extended incident thereto.
Mr. Linn:
Mr. Wells:
This resolution is unanimously carried.
Is there any other business to come before the meeting at this time?
Mr. Smead:
The chairman of this conference has done
a wonderful job.
I wish to place Mr. Smeadis idea in the
Mr. Hospelhorn:
form of a motion.
I second the motion.
Mr. McMahon:
(Numerous seconds).
The motion unanimously carried and a vote
of thanks was given to Mr. Wells for his splended services as chairman of the conference.
Do I understand that a Standing Committee
Mr. Hospelhorn:
ht back to
has been appointed? Will the forms be broug
the conference as a whole for adoption?
Mr. Wells:
This Standing Committee will function for
the ideas
as many weeks as it is necessary and will turn
will
which
forms
sted
sugge
of this meeting into concrete
ps
rence
perha
confe
this
be submitted to the members of
the members has had
in two or three weeks. After each of
privacy of his
an opportunity to study the form in the
rs will be
own office, we will reconvene and these matte
up for adoption and approval.
Those of us who have men outside of this
Mr. Griswold:
d we
group whom we want to recommend, to whom shoul
give this information?
Mr. Wells:
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Federal Reserve Bank of St. Louis
There should be someone here in Washington.
It would be entirely in order for someone in the conference to move the appointment of a Secretary, located
here in Washington. Would someone care to make such a
motion?
70
Wouldn't Mr. Fox be willing to take that
Mr. Bristow:
position? I wish to make the motion that Mr. Fox be
appointed Corresponding Secretary.
Mr. Linn:
I second the motion.
Mr. Wells:
The motion is carried.
Mr. Fox:
I want to ask Mr. Smcad and Mr. Folger if
my appointment will be satisfactory to them.
Mr. Smead
and
Mr. Folger:
Mr. Wells:
Yes.
Mr. Fox, you have been appointed the
Corresponding Secretary. Therefore, all committee
appointmcnts will be forwarded to him in Washington.
Is there any other business? Mr. Fox has an announcement to make about tonight's meeting.
At The Mayflower, Italian Room, informal,
Mr. Fox:
7:30.
Mr. Wells:
This has been a very splended meeting and
conference. I heartily endorse the resolution regarding
the courtesies extended to this conference by the Federal Deposit Insurance Corporation.
The time of our next meeting will be determined by the work of the small committee.
It may take a Short time or it may go very
Mr. Smead:
slowly.
Why don't we adjourn and meet again at the
Mr. Bristow:
call of the chairman?
ic
Mr. Fox:
4
I would suggest that the various groups that
are to appoint representatives to this Standing Committee
shuuld make that appointment immediately.
I would suggest that we reconvene at the
Mr. Bristow:
and at the time the sutcommittee
Secretary
the
of
call
Is
report.
that your pleasure?
to
is ready
Mr. Smead:
Not until after the forms have been sent to
all members of the conference.
hr. Wells:
Any further business? I shall entertain a
motion for adjournment. The conference is adjourned.
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Federal Reserve Bank of St. Louis
A
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
•
.
•••
•
AGENDA
PRELIMINARY COMMENCE ON CALL REPORTS
AND EARNINGS AND DIVIDEMS REPORTS
I.
THE PROBLEM
k
A.
II.
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Federal Reserve Bank of St. Louis
The improvement and standardization of bank report forms.
1.
Is report standardization desirable?
2.
Is report standardization possible
3.
What functions shall standard reports be designed to
serve?
4.
How shall such reports be constructed to serve
adequately these functions?
GENERAL BACKGROUND OF THE PROBLE
A.
B.
Material at hand.
1.
Appendix "A". Summary of State Legal Requirements
Governing Reports of Condition and Earnings and
Dividends Reports.
2.
Appendix "B". Summary of Items Appearing Upon Forms
in Current Use,
General description and aims of call reports and earnings
and dividends reports now obtained.
1.
Comptroller of the Currency -- natiqnal banks.
2.
Federal Reserve Board -- State member banks.
3.
Federal Deposit Insurance Corporation -- State nonmember insured banks.
•
•
2
III.
4:
State supervisors -- All State banks.
5.
Securities and Exchange Commission -- stockholders.
APPRAISAL OF PRESENT REPORTS FROM STANDPOINT OF FUNCTION AND
PURPOSE
A,
Supervisory function of reports.
1.
Basic requirements of reports for proper fulfillment of
supervisory function and adequacy of present forms.
(a) Frequency -- monthly, quarterly, semi-annually
or otherwise.
(b) Regularity -- should dates of call be regular
or irregular for this function?
(c)
Content -- in general, what information should
reports contain to be of use from standpoint
of supervision?
(d) Uniformity -- is uniformity and standardization
desirable and possible for this function?
2.
B.
Suggested improvements in reports as regard proper
fulfillment of supervisory function.
Statistical function -- general economic analysis.
1.
Basic requirements of reports for proper fulfillment
of this function and adequacy cif present forms.
•
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Federal Reserve Bank of St. Louis
(a) Frequency -- daily, weekly, monthly, quarterly,
semi-annually or otherwise.
(b) Regularity -- can this function be properly
served by irregular call dates?
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Federal Reserve Bank of St. Louis
•
•
(c)
3.
Content -- comprehensiveness and selection
of data necessary for statistical purposes
-- possible inclusion of velocity and
turnover data on loans and deposits.
(d) Uniformity and standardization -- absolute
necessity of uniformity in definition and
selection of ite..is as regards this purpose.
(e) Adaptability to tabulation.
0
C.
Suggested improvements in reports from point mf view
of this function.
Call reports and general public -- public informing function.
1.
Basic requirements of reports for proper fulfillment
of this function and adequacy of present forms.
(a) Frequency -- monthly, quarterly, semi-annually
or otherwise.
(b) Regularity -- should dates of published calls
be irregular or regular?
(c)
Content -- in general, what type of inform, ation should be published?
i.
Comprehensiveness and selection of
published data.
Appearance and arrangement to facilitate understanding of material by
public.
question of publishing earnings and
dividends report material.
iv.
Should published reports bring out
valuation of assets?
•
•
4
(d) Uniformity -- is uniformity desirable and
possible as reE;ards function as public
informant.
2.
D.
Suggested improvements in reports from the point of
view of this function.
Function of reports as aid to individual bank operations.
1.
Present uses of reports by individual banks.
2.
Potential use and improvement in reports from point
of view of individual banks.
(a) Further use of general statistical data compiled from reports -- case material for
study of typical banks by size graups and
by geographic location.
(b)
Standardization of call reports and earnings
and dividends reports and its effect upon
the promotion of uniformity in accounting
procedure.
(c) Increased ease of preparation by banks and
reduction of expense.
IV.
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Federal Reserve Bank of St. Louis
PROBLEM OF STANDARDIZATION AND ITS AC COIvI.PL ISHIEST
A.
Need of standardization -- is standardization desirable?
1.
Conflict of full development of reports as statistical device with use as aid to bank supervisors.
(a) Advisability of uniform reports for statistical purposes and separate dissimilar
reports to meet requirements as regulatory
device.
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Federal Reserve Bank of St. Louis
•
•
5
(b) Relationship of examination report to call
report from viewpoint of suprvisory authorities -- to wh-lt extent can examination
report serve completely the function of
supervision?
9
B.
C.
Need of standardization for general economic analysis.
Legal obstacles confronting stardization of call.
1.
CreTtion of standing committee representing the
American Bankers Association, Reserve City
Bankers Association, the National Association
of Bank Auditors, and the National Association of Supervisors of State Banks to push
enablinP; legislation where necessary.
2.
Use of supplementary riders to fulfill specific
requirements.
Lack of uniformity in bank accounting systems.
1.
Possible use of enlarged "Manunl of Instructions" as
an educational device -- definitions and significance
of all items on call reports and earnings and dividends reports.
2.
question of uniform terminology in accounts.
3.
Possibility of promotion work in these fields by
American Bankers Association and National Association
of Bank Auditors.
•
D.
IPP
V.
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Federal Reserve Bank of St. Louis
6
Controversial technical problems which may hinder work
of standardization.
1.
Elimination of all per contra and contingent items
from balance sheet of call report.
2.
Segregations of capital account and its relation to
preparation of earnings and dividends reports.
CREATION OF PERMANENT STANDING COLUITHE REPRESENTING ALL
INTERESTED GROUPS AND AGENCIES TO REVIEW PROBLEMS WHICH
MAY ARISE IN CONNECTION WITH REFORT STANDARDIZATION AND
ITS WORKABILITY AT LATER DATE.
111
7.
APPENDIX A
SUMMARY OF STATE LEGAL REQUIREM:e2TTS
GOVEZNING CONSTRUCTION OF
CONDITION
AND OF EARNINGS AND DIVIDENDS
OF
REPORTS
State
.
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New HampsIlire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washinzton
West Virginia
Wisconsin
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Federal Reserve Bank of St. Louis
Minimum number of
reports required
(See Note "A")
Earnings
Directors'
Condition
2
3
2
3
3
3
4
3
4
3
4
3
(c)
4
5*
4
(c)
3
5*
3
4
3
3
3
a
7
0
5*
2
5*
4
3
3
4
4
,r.'
2
5
4
3
2
(c)
4
1
3
3
4
3
(a)
(a)
1
2
2
(a)
2
2
1
2
2
1
1
1
3
1
3
2
2
1
2
2
1
2
(b)
0
4,
n
c.,
4
•
s
(d)
(a)
o
,,
2
2
1
1
1
1
2
2
1 '
(c)
2
2
--1
1
1
2
1
o
4,
1
(a)
2
1
1
2
1
1
2
1
Legal requirements
governing
form construction
(See Note "B")
2
2
1
2
1 s
--2, '
1 ,
___.
(c)
2
\
3'
2
n
4.,
2
3
2
2
3
2
1
2
3
2
2
1
2
2
2
3
2
1
2
3
2
2
2
2
2
2
3
2
2
2
2
1
1
1
2
2
2
8
APPEIDIX A
NOTES
A.
NUMBER OF REPORTS REQUIRED.
*
(a)
(b)
(c)
(d)
B.
Indicates maximum requirement.
Earnings information obtained from state examiners' reports only.
Requires audit by CPA rather than directors! examination.
At discretion of supervisor.
Earnings information obtained from directorst examination.
LEGAL REQUIREMENTS GOVERNING FORM CONSZRUCTION
(Have been coded as follows)
1. Now using Federal form or a form strictly comparable.
2. Could use Federal form without any change in statutes.
(In most of these cases construction is left to discretion
of supervisor)
3. Specific statutory requirements at variance with Federal forms.
These requirements are listed below:
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Federal Reserve Bank of St. Louis
Arizona:
Analysis of other real estate owned.
California:
Reports must be departmentalized.
Indiana:
Uninvested trust funds; shares of and
loans to affiliates.
Kentucky:
Overdraft analysis; analysis of other real
estate owned; list of depository banks.
Massachusetts:
Deposits payable in more than tc:n and less
than thirty days not considered demand;
requires display of trust funds and of loans
to individuals and corporations.
Nevada:
Entire form written into the statute.
New York:
Preferred deposits.
Rhode Island:
Deposits payable in more than ten and less
than thirty days not considered demand;
reports must be departmentalized; analysis
of trust funds; list of securities owned and
analysis of their values.
•
9
APPENDIX B
SUMMARY OF ITEMS APPEARING UPON
CONDITION REPORT FORMS IN CURAENT USE
This list results from a survey made of forms used by supervisors of
each State, by the Comptroller of the Currency, the Federal Reserve Board,
the Federal Deposit Insurance Corporation, and the Reconstruction Finance
Corporation in obtaining reports of condition from banks under their
jurisdiction on June 30, 1934 or the nearest call date thereto.
Related items are grouped in the order of their frequency of appearance.
ASSETS - GENERAL
FREQ,MICY
Real Estate owned other than bankin,: house
Furniture and Fixtures
Banking House
Total
Other Assets - itemized
Customers' Liability Account of Acceptance
Other Real Estate owned: itemized schedule
Total Cash Resources
Customers' Liability under letters of credit
Pledged to secure Liabilities (1)
Departmentalized
Interest earned but not collected
Expense in excess of Profits
Pledged to secure Liabilities (II)
Trust (segregated from Banking)
Claims and Other Resources
Trust - Bonds left for safekeeping
Redemption Fund with U. S. Treasurer
Other Funds with U. S. Treasurer
; First Mortcage Certificates
Trust - Mortgage Notes securinc
Trust - Trust Securities
Suspense Account
Profit and Loss
Moratorium
Illegal
Advances to Trusts
Mortgages sold with recourse to this b-Ink (per contra)
Reconciliation of items affecting since last report
Interest in Depositors' Guaranty Fund Assessment,
Depositors' Guaranty ?and
Bonds guaranteed (per contra)
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Federal Reserve Bank of St. Louis
52
52
52
52
50
24
22
22
11
10
10
9
8
6
4
3
2
2
1
1
1
1
1
1
1
1
1
1
1
•
•
10
BANKS
FREQUENCY
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
Due
from Trust Companies, Banks and Bankers
from Banks: itemized schedule of
from Banks: approved reserve agents
from Banks: other than approved reserve agents
from Banks: subject to immediate withdrawal
from Banks: not aubject to immediate withdrawal
from Banks: in United States
from Banks: in foreign countries
from Banks: (a) state (b) national
from Banks: Public Funds
from Banks: in central reserve cities - elsewhere
to Trust Companies, banks and bankers
to Banks: itemized schedule of
of Banks: subject to immediate withdrawal
to Banks: not subject to immediate withdrawal
to Banks: in foreign countries
to Banks: in United States
to Banks: reserve agents
to Banks: other than reserve agents
to Banks:(exclusive of bank deposits)
to Banks: in this state - - elsewhere
to Banks: (a) state (b) national
to Banks: due to branches
to Banks: due the Bank of North Dakota
to Banks: in liquidation all other banks
52
32
24
24
13
10
6
5
2
1
1
52
19
12
5
5
3
3
1
1
BILLS PAYABLII-RMISCaUUTS
Borrowed money
Bills Payable
Bills Payable: itemized schedule of
Bills Payable: with Federal Reserve Bank
Bills Payable: Certificates of Dep. issued to other banks
for money borrowed
other banks and trust colapanies
with
Bills Payable:
Bills Payable: advances received on other instruments given
for the purpose of borrowing money
Bills Payable: other
Bills Payable: with collateral
without collateral
Bills Payable: with Reconstruction Finance Corporation
Bills Payable: highest rate of interest paid on
Rediscounts:
Rediscounts: itemized schedule of
Rediscounts: with Federal Reserve Bank
Rediscounts: with other banks and trust companies
Rediscounts: with Reconstruction Finance Corporation
Rediscounts: highest rate of interest paid on
Rediscounts: other
Rediscounts! secured by obli7ations of the U. S.
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Federal Reserve Bank of St. Louis
4
51
27
17
14
12
10
10
9
8
5
50
25
15
11
8
6
5
•
•
11
CAPITAL ITEMS
FREQUENCY
Capital stock: amount paid up
Capital stock: preferred
Capital stock: common
Capital stock: notes and debentures
Capital stock: par value
Capital stock: number of shares
Capital stock: number of stockholders
Capital stock: authorized
Surplus
Surplus: appropriated for exemption of common stock from
assessment; unappropriated
Undivided profits
Undivided profits: schedule reconciliation of
Undivided profits: schedule reconciliation by means of including expenses, int., etc. as assets
Undivided profits and reserves
Reserves for contingencies
Reserves for dividends
Retirement fund for preferred stock or capital notes and
debentures
Reserve fer dividend payable in common stock
Stockholders statutory liability reserve fund
52
20
20
12
9
7
2
1
52
1
52
8
4
1
28
10
7
3
2
CASI1
Cash: in vault (on hand)
Cash: exchanges for Clearing House
Cash: checks on other banks in same place
Cash: outside checks
Cash: checks on other banks
Cash: on deposit
Cash: checks on this bank
Cash items
Cash items: other
Cash items: in transit
Cash items: itemized schedule of
Cash items: Post Office money orders and county warrants
Cash over
Cash short
52
42
28
23
8
3
3
42
41
14
13
1
5
5
D7POSITS
Interbank (see also "Banks")
Certified checks
Cashier's checks
Individual deposits subject to check
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Federal Reserve Bank of St. Louis
50
50
50
47
•
•
12
FREQUENCY
Savings, evidenced by pass books
Certificates of deposit
Certificates of deposit due in 30 days or less
Total
Public Funds
Postal savings
Dividends unpaid
Christmas savings and other clubs
Of U. S. Government
Total time
Total demand
Trust fands
Interest paid on
Other demand
Open accounts
Secured
Unseaured
Public funds obtained by mec,.ns of extra schedule
Other time
Payment of which has been deferred boyond the custo.lary
period by agreement with depositors
Amount of upon which interest is paid
Letters of credit
FRB face breal:down
Time certificates representing money borrowed
For payment of coupons, etc.
Certificates of deposit; commercial deposits
Preferred; not preferred
Due New York Savings Banks; due Jew York Statr, Savings and
Loan Associations; Credit Unions and Land Bank; other
deposits due as executor, administrator, guardian,
trustee, committee or depositary
Due Clearing House
Due Savings Department
Waived or restricted
Attached accounts
Interest department
Industrial investment certificates
Upon which more than 4% interest is paid
Amount of interest paid on since last report
Payable after notice (exclusive of certain types)
Payable on demand (exclusive of certain catagories)
Ratio of total deposits to total cash resources
Ratio of unsecured deposits to total cash resource.;
46
45
44
36
31
30
28
19
18
14
14
14
14
14
11
11
9
9
8
5
3
3
3
3
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
FEDEliAL RESERVE BANKS
Due from Federal Reserve Banks
Due from Federal Reserve Bank - transit account
Due to Federal Resc:rve Bank
Obligations on industrial advances transferred to the
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Federal Reserve Bank of St. Louis
28
12
9
•
•
13
LIABILITIES
FRE;UENCY
Other liabilities - itemized
Reserve for interest, taxes and other expenses accrued
and unpaid
Acceptances exeauted for customers
Contingent liabilities
Secured by pledge of assets
Agreements to repurchase securities sold
Cash letters of credit and travelers' checks outstancling
Bills of exchange or drafts sold with endorsement of
this bank (per contra)
Acceptances executed by other banks for account Jf this
bank
Acceptances executed to furnish Dollar Exchange
Dividends unpaid
On letters of credit and acceptances
Interest collected, not earned
Mortgage bonds and participation certificates autstanding
Prior liens on ORE owned
Sinking fund for corporations
Encumbrance on real estate
Ciraulation - national bank notes outstanding
Time drafts issued
Debenture bonds outstanding
Due clearing house
Bank overdrafts
Collections not remitted
Accruals (per contra)
Vouchers, manager's and dividend checks outstanding
Moratorium
Accepted bills of exchange payable abroad
Trust guaranty fund
50
29
15
13
13
12
12
11
9
9
8
8
7
3
2
2
1
1
1
1
1
1
1
1
1
1
LOANS AND_DISCOUNTS
Loans and discounts
Loans on real estate
Loans to officers, directors and relatea ihterests
Exceeding the legal limit
Overdue
On securities
All other loans
To banks and bankers
Commercial paper bought in open market
Acceptances of other banks, payable in U. S. owned by
this bank
Unsecured
Demand
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Federal Reserve Bank of St. Louis
52
40
40
34
26
25
21
17
17
16
15
13
•
•
14
FREZTarCY
Reporting bank's own acceptances purchased or discounted
Loans and Mortgaes etc. separated on face
To Broker and Dealers in Securities
Notes, bills, acceptances, and other instruments evidencing
loans, payable in foreign countries
A/1 other collateral loaas
Secured
Time
ed
To officers, and directors and related intcrested—secur
Current
To banks and trust companies; on securities—all other
Real estate (on farm land)
Real estate (on other real estate)
Paper with two or more names
To officers, dir3ctors ana related interests
Unsecured loans: to stockholders
On collateral
Single name paper
Secured by chattel mortgages
Doubtful
Secured by U. S. Government obligations (memo)
Commodity or Llerchandise loans
Eligible for rediscount with Federal Reserve Bank
Modernization and construction loans made unler provisions
of National Housing Act
To Municipalities, etc.
Items in transit
To affiliated companies
Industrial
Average rate of interest rcceived on loans & discounts
On real estate; in home state; elsewhere
To farmers
On seaurities: listed — not listed
Excess of mtg. notes seauring 1st mtg. certificates
Advances to estates and trusts
Held for account of customers
Gross and net
New York call loans
Overdrafts
Overdrafts: Age analysis
Overdrafts: Secured
Overdrafts: Unsecured
Overarafts: itemized schedule of
13
10
9
8
8
8
8
7
7
7
7
6
6
1
6
5
5
4
4
4
3
3
3
2
2
2
2
2
1
1
1
1
1
1
1
50
25
14
14
4
MISCELLANEOUS ;UESTIONS
Number of accounts evidenced by savings pass books
Number of depositors
Special questionnaire for further analysis
Dividends paid
,
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Federal Reserve Bank of St. Louis
27
19
13
11
•
•
15
FREQ,I=CY
Amount loaned on real estate mtgs. by states
Assets charged off since last report
Directors/ meetings held since last report
Trade association membership
Are all liabilities carried on books
Bonds to secure surplus
Salaried employees (annual request)
Basis of operation (cash or accrial)
Change of officers since last report
Required legal
Average for past 30 days
On date of call
For taxes and interest
For bond depreciation
U. S. bonds and C. of I. pledged as
For depreciation, building ana fixtures
For losses
Other reserves
With state treasurer
3
2
2
2
2
1
1
1
1
17
17
16
14
7
5
2
2
2
SECITRITIES
Obligations of the U. S. government
Other bonds, stocks and securities
States, counties, municipalities & other political gubdivisions
Stoc:: of Federal Reserve Bara
Railroads (bonds)
Public utilities (bonds)
Appreciation or depreciatinn
Securities borrowed
Other domestic corporations (bonds)
Itemized list of
Stock of other domestic corporations
Foreign securities
Foreign central governments
Certificates of indebtedness
Warrants
Other foreign securities
Stocks
U. S. pledged and not pledged
Treasury notes
Other U. S. bonds
Federal land banks
Joint stock land banks
Stock of banks and banking corporations
Federal Farm iviortgagc Corporation
Home Owners, Loan Corporation (fully guaranteed)
Other bonds, stocks and securities (itemizeil sched.)
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Federal Reserve Bank of St. Louis
47
38
30
22
21
21
20
20
16
14
13
12
12
11
11
11
11
9
9
a
8
8
8
7
7
•
•
16
PREWENCY
A
In default
Treasury bills
Reconstruction Finance Corporation
Obligations of political subdivisions of home state
Intermediate crCdt banks
Territorial and insular possessions of the U. S.
Real estate corporations (bends)
Premium on
Other Liberty Loan bends
Home Owners' Loan Corporation (guaranteed as to interest only)
Foreign provincial, state and municipal ,Toverrments
Stock of Peal estate corporations
Sold unlor repurchase agreen,ent
ObliP:ations of the U. S. governmont - bonds
First Liberty Loan 3L-% bonds 1932-47
Treasury bonds
Collateral trust anl other corporation notes
Other bonds (than U. S. government)
Detailed list called only annually
Common stock
Preferrea stock
Stock of railroals
Listed
U. S. government pledgel to secure circulation
Guaranteed by the U. S. government
Stock of affiliated companies
Trust investments
Mort,:;age bonds
Canaaian
FDIC stock
Deposited with state treasurer for stockhol.ters' res. fund
To secure public funds, inclu,ling state deposits
Acquirerl for settle7aent of debt
Sinking fund investments
Stock of company held for distribution
Public - private
In escrow
Pled,17ed to seaure savins deposits
Tax certificates
Sheriff's certificates of sale
Of U. S. any state or political subdivision thereof
Trust Guaranty Fund seclirities
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7
6
6
6
6
6
5
5
4
4
4
4
4
3
7
3
3
3
3
2
2
2
2
2
2
2
1
1
1
1
1
1
1
1
1
1
1
1
1
75TH CONGRESS
1sT SESSION
IN THE SENATE OF THE UNITED STATES
JUNE 15 (Calendar day June 23), 1937
Mr. Robinson introduced the following bill; which was read twice and referred
to the Select Committee on Government Organization
A BILL
o provide for reorganizing agencies of the Government, extending the classified civil service, establishing a General
Auditing Office and a Department of Welfare, and for other
purposes.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
1
3
TITLE I—REORGANIZATION
4
DECLARATION OF STANDARD
5
SECTION 1. The President shall from time to time in-
6 vestigate the organization of the various agencies of the
7 Government, and shall determine what changes therein are
8 necessary to accomplish any of the following purposes:
9
(a) To reduce expenditures to the fullest extent con-
10 sistent with the efficient operation of the Government;
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Federal Reserve Bank of St. Louis
2
1
(b) To increase the efficiency of the operations of the
2 Government to the fullest extent practicable within the
3 revenues;
4
(c) To group, coordinate, consolidate, reorganize, and
5 segregate agencies and functions of the Government, or any
6 part thereof, as nearly as may be, accord.ing to major
7 purposes;
8
(d) To reduce the number of such agencies by re-
9 grouping or consolidating those having similar functions
10 under a single head, and by abolishing such agencies or
11 such functions, or any part thereof, as may not be necessary
12 for the efficient conduct of the Government;
13
(e) To eliminate overlapping and duplication of effort;
.1.4 and
15
(f) To segregate routine administrative and executive
16 functitins from regulatory functions.
POWER OF PRESIDENT
17
18
SEC. 2. (a) Whenever the President, after investi-
19 gation, shall find and declare that any transfer, retransfor,
20 regrouping,
coordination, consolidation,
reorganization,
21 segregation, or abolition of the whole or any part of
22 any agency, or the functions thereof, is necessary to
23 accomplish any of the purposes set forth in section 1 of
24 this title, he may by Executive order subject to the limi25 tations hereinafter nrovided:
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Federal Reserve Bank of St. Louis
3
1
(1) Transfer or retransfer the whole or any part
2
of any agency, or the functions thereof, to the juris-
3
diction and control of any other agency; or
4
(2) Regroup, coordinate, consolidate, reorganize,
5
or segregate the whole or any part of any agency, or
6
the functions thereof; or
(3) Abolish the whole or any part of any agency,
7
or the functions thereof; and
8
9
(4) Prescribe the name and the functions of any
10
agency affected by any such Executive order, and the
11
title, powers, and duties of its executive head.
12
(b) Nothing in subsection (a) shall be construed to
13 authorize the President (1) to abolish any executive depart14 ment or independent establishment, the municipal govern15 ment of the District of Columbia, the Board of Governors
16 of the Federal Reserve System, or the General Auditirig
17 Office, (2) to transfer to any other agency all of the fune18 tions of any executive department or of such municipal gov-
19 ernrnent, (3) to abolish or transfer to any other agency
20 any of the functions of the Board of Governors of the Federal
21
Reserve System or the General Auditing Office, (4) to
22 abolish any of the functions of any independent establish23
ment, or to transfer to any other agency any of the functions
24 of any independent establishment except as provided in sub-
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Federal Reserve Bank of St. Louis
4
1 section (c), (5) to abolish or transfer to any other agency
2 any of the functions exercised by the Engineer Corps of the
3 Army or the Mississippi River Commission in administer4 ing any laws relating to rivers and harbors or flood control,
5
or (6) to create or establish any new agency to exercise any
6 functions which are not expressly authorized by law in force
7 on the date of enactment of this Act.
8
(c) The President is authorized by Executive order to
9 transfer to an executive department any of the routine admin-
10 istrative and executive functions of any independent estab11 lishment which are common to other agencies of the
12 Government, such as the preparation of estimates of appro13 priations, the appointment of personnel and maintenance
14 of personnel records, the procurement of material, supplies
15 and equipment, the accounting for public funds, the rental
16 of quarters, and related matters.
17
(d) Any Executive order issued by the President under
18 this title shall make provision for the transfer or other dis19 position of the records, property (including office equip20 ment), personnel, and unexpended balances of appropria21 tions of the agency or agencies affected by such Executive
22 order: Provided, That the transfer of personnel shall be
23 without change in classification or compensation, except that
24 this requirement shall not operate after the end of the fiscal
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Federal Reserve Bank of St. Louis
5
1 year during which the transfer is made to prevent the ad2 justment of classification or compensation to conform to the
3 duties to which such transferred personnel may be assigned.
4 The appropriations or portions of appropriations not so
5 transferred or disposed of shall not be used for any purpose
6 but shall be impounded and returned to the Treasury.
7
(e) In the case of the abolition of any agency or func-
8 tion pursuant to this title, the Executive order providing for
9 such abolition shall also make provision for winding up the
10 affairs of the agency abolished or the affairs of the agency
11 with respect to the function abolished, as the case may be.
12
(f) The President is authorized to make such rules and
13 regulations as may be necessary to carry out his functions
14 under this title.
SAVING PROVISIONS
15
16
SEC. 3. (a) All orders, rules, regulations, permits, or
17 other privileges made, issued, or granted by or in respect of
18 any agency or function transferred to any other agency
the time of
19 under the provisions of this title, and in effect at
extent as if
20 the transfer, shall -continue in effect to the same
eded, or
21 such transfer had not occurred, until modified, supers
22 repealed.
lawfully com(I)) No suit, action, or other proceeding
of any agency or other
24 menced by or against the head
his official capacity or in
in
States,
United
the
of
officer
25
23
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Federal Reserve Bank of St. Louis
6
relation to the discharge of his official duties, shall abate
2 by reason of any transfer of functions from one officer or
3 agency to another under the provisions of this title, but
l the court, on motion or supplemental petition filed at a,ny
5 time within twelve months after such transfer takes effect,
6 showing a necessity for a survival of such suit, action, or
7 other proceeding to obtain a settlement of the questions
8 involved, may allow the same to be maintained by or against
9 the head of the agency or other officer of the United States
10 to whom the functions are transferred.
11
(c) All laws relating to any agency or function trans-
12 ferred to any other agency under the provisions of this title,
13 shall, insofar as such laws are not inapplicable, remain. in
14 full force and effect, and shall be administered by the ht4d
15 of the agency to -which the transfer is made.
16
17
EFFECTIVE DATE OF EXECUTIVE ORDER
SE(i. 4. Whenever the President issues
all
Executive
18 order under the provisions of this title, such Executive
19 order shall be submitted to the Congress while in ses9ion
20 and shall not become effective until after the expiration
21 of sixty calendar days after such transmission, unless Con22 gress shall by law provide for an earlier effective date of
23 such Executive order: Provided, That if Congress shall
24 adjourn before the expiration of sixty calendar days from
25 the date of such transmission such Executive order shall
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Federal Reserve Bank of St. Louis
7
1 not become effective until after the expiration of sixty calen2 dar days from the opening day of the next succeeding regular
3 or special session.
DEFINITIONS
4,
SEC. 5. When used in this Act, unless the context other-
5
6
wise requires-
7
(1) The term "agency" means any executive de-
establishment,
independent
8
partment, independent
9
agency, commission, board, bureau, service, °the,
10
administration, authority, division, or activity in the
11
executive branch of the Government, whether in ttif
12
District of Columbia or elsewhere, and shall include
13
the municipal government of the District of Columbini
14
the Botanic Garden, the Library of Congress, tkie
15
Library Building and Grounds, and the Government
16
Printing Office, and any corporation a majority of thg
17
stock of which is owned by the United States and pf
18
which no member of the board of directors is elected
19
or appointed by private interests.
20
(2) The term "independent establishment" in.
21
eludes the legislative courts and the United States
22
Board of Tax Appeals, the Federal Communications
23
Commission, the Federal Power Commission, the
24
Federal Trade Commission, the Interstate Commerce
25
Commission, the National Bituminous Coal Commisr
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Federal Reserve Bank of St. Louis
8
1
sion, the National Labor Relations Board, the Securi-
2
ties and Exchange Commission, and the United States
3
Maritime Commission.
4 TTTLE II—CIVIL SERVICE AND CLASSIFICATION
5
CIVIL SERVICE ADMINISTRATION
6
SEC. 201. (a) There is hereby established in the execu-
7 tive branch of the Government an organization to be known
8 as the Civil Service Administration (hereinafter referred to
9 as the "Administration"), at the head of which shall be a
10 Civil Service Administrator (hereinafter referred to as the
11 "Administrator"), who shall be appointed by the President,
12 by and with the advice and consent of the Senate, for a term
13 of fifteen years and shall receive a salary at the rate of
14 $10,000 per annum. The Administrator shall be selected
15 without regard to any political affiliations, shall be a person
16 specially qualified for the office of Administrator by reason
17 of his executive and administrative qualifications, with par18 ticular reference to his actual experience in, or his knowledge
19 of, accepted practices in respect to the functions vested in
20 that office by law, and may be removed by the President
21 for inefficiency, neglect of duty, or malfeasance in office.
(b) The Administrator shall appoint a Deputy Civil
22
23 Service Administrator, subject to the civil-service laws, and
24
his salary shall be fixed in accordance with the Classification
2,5 Act of 1923, as amended. The Deputy Civil Service Ad-
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Federal Reserve Bank of St. Louis
9
1 ministrator shall perform such functions as the A dministrator
2 may prescribe, and shall act as Administrator in the absence
3 of the Administrator or in the event of a vacancy in that
4 office.
5
(e) The United States Civil Service Commission and
6 the offices of Civil Service Commissioners are abolished, and
7 all functions vested in such Commission are hereby vested in
8 the Administration. The records, property (including office
9 equipment), personnel, and unexpended balances of appro-
10 priations of such Commission are hereby transferred to the
11 Administration.
12
(d) The Administrator is authorized to delegate to any
13 officer or employee of the Administration any functions
14 vested in the Administrator or the Administration by law,
15 and to make such rules and regulations as may be necessary
16 to carry out any of such functions.
17
(e) The Administrator shall cause a seal of office to be
18 made for the Administration, of such device as the Presi19 dent shall approve, and judicial notice shall be taken of
20 such seal.
21
SEC. 202. (a) In addition to the functions vested in the
22 Administrator by section 201 of this title the Administrator
23 shall prepare and recommend to the President plans for the
24 development and maintenance of a career service in the
25 Federal Government.
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Federal Reserve Bank of St. Louis
10
1
(b) The Administrator is further authorized to-
2
(1) Plan, establish, supervise and coordinate em-
3
ployee training programs and similar activities of the
4
various agencies of the Government, and make avail-
5
able to such agencies any employee training facilities at
6
his disposal;
(2) Obtain information, through the Administra-
8
tion, or in cooperation with other agencies, organiza-
9
tions, or groups, relating to personnel standards, prac-
10
tices, or policies in other governmental jurisdictions or
11
in private industry, and make such information avail-
12
able to the various agencies of the Government;
13
(3) Cooperate with the public personnel agencies
14
of States, Territories, and possessions of the United
15
States (including the Philippine Islands), and political
16
subdivisions thereof, and the District of Columbia, in
17
the adoption, development, or extension of the merit
18
system in their respective jurisdictions, and upon the
19
request of any such agency render advisory or con-
20
sultative personnel service or establish eligible registers
21
for such agency or establish or assist in the establish-
22
ment of joint eligible registers;
23
(4) At the direction of the President, or upon
24
the request of the head of any agency of the Govern-
25
ment, cooperate or assist in the installation or develop-
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Federal Reserve Bank of St. Louis
11
1
ment of personnel standards, practices, or policies for
2
any agency of the Government, or review and investi-
3
gate personnel standards, practices, or policies of such
4
agency, and report thereon to the President or the
5
officer making the request. Any agency receiving any
6
cooperation or assistance under this or the preceding
7
partgraph may be required to reimburse the Admin-
8
istration for all necessary expenses incurred in connec-
9
tion therewith, and "the payments representing such
10
reimbursements shall be deposited as refunds to the
11
appropriations from which such expenses were origi-
12
nally paid, instead of being covered into the Treasury
13
as miscellaneous receipts;
14
(5) Request persons not in the service of the
15
Federal Government who are experts in some aspect
16
of personnel administration to attend conferences with
17
representa tives of the Administration or to consult or
18
advise with them, in the District of Columbia or else-
19
where, and reimburse such experts for their subsistence
20
and other expenses at a rate of not to exceed $25 per
21
day for time spent in attending and traveling to and
22
from such conferences, or in consulting or advising with
23
such representatives, plus the actual cost of trans-
24
portation.
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Federal Reserve Bank of St. Louis
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12
1
(6) Purchase manuscripts from private persons,
2
corporations, or other organizations, or meet the costs
3
of special studies made by them, at the request of,
4
or in cooperation with, the Administration; and
5
(7) Pay in advance membership fees or dues in
6
personnel associations, or in organizations which issue
7
publications to members only or to members at a lower
8
price than to others.
PRESIDENTIAL APPOINTMENTS
9
SEC. 203. (a) Hereafter any office or position in any
10
11 agency of the Government to which an appointment is
12 authorized to be made by the President alone shall be filled
13 by appointment without term by the head of the executive
14 department, independent establishment, or independent
15
agency in or under the jurisdiction of which such office or
16
position is located, except (1) any office or position which
17
the President finds is policy-determining in character, and
18
(2) any office or position of head of any bureau, division,
19 service or other similar agency which is in or under the
20 jurisdiction or control of and is directly responsible to the
21
head of an executive department, independent establishment
22 or independent agency.
23
(b) Hereafter the President, by and with the advice
24
and consent of the Senate, shall make appointments (1) to
25 fill any vacancy in any office or position of head of any
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Federal Reserve Bank of St. Louis
13
1 bureau, division, service, or other similar agency of the type
2 referred to in clause (2) of subsection (a) of this section,
3 and (2) to fill any vacancy in any office or position which
4 the President finds is Tolicy-determining in character.
5
6
EXTENSION OF CLASSIFIED CIVIL SERVICE
SEC. 204. Upon the expiration of one year after the
7 enactment of this Act, all offices and positions in the
8 various agencies of the Government shall be covered into the
9 classified civil service, except offices and positions (1) in
10 emergency agencies which are temporary in character,
11 (2) in any colporation a majority of the stock of which
12 is owned by the United States and of which no meniber
13 of the board of directors is elected or appointed by private
14 interests, (3) which the President finds are Tolicy-determin15 ing in character, (4) which are not subject to
the civil-
16 service laws on the date of enactment of this Act and the
17 heads of which are hereafter to be appointed as provided in
18 clause (1) of section 203 (b), (5) appointments to which
19 on the date of enactment of this Act are required to be made
20 by the President, by and with the advice and consent of the
21 Senate, or (6) expressly excepted from the civil service
22 laws by this Act: Provided, That the President is author23 ized by Executive order at any time within such year to
24 cover into
the classified civil service any office or position
25 not excepted under the provisions of this section.
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Federal Reserve Bank of St. Louis
14
SEC. 205. The President is authorized by Executive
2 order to cover into the classified civil service any office
or position in any corporation a majority of the stook
4 of which is owned by the United States and of which no
5 member of the board of directors is elected or appointed
6 by private interests if the President finds that such office
7 or position is not policy-determining in character: Pro8 vided, That any action taken under this section with respect
9 to any office or position in any such corporation shall not
10 be inconsistent with the laws under which such corporation
11 was organized or with the charter or articles of incorporation
12 of such corporation.
13
SEC. 206. The incumbent of any office or position which
14 is covered into the classified civil service under the provi15 sions of this title shall not thereby acquire a classified civil16 service status, except (1) upon recommendation by the head
17 of the agency concerned within one year after such office or
18 position has been covered into the classified civil service, and
19 certification within such period by such head to the Admin20 istrator that such incumbent has served with merit for not
21 less than six months prior to the date of enactment of this
22 Act in the case of the inctnnbent of an office or position covt:
23 ered into the classified civil service under the provisions of
24 section 204 of this title, or six months prior to the date of
25 the appropriate Executive order in the case of the incumbent
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Federal Reserve Bank of St. Louis
15
1 of an office or position covered into the classified civil service
2 under the provisions of section 205 of this title, and (2)
3 upon passing such suitable noncompetitive examination as
4 the Administrator may prescribe.
5
SEC. 207. (a) Whenever the President finds that an
6 office or position is not policy-determining in character, he
7 is authorized by Executive order to cover such office or posi-
8 tion into the classified civil service: Provided, That the in9 cumbent of any such office or position which has been previ-
10 ously excepted from the classified civil service as policy11 determining in character shall not acquire a classified civil12 service status except by appointment as the result of an
13 open competitive examination.
14
(b) Whenever the President finds that an office or po-
15 sition in the classified civil service is policy-determining in
16 character, or that a confidential reltitionship exists between
17 the head of any executive department, independent establish-
18 ment, or independent agency, and any person holding any
19 office or position under the immediate supervision of such
20 head, he is authorized by Executive order to except such
21 office or position from the classified civil service.
22
(e) The provisions of this title relating to the covering
23 into and excepting from the classified civil service of offices
24 and positions, and relating to the method of appointment
25 to offices and positions, shall be applicable to any office
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Federal Reserve Bank of St. Louis
16
1 or -position authorized under this Act, or under any subse2 quent Act, unless the Congress specifically provides
3 otherwise.
EXTENSION OF CLASSIFICATION ACT
4
SEC. 208. (a) Subject to the limitations hereinafter
5
6 provided, whenever the President, after such classification
7 and compensation surveys or investigations as he may direct
8 the Administrator to undertake, and after consideration of
9 the Administrator's resulting reports and recommendations,
10 shall find that an extension of the provisions of the Classifi11 cation Act of 1923, as amended, to any office or position
12 in any agency of the Government not at the time subject
13 to such provisions is necessary to the more efficient opera14 tion of the Government, he may by Executive order extend
15 the provisions of such Act to such office or position: Pro16 vided, That any action taken under this subsection with
17 respect to any office or position in any corporation a
18
majority of the stock of which is owned by the United
19 States and of which no member of the board of directors is
20 elected or appointed by private interests shall not be
21 inconsistent with the laws under which such corporation
of
22 was organized or with the charter or articles incorporation
23 of such corporation.
24
(b) Whenever the President, upon report and recom-
that one or more
25 mendation by the Administrator, shall find
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Federal Reserve Bank of St. Louis
17
1 offices or positions to which such Act as amended and ex2 tended is applicable may not fairly and reasonably be allo3 cated to any of the classification services or grades defined
4 in the compensation schedules of such Act, he may by
5 Executive order prescribe and define such additional classi6 fication services and grades thereof as he may deem neces-
7 sary, and he shall define and fix the ranges of compensation
8 for the gra,des of such services within the limits of such Act
9 so that they shall be comparable, as nearly as may be, with
10 the grades defined in such Act for offices or positions that
11 are comparable as to duties, responsibilities, qualifications
12 required, and other conditions of employment.
(c) Whenever the President, upon report and recom-
13
14 mendation by the Administrator, shall find that the rates
15 of the compensation schedules of such Act are inadequate
16 for any office or position to which such Act as amended
17 and extended is applicable, he may by Executive order
18 establish necessary schedules of differentials in the rates
19
prescribed in such compensation schedules, but the differen-
20 tial in the compensation of any such office or position shall
21
not exceed 25 per centum of the minimum rate of the grade
22 to which such office or position is allocated under such com-
of this
23 pensation schedules: Provided, That the provisions
or positions
24 subsection shall be applicable only to offices
25
which are located at stations that are isolated, remote, or
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Federal Reserve Bank of St. Louis
S. 2700---2
18
1 inaccessible when compared with stations at which offices
2 or positions of the same character are usually located, or
3 which involve physical hardships or hazards that are ex4 cessive when compared with those usually involved in offices
5 or p.ositions of the same character, or which are located
6 outside the States of the United States and the District of
7 Columbia: Provided further, That if the Administrator finds
8 that the factor of isolation, hardship, hazard, or foreign
9 service is uniformly applicable to each office or position in
10 any given class of offices or positions, the differential pro11 vided for in this subsection shall not apply to any office or
12 position in such class.
13
(d) Except as Congress may otherwise provide by law,
14 the power granted to the President by this section shall not
15 apply to the following16
(1) Offices or positions in the Postal Service the
17
compensation of which is fixed under the Act of Con-
18
gress, approved February 28, 1925 (43 Stat. 1033), as
19
amended;
20
(2) Offices or positions of teachers, librarians,
21
school-attendance officers, and employees of the com-
22
munity-center department under the Board of Educa-
23
tion of the District of Columbia, the compensation of
24
which is fixed under the Act of Congress, approved
25
June 4, 1924 (43 Stat. 367), as amended;
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Federal Reserve Bank of St. Louis
19
1
(3) Offices or positions in the Metropolitan Police,
2
in the Fire Department of the District of Columbia, and
3
in the TJnited States Park Police, the compensation of
4
which is fixed under the Act of Congress, approved July
5
1, 1930 (46 Stat. 839);
6
(4) Commissioned officers and enlisted personnel in
7
the military and naval services and the Coast Guard,
8
and commissioned officers in the Public Health Service
9
and the Coast and Geodetic Survey, the compensation
10
of which is fixed under the Act of Congress, approved
11
June 10, 1922 (42 Stat. 625), as amended;
12
(5) Offices or positions in the Government Print-
13
ing Office the compensation of which is fixed under the
14
Act of Congress, approved June 7, 1924 (43 Stat.
15
658);
16
(6) Offices or positions of Foreign Service officers
17
in the Foreign Service of the United States the coin-
18
pensation of which is fixed under the Act of Congress,
19
approved May
?4, 1924
(43 Stat. 140), as amended;
20
(7) Offices or positions of clerks in the Foreign
21
Service of the United States the compensation of which
22
is fixed under the Act of Congress, approved February
23
23, 1931 (46 Stat. 1207);
24
(8) Offices or positions of commercial attaches,
25
assistant comniercial attaches, trade commissioners, and
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Federal Reserve Bank of St. Louis
20
1
assistant trade commissioners in the Foreign Commerce
2
Service of the Department of Commerce, the compen-
3
sation of which is fixed under the Act of Congress,
4
approved March 3, 1927 (44 Stat. 1394), as amended;
5
(9) Offices or positions of verifiers-openers-packers,
6
clerks, guards, inspectors, station inspectors and laborers,
7
in the Customs Service of the Treasury Department the
8
compensation of which is fixed under the Act of Con-
9
gress, approved May 29, 1928 (45 Stat. 955),
10
amended;
11
(10) Offices or positions of inspectors in the Immi-
12
gration and Naturalization Service of the Department
13
of Labor the compensation of which is fixed under the
14
Act of Congress, approved May 29, 1928 (45 Stat.
15
954), as amended;
16
(11) Offices or positions the duties of which are
17
to serve as an officer or member of the crew of a vessel;
18
and
19
(12) Offices or positions the duties of which are
20
to perform the work of an apprentice, helper, or
21
journeyman in a recognized trade or craft, or other
22
skilled mechanical craft, or the work of an unskilled,
23
semiskilled, or skilled laborer; except that whenever
24
such offices or positions involve work in the regular
25
custody, operation, or maintenance of a Government
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Federal Reserve Bank of St. Louis
21
1
building, or other Government property, or work which
2
is subordinate, incidental, or preparatory to work of
3
a professional, scientific, or technical character, the
4
President, upon a finding that the characteristics and
5
working conditions of such offices or positions render
6
them substantially the same as comparable offices or
7
positions in the District of Columbia included within
8
the Classification Act of 1923, as amended, may by
9
Executive order extend the provisions of such Act to
10
include them.
11
SEc. 209. The President is authorized, after suitable
12 investigation by the Administrator which shall include con13 sultation with representatives of the heads of the executive
14 departments, independent establishments, or independent
15 agencies in or under the jurisdiction of which the offices or
16
positions hereinafter designated are located, and upon find-
17 ing that such action is necessary to the more efficient opera18
tion of the Government, to exclude, by Executive order,
19 from the provisions of the Classification A ct of 1923, as
20 amended and extended21
(1) Offices or positions the work of which is
22
financed jointly by the United States and a State, Terri-
23
tory, or possession of the United States (including the
24
Philippine Islands), or political subdivision thereof, or
25
cooperating persons or organizations outside the service
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Federal Reserve Bank of St. Louis
22
1
of the Federal Government, the pay of which is fixed
2
under a cooperative agreement with the United States;
3
(2) Offices or positions none or only part of the
4
compensation of which is paid from funds of the United
5
States;
(3) Offices or positions filled by inmates, patients,
6
7
students, or beneficiaries in Government institutions;
8
(4) Offices or positions outside the States of the
9
United States and the District of Columbia filled by
10
natives of Territories or possessions of the United States
11
(including the Philippine Islands) or foreign nationals;
12
(5) Emergency or seasonal offices or positions in
13
the field service, or other field offices or positions the
14
duties of which are of purely temporary duration or
15
which are required only for brief periods at intervals;
16
and
17
(6) Offices or positions filled by persons employed
18
locally on a fee, contract, or piecework basis who may
19
lawfully perform their duties concurrently with their
20
private profession, business, or other employment, and
21
whose duties require only a portion of their time, where
22
't is impracticable to ascertain or anticipate the propor-
23
tion of time devoted to the service of the Federal
24
G overnment.
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Federal Reserve Bank of St. Louis
23
1
SEc. 210. Whenever an extension of the Classification
2 Act of 1923, as amended, becomes effective under this title
3 with respect to any office or position4
(1) The allocation of such office or position to the
5
appropriate service, grade, and class shall be made as
6
provided in section 4 of such Act and in accordance with
7
a uniform procedure to be prescribed by the Adminis-
8
trator; and
9
(2) The initial compensation of the incumbent of
10
such office or position shall be fixed in accordance with
11
section 6 of such Act; except that if such incumbent is
12
receiving compensation in excess of the maximum rate
13
prescribed for the appropriate grade, no change shall
14
be made in his compensation so long as he continues to
15
occupy the same office or position, but the office or po-
16
sition shall be correctly allocated and whenever it be-
17
comes vacant the compensation attached thereto shall
18
be brought within the proper compensation schedule.
19
SEC. 211. Nothing herein contained shall be construed
20 to prevent the promotion of an officer or employee from
an
21 office or position in one class to a vacant office or position in
a.
22 higher class at any time in accordance with civil-service laws,
23 and when so promoted the officer or employee shall receive
24 compensation according to the schedule established for the
25 class to
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Federal Reserve Bank of St. Louis
which he is promoted.
24
TITLE III—ACCOUNTING AND AUDITING
2
3
TRANSFER OF ACCOWING FUNCTIONS
SEC. 301. (a) The General Accounting Office and the
4 offices of Comptroller General and Assistant Comptroller
5 General ill*C hereby abolished, and all functions vested in the
6 General Accounting Office, the Comptroller General, and
7 the Assistant Comptroller General by law in force on the
8 date of enactment of this Act, except functions vested in the
9 General Auditing Office by this Act, are hereby vested in
10 the Bureau of the Budget and the Director of such Bureau.
11 Nothing in this section shall be construed to authorize the
12 Bureau of the Budget to exercise any functions vested in
13 the General Auditing Office by this Act or to direct the
14 manner in which such functions shall be exercised.
15
(b) The Attorney General of the United States shall
16 render an opinion with respect to the jurisdiction of the
17 Director of the Bureau of the Budget in connection with the
18 settlement of any public account, upon request therefor bv
19 the said Director or the head of the executive department,
20 independent establishment, or independent agency concerned,
21 and any such opinion of the Attorney General shall be final
22 and conclusive upon the said Director and all other officers
23 and agencies of the Government.
24
(c) The records, property (including office equipment),
25 personnel, and unexpended balances of appropriations of
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Federal Reserve Bank of St. Louis
25
1 the General Accounting Office shall be transferred to the
2 General Auditing Office and the Bureau of the Budget upon
3 the effective date of this section as the President shall
4 prescribe by Executive order. The transfer of such personnel
5 shall be without change in classification or compensation,
6 except that this requirement shall not operate after the end
7 of the fiscal year during which the transfer is made to prevent
8 the adjustment of classification or compensation to conform
9 to the duties to which such transferred personnel may be
.
10 assigned.
11
(d) The Director of the Bureau of the Budget, with
12 the approval of the President, shall make such rules and
13 regulations as may be necessary to carry out the functions
14 vested in him by this section.
15
16
GENERAL AUDITING OFFICE
SEC. 302. (a) There is hereby established a General
17 Auditing Office which shall be an agency of the Congress
18 and independent of the executive branch of the Govern-
19 ment and shall be under the direction and control of an
20 Auditor General.
21
(b) The Auditor General and an Assistant Auditor
22 General shall be appointed by the President, by and with
23 the advice an I consent of the Senate. The Auditor
24 General shall re'eive a salary at the rate of $10,000 per
25 annum, and the salary of the Assistant Auditor General
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Federal Reserve Bank of St. Louis
26
1 shall be fixed in accordance with the Classification Act
2 of 1923, as amended. The Assistant Auditor General shall
3 perform such functions as the Auditor General may pre4 scribe, and shall act as Auditor General in the absence of
5 the Auditor General or in the event of a vacancy in that
6 office.
7
(c) Except as hereinafter provided in this subsection,
8 the Auditor General and the Assistant Auditor General
9 shall hold office for fifteen years.
The Auditor General
10 shall not be eligible for reappointment. The Auditor Genii eral or the Assistant Auditor General may be removed
12 at any time by joint resolution of the Congress after notice
13 and hearing, when, in the judgment of the Congress, the
14 Auditor General or the Assistant Auditor General has be15 come permanently incapacitated or has been inefficient, or
16 guilty of neglect of duty, or of malfeasance in office, or
17 of any felony or conduct involving moral turpitude, and
18 for no other cause and, in no other manner except by im19 peachment.
Any Auditor General or Assistant Auditor
20 General removed in the manner herein provided shall be
21 ineligible for reappointment to that office.
When an
22 Auditor General or Assistant Auditor General attains the
23 age of seventy years, he shall be retired from his office.
24
SEc. 303. (a) The General Auditing Office shall
25 promptly make an audit of all public accounts after payment
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Federal Reserve Bank of St. Louis
27
1 but prior to settlement by the Director of the Bureau of the
2 Budget. Each such audit shall be conducted as nearly as
3 practicable in the vicinity of disbursing offices of the United
4 States in the District of Columbia and elsewhere.
5
(b) The accountable officers of the Government shall
6 promptly transmit their accounts, together with all supporting
7 documents, to the appropriate representatives of the General
8 Auditing Office for audit.
Whenever such representatives
9 take exception to any item in any account so transmitted,
10 notice thereof shall be immediately given to the accountable
11 officer concerned, to the Director of the Bureau of the Budget,
12 and to the Auditor General, together with a statement of the
13 reasons for such exception. The said Director shall take all
14 such exceptions into consideration in selling public accounts.
15
(c) The Director of the Bureau of the Budget shall
16 furnish promptly to the General Auditing Office copies of
17 all certificates issued by him in settlement of public accounts,
18 and the General Auditing Office shall examine the copies of
19 such certificates of settlement. The Auditor General shall
20 report promptly to the said Director and to the Congress all
‘,. public accounts deemed by him to have been improperly
22 settled by the said Director; but no sueh report shall be made
2`,-3 to the Congress with respect to any disagreement between
24 the General Auditing Office and the said Director until the
25 expiration of thirty days after the said Director has been
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Federal Reserve Bank of St. Louis
28
1 notified of such disagreement, and no such report shall be
2 made to the Congress if the said Director revises his decision
3 in accordance with the views of the General Auditing Office.
(d) The Auditor General shall also report to the
4
5 Director of the Bureau of the Budget and to the Congress
6 any expenditure of public funds which the General Auditing
7 Office deems to have been unwisely or improvidently made
8 by or under the authority of the head of any agency of the
9 Government.
(e) The Auditor General shall make a complete annual
10
11 report to the Congress not later than March 1 of each year
12 with respect to the audit made by the General Auditing
13 Office of the receipts and expenditures of the Government
14 during the preceding fiscal year. Such report shall be made
15 as nearly as practicable in accordance with accepted princi16
ples of auditing, and shall contain all necessary memoranda,
17 and tables, together with an appropriate certificate of audit
18 and such comments as may be pertinent to the subject matter
19 of the audit.
20
(f) The Auditor General shall make such investigations
21 and reports as shall be requested by either House of Congress,
22 or by the Joint Committee on Public Accounts, or by any
23 other committee of either House having jurisdiction over
24 expenditures, appropriations, or revenue; and the Auditor
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Federal Reserve Bank of St. Louis
29
1 General shall furnish any such committee such aid and infor2 ination as it may request.
(g) All reports required by this section to be made
3
4 to the Congress shall be made to the Joint Committee on
5 Public Accounts when the Congress is not in session.
SEC. 304. The Auditor General, or any officer or em-
6
7 ployee of the General Auditing Office when duly authorized
8 by him, shall, to the exteht necessary to perform the func-
9 tions vested in the General Auditing Office, have access
10 to and the right to examine any books, documents, papers,
11 or records of the Bureau of the Budget or of any other
12 agency of the Government; but nothing in this section shall
13 be construed to repeal or modify the provisions of section 291
14 of the Revised Statutes (U. S. C., 1934 ed., title 31, sec.
15 107),or any other provisions of law expressly restricting the
16 audit of expenditures made by the President, or by the head
17 of any agency of the Government.
18
SEC. 305. (a) The Auditor General is authorized, sub-
19 ject to the civil-service laws, to appoint such officers and
20 employees as he deems necessary to enable the General
21
Auditing Office to exercise the functions vested in it by law;
22 and the compensation of all such officers and employees shall
23 be fixed in accordance with the Classification A ct of 1923,
24 as amended.
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Federal Reserve Bank of St. Louis
30
1
(b) The Auditor General is authorized to delegate to
2 any officer or employee of the General Auditing Office any
3 functions vested in the General Auditing Office by law.
(c) The Auditor General is authorized to adopt an
4
5 official seal for the General Auditing Office, and judicial
6 notice shall be taken of such seal.
7
(d) The Auditor General is authorized to prescribe
8 such rules and regulations as may be necessary to carry out
9 the functions vested in the General Auditing Office by this
10 title.
11
SEC. 306. The General Auditing Office shall not exer-
12 cise any functions except those vested in it by this title, and
13 nothing contained in this title shall be construed to author14 ize the General Auditing Office to revise the settlements of
15 public accounts made by the Bureau of the Budget, or to
16 direct the manner in which the functions vested in the Bureau
17 of the Budget by this title shall be exercised.
JOINT COMMITTEE ON PUBLIC ACCOUNTS
18
19
SEC. 307. (a) There is hereby established a joint
20 congressional committee to be known as the Joint Committee
21 on Public Accounts (hereinafter referred to as the "joint
22 committee"), to be composed of twenty-four members as
23 follows:
24
Four members, two from the majority party and two
25 from the minority party, who are members of and are chosen
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Federal Reserve Bank of St. Louis
31
1 by each of the following committees: In the Senate, the
2 Committee on Expenditures in the Executive Departments,
3 the Committee on Appropriations, and the Committee on
4 Finance; and in the House of Representatives, the Commit5 tee on Expenditures in the Executive Departments, the Com6 mittee on Appropriations, and the Committee on Ways and
7 Means.
8
(b) No person shall' continue to serve as a member
9 of the joint committee after he has ceased to be a member
10 of the committee by which he was chosen; except that any
11 such member chosen by any such Committee of the House
12 of Representatives who has been re-elected to the House
13 of Representatives may continue to serve as a member of
14 the joint committee notwithstanding the expiration of the
15 Congress.
16
(c) A vacancy in the joint committee shall not affect
17 the power 'of the remaining members. to execute the func18 tions of the joint committee, and shall be filled in the same
19 manner as the original selection; except that in case of a
20 vacancy during an adjournment or recess of the Congress
21 for a period of more than two weeks, the members of the
22 joint committee who are members of the committee entitled
23 to fill such vacancy may designate a member of such
24 committee to serve until his successor is chosen by such
25 committee.
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Federal Reserve Bank of St. Louis
32
1
(d) The joint committee shall elect a chairman and a
2 vice chairman from among the members of the joint com3 mittee, and shall have the power to appoint and fix the
4 compensation of a olerk and such experts and clerical, sten5 ographic, and other assistants, as it deems advisable.
6
(e) The members of the joint committee shall serve
7 without compensation in addition to that received for their
8 services as Members of Congress; but they shall be reim9 bursed for travel, subsistence, and other necessary expenses
10 incurred by them in the exercise of the functions vested
11 in the joint committee, other than expenses in connection
12 with meetings of the joint committee held in the District
13 of Columbia during such times as the Congress is in session.
14
(f) It shall be the duty of the joint committee to ex-
15 amine and study all reports submitted to the Congress and
16 to the joint committee by the Auditor General as provided
17 in section 303. The joint committee shall submit to the
18 Senate and the House as promptly as possible such findings
19 and recommendations with respect to any such reports as
20 the joint committee deems advisable.
21
(g) The joint committee, or any subcommittee thereof,
22 shall have power to hold hearings and to sit and act at such
23 places and times, to require by subpena or otherwise the
24 attendance of such witnesses and the production of such
25 books, papers, and documents, to administer such oaths, to
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Federal Reserve Bank of St. Louis
33
1 take such testimony, to have such printing and binding done,
2 and to make such expenditures, as it deems advisable. Sub3 penas shall be issued under the signature of the chairman
4 of said joint committee, and shall be served by any person
5 designated by hirn. The provisions of sections 102 to 104,
6 inclusive, of the Revised Statutes (relating to examination
7 and testimony of witnesses) shall apply with respect to any
8 person who is summoned as a witness under authority of
9 this subsection.
10
(h) Amounts appropriated for the expenses of the joint
11 committee shall be disbursed one-half by the Secretary of
•
12 the Senate and one-half by the clerk of the House of
13 Representatives.
14 TITLE IV—DEPARTMENTS OF WELFARE ANts
15
CONSERVATION.AND NATIONAL RESOURCE-S
16
PLANNING BOARD
DEPARTMENT OF WELFARE
17
SEc. 401. (a) There shall be at fhe seat of govern-
18
19 ment an executive department to be known as the Depart20 ment of Welfare, and a Secretary of Welfare, who shall
be
21 the head thereof, and shall be appointed by the President,
22 by and with the advice and consent of the Senate, and shall
23 have a tenure of office and salary like those of the heads of
24 the other executive departments. Section 158 of the Re-
25 vised Statutes, as amended (TT. S. C., 1934 ed., title 5,
S. 2700-3
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Federal Reserve Bank of St. Louis
34
1 sec. 1), is amended to include such department and the
2 provisions of title IV of the Revised Statutes, including all
3 Acts amendatory and supplementary thereto, shall be ap-
4 plicable to such department.
5
(b) There shall be in the Department of Welfare an
6 Undersecretary of Welfare, who shall be appointed by the
7 President, by and with the advice and consent of the Senate,
8 and two Assistant Secretaries of Welfare and a Solicitor,
9 who shall be appointed by the Secretary of Welfare, all of
10
hom shall exercise such functions as may be prescribed
11 by the Secretary of Welfare or required by law. The
12 Undersecretary and the Solicitor shall each receive a salary
13 of $10,000 per annum, and the compensation of the
14 Assistant Secretaries shall be fixed in accordance with the
15 Classification Act of 1923, as amended.
16
(c) The Secretary of Welfare shall promote the public
17 health, safety, and sanitation; the protection of the con-
18 sumer; the ca-use of education; the relief of unemployment
19 and of
the hardship and suffering caused thereby; the relief
20 of the needy and distressed; the assistance of the aged; and
21 the relief and vocational rehabilitation of the physically
22 disabled; and in general shall coordinate and promote public
23 health, education, and welfare activities.
24
(d) The Secretary of Welfare shall cause a seal of
25 office to be made for the Department of Welfare, of sucb
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Federal Reserve Bank of St. Louis
35
1 device as the President shall approve, and judicial notice
2 shall be taken of such seal.
3
(e) The Secretary of Welfare shall annually, at the
4 close of each fiscal year, make a report in writing to the
5 Congress, giving an account of all money received antl
6 expended by the Department of Welfare and describing the
7 work done by that Department. He shall also from time
8 to time make such special investigations and reports as he
9 may deem necessary, or as he may be required to make
10 by the President, or by either House of Congress.
11
12
DEPARTMENT OF CONSERVATION
SEC. 402. The Department of the Interior shall here-
13 after be known as the "Department of Conservation", and
14 the Secretary of the Interior shall be known as the "Secre15 tary of Conservation", and all the provisions of titles IV
16 and XI of the Revised Statutes, including all Acts amendir
17 tory and supplementary thereto, and all other Acts referring
18 to the Department of the Interior, the Secretary of the
19 Interior, or any other officers or employees of that Depart20 ment, are amended accordingly.
21
22
NATIONAL RESOURCES PLANNING BOARD
4
!:
SEC. 403. (a) There is hereby established in the execw.
23 dye branch of the Government a National Resources Plare
24 ning Board (hereinafter referred to as the "Board") which:
25 shall be composed of five members to be appointed by the:
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Federal Reserve Bank of St. Louis
36
1 President, by and with the advice and consent of the Senate.
2 One of the members of the Board shall be designated by the
3 President as chairman, and one of such members shall be
4 designated by the President as vice chairman. The vice
5 chairman shall act as chairman in the absence of the chair6 man or in the event of a vacancy in that office. The mem7 bers of the Board shall be compensated at the rate of $50
8 per day for time spent in attending and traveling to and
9 from meetings, or in otherwise exercising the functions of
10 the Board, plus the actual cost of transportation: Provided,
11 That in no case shall a member be entitled to receive com12 pensation for more than thirty days' services in any two
13 consecutive months.
14
(b) The Board shall cause a seal of office to be made for
15 such Board, of such device as the President shall approve,
16 and judicial notice shall be taken of such seal.
17
(c) The Board shall deterrnine the rules of its own pro-
18 ceedings, and a majority of its members in office shall con19 stitute a quorum for the transaction of business, but the Board
20 may function notwithstanding vacancies.
21
SEC. 404. The Board is authorized to-
22
(1) Investigate, examine, study, analyze, assemble,
23
and coordinate and periodically to review and revise
24
basic information and materials appropriate to plans
25
or planning policies for the development and utiliza-
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Federal Reserve Bank of St. Louis
37
1
tion of the resources of the Nation, both natural and
2
human, and on the basis thereof, to initiate and pro-
3
pose in an advisory capacity such plans and planning
4
policies;
5
(2) To obtain data and reports from, to cooperate
6
and participate in the work of, and to consult with,
7
any agencies of the Federal Government and of any
8
State, Territory, or • possession of the United States
9
(including the Philippine Islands), or political sub-
10
divisions thereof, as well as any public planning or
11
research agencies and institutions; and
12
(3) Prepare and submit studies, reports, and
13
recommendations upon matters within its jurisdiction
14
under this Act for presentation to the President or upon
15
the request of the President.
16
SEC. 405. (a) The Board is authorized, without regard
17 to the civil-service laws, to appoint a director, and, subject
18 to the civil-service laws, to appoint such other officers and
19 employees as may be necessary to carry out its functions.
20 The compensation of the director and such other officers and
21 employees shall be fixed in accordance with the Classification
22 Act of 1923, as amended.
23
(b) The Board shall prepare and submit annually to
24 the President a report setting forth and summarizing its work
25 during the preceding year, and shall include therein such
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Federal Reserve Bank of St. Louis
38
1 information, data, and recommendations concerning matters
9 within its jurisdiction as the Board may deem advisable.
(c) The Board is authorized to delegate to the director
3
4 or to any other officer or employee of the Board any func5 tions vested in the Board by law.
(d) The Board is authorized to prescribe such rules
6
7 and regulations as may be necessary to carry out its functions.
SEC. 406. The National Resources Committee, estab-
8
lished by Executive Order Numbered 7065 of June 7, 1935,
10 is hereby abolished.
TITLE V—MISCELLANEOUS
11
SEC. 501. Subject to such regulations as the President
12
13 may from time to time prescribe,- the President and the heads
14 of the Executive departments, independent establishments
15 and independent agencies of the Government, for the pur16
poses of consultation, investigation and research in connection
17
with the exercise of functions vested in them by law, or, in
18
the case of the heads of such agencies, for the purposes of con-
19 ducting such investigations or research as may be required
20 of them by the President, are respectively authorized, with21 out regard to the provisions of other laws applicable to the
22 employment and compensation of officers and employees of
23 the -United States, to appoint and fix the compensation of
24 such experts and consultants for temporary periods as may
25 be necessary.
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Federal Reserve Bank of St. Louis
39
1
SEC. 502. The President is authorized to appoint six
2 A dministrative Assistants without regard to the provisions
3 of other laws applicable to the employment of officers and
4 employees of the United States, and to fix the compensation
5 of each of them at not to exceed $10,000 per annum. Said
6 Administrative Assistants shall perform such duties as the
7 President may prescribe.
8
SEC. 503. There is' hereby authorized to be appro-
9 priated out of any money in the Treasury not otherwise
10 appropriated such sums as may be necessary to carry out
11 the provisions of this Act.
12
SEC. 504. If any provision of this A ct, or the applica-
13 tion thereof to any person or circumstance, is held invalid,
14 the remainder of the Act, and the application of such pro15 vision to other persons or circumstances, shall not be affected
16 thereby.
17
SEC. 505. (a) Subsection (c) of section 201 shall
18 become effective when the first Civil Service Administrator
19 appointed under section 201 takes office.
20
(b) Sections 301 to 306, inclusive, and section 401,
21 shall become effective upon the expiration of one hundred
22 and eighty days after the date of enactment of this Act
23 unless the President shall by Executive order provide for
24 an earlier effective date.
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Federal Reserve Bank of St. Louis
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"TiisTcusGsiRoNEssl COPY''r"1"Y
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A BILL
To provide for reorganizing agencies of the
Government, extending the classified civil
service, establishing a General Auditing
Office and a Department of Welfare, and
for other purposes.
By Air. ROBINSON
JUNE 15 (Calendar day June 23), 1937
Head twice and referred to the Select Committee on
Government Organization
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Federal Reserve Bank of St. Louis
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Calendar No. 1286
75TH CONGRESS
Isl.SESSION
S. 2970
[Report No. 1236]
IN THE SENATE OF TIIE UNITED STA TES
AUGUST 16, 1937
Mr. BYRNES introduced the following bill; which was read twice and referred
to the Select Committee on Government Organization
AUGUST 16 (calendar day. AUGUST 17), 1937
Reported by Mr. BYRNES, without amendment
A BILL
To provide for reorganizing agencies of the Government, extending. the classified civil service, establishing a General
Auditing Office and a Department of Welfare, and for other
purposes.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3
TITLE I—REORGANIZATION
4
DECLARATION OF STANDARD
5
SECTION 1. The President shall investigate the organi-
zation of the \various agencies of the Government, and shall
7 determine what changes therein are necessary to accomplish
8 a,ny of the following purposes:
9
(a) To reduce expenditures to the fullest extent con-
10 sistent with the efficient operation of the Government;
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2
(b) To increase the efficiency of the operations of the
2 Government to the fullest extent practicable within the
3 revenues;
(c) To group, coordinate, consolidate, reorganize, and
4
5 segregate agencies and functions of the Government, or any
6
part thereof, as nearly as may be, according to major
7 purposes;
8
(d) To reduce the number of such agencies by re-
9 grouping or consolidating those having similar functions
10 under a single head, and by abolishing such agencies or
11 such functions, or any part thereof, as may not be necessary
12 for the efficient conduct of the Government; and
13
(e) To eliminate overlapping and duplication of effort.
POWER OF PRESIDENT
14
15
Sm. 2. (a) Whenever the President, after investi-
16 gation, shall find and declare that any transfer, retransfer,
17 regrouping,
coordination,
consolidation,
reorganization,
18 segregation, or abolition of the whole or any part of
19 any agency, or the functions thereof, is necessary to
1 of
20 accomplish any of the purposes set forth in section
21
this title, he may by Executive order subject to the limi-
22 tations hereinafter provided:
23
(1) Transfer or retransfer the whole or any part
24
of any agency, or the functions thereof, to the juris-
25
diction and control of any other agency; or
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(2) Regroup, coordinate,. con.solidate, reorganize,
2
or segregate the whole or any part of any agency, or
3
the functions thereof; or
(3) Abolish the whole or any part of any agency,
4
or the functions thereof; and
5
6
(4) Prescribe the name and the functions of any
7
agency affected by any such Executive order, and the
8
title, powers, and duties of its executive head.
9
(b) Nothing in subsection (a) shall be construed to
10 authorize the President (1) to abolish any executive depart11
ment or independent establishment, the municipal govern-
12 ment of the District of Columbia, the Board of Governors
13 of the Federal Reserve System, or the General Auditing
14
Office; (2) to transfer to any other agency all of the func-
15 tions of any executive department; (3) to abolish or transfer
16 to any other agency any of Ilig_functions of the municipal
17 government of the District of Columbia, the Board of Gov18 ernors of the Federal Reserve System, the General Auditing
19 Office, or any independent establishment; (4) to regroup,
20 coordinate, consolidate, reorganize, or segregate the whole
21
or any part of the Board of Governors of the Federal Reserve
22 System, the General Auditing Office, or any independent
23 establishment, or the functions of any of them; (5) to abolish
24 or transfer to any other agency any of the functions exer25 cised by the Engineer Corps of the Army or the Mississippi
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River Commission in administering any laws relating to
2 rivers and harbors or flood control; (6) to create or estab3 lish any new agency to exercise any functions which are
4 not expressly authorized by law in force on the date of
5 enactment of this Act; or (7) to abolish, or to transfer to
6 any other agency, the functions of audit and settlement
7 vested in the Bureau of the Budget by section 301 of this
8
9
Act.
(c) Any Executive order issued by the President under
10 this title shall make provision for the transfer or other disposition of the records, property (including office equipment), personnel, and unexpended balances of appropria13 tions of the agency or agencies affected by such Executive
14 order: Provided, That the transfer of personnel shall be
15
without change in classification or compensation, except that
16
this requirement shall not operate after the end of the fiscal
17 year during which the transfer is made to prevent the ad-
justment of classification or compensation to conform to the
19
duties to which such transferred personnel may be assigned.
20
The appropriations or portions of appropriations not so
21
transferred or disposed of shall not be used for any purpose
22
but shall be impounded and returned to the Treasury.
2:3
(d) In the case of the abolition of any agency or func-
title, the Executive order providing for
24 tion pursuant to this
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1 such .abolition shall also make provision for winding up the
2 affairs of the agency abolished or the affairs of the agency
3 with respect to the function abolished, as the case may be.
4
(e) The President is authorized to make such rules and
5 regulations as may be necessary to carry out his functions
6 under this title.
SAVING PROVISIONS
7
8
SEC. :3. (a) All orders, rules, regulations, permits, or
9 other privileges made, issued, or granted by or in respect of
10 any agency or function transferred to any other agency
11 under the provisions of this title, and in effect at the time of
12 the transfer, shall continue in effect to the same extent as if
13 such transfer had not occurred, until modified, superseded, or
14 repealed.
,
(b) No suit, action, or other proceeding lawfully ccm
other
16 menced by or against the head of any agency or
official capacity or in
17 officer of the United States, in his
duties, shall abate
18 relation to the discharge of his official
functions from one officer ?r,_
19 by reason of any transfer of
15
provisions of this title, but
20 agency to another under the
supplemental petition filed at any
21 the court, on motion or
effect,
e months after such transfer takes
22 time within twelv
a survival of such suit, action, or
23 showing a necessity for
obtain a settlement of the questions
24 other proceeding to
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1 involved, may allow the same to be maintained by pr against
2 the head of the agency or other officer of the -United States
3 to whom the functions are transferred.
4
(e) All laws relating to any agency or function trans-
5 ferred to any other agency under the provisions of this title,
6 shall, insofar as such laws are not inapplicable, remain in
7 full force and effect, and shall be administered by the head
8 of the agency to which the transfer is made.
9
10
EFFECTIVE DATE OF EXECUTIVE ORDER
SEC. 4. (a) Whenever the President issues an Executive
11 order under the provisions of this title, such Executive
12 order shall be submitted to the Congress while in session
13 and shall not become effective until after the expiration
14 of sixty calendar days after such transmission, unless Con15 gress shall by law provide for an earlier effective date of
16 such Executive order: Provided, That if Congress shall
17 adjourn before the expiration of sixty calendar days from
18 the date of such transmission such Executive order shall
19 not become effective until after the expiration of sixty calen20 dar days from the opening day of the next succeeding regular
21 or special session.
22
(b) No Executive order issued by the President under
23
the provisions of this title shall become effective unless
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1 transmitted to the Congress within three years from the
2
date of the enactment of this Act.
DEFINITTONS
3
4
SEC. 5. When used in this Act, unless the context other-
5 wise requires6
(1) The term "agency" means any executive de-
establishment,
independent
7
partment, independent
8
agency, commission, board, bureau, service, office,
9
administration, authority, division, or activity in the
10
executive branch of the Government, whether in the
11
District of Columbia or elsewhere, and shall include
12
the municipal government of the District of Columbia
13
and any corporation a majority of the stock of which
14
is owned by the United States and of which no member
15
of the board of directors is elected or appointed by
16
private interests.
17
(2) The term "independent establishment" means
18
the legislative courts and the Board of Tax Appeals,
19
the Federal Communications Commission, the Federal
20
Power Commission, the Federal Trade Commission,
21
tho Interstate Commerce Commission, the National
22
Bituminous Coal Commission, the National Labor
23
Relations Board, the Securities and Exchange Com-
24
mission, and the United States Maritime Commission.
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1 TITLE II—CIVIL SERVICE AND CLASSIFICATION
2
CIVIL SERVICE ADMINISTRATION
3
SEC. 201. (a) There is hereby established in the execu-
4 tive branch of the Government an organization to be known
5 as the Civil Service Administration (hereinafter referred to
6 as the "Administration"), at the head of which shall be a
7
Civil Service Administrator (hereinafter referred to as the
8 "Administrator"), who shall be appointed by the President,
9 by and with the advice and consent of the Senate, for a term
10
of fifteen years and shall receive a salary at the rate of
11
$10,000 per annum. The Administrator shall be selected
12
without regard to any political affiliations, shall be a person
.13 specially qualified for the office of Administrator by reason
1-t of his executive and administrative qualifications, with par15
ticular reference to his actual experience in, or his knowledge
16
of, accepted practices in respect to the functions vested in
17
that office by law, and may be removed by the President
18 for inefficiency, neglect of duty, or malfeasance in office.
(b) The Administrator shall appoint a Deputy Civil
19
20 Service Administrator, subject to the civil-service laws, and
21
his salary shall be fixed in accordance with the Classification
22
Act of 1923. fl.S amended. The Deputy Civil Service Ad-
23
ministrator shall perform such functions as the Administrator
24 may prescribe, and shall act as Administrator in the absence
25
of the Administrator or in the event of a vacancy in that
26 oftice,
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Federal Reserve Bank of St. Louis
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1
(c) The United States Civil Service Commission and
2 the offices of Civil Service Commissioners are abolished, and
3 all functions vested in such Commission are hereby vested in
4 the Administration. The records, property (including office
5 equipment), personnel, and unexpended balances of appro6 priations of such Commission are hereby transferred to the
7 Administration.
8
(d) The Administrator is authorized to delegate to any
9 officer or employee of the Administration any functions
10 vested in the Administrator or the Administration by law,
11 and to make such rules and regulations as may be necessary
12 to carry out any of such functions.
13
(e) The Administrator shall cause a seal of office to be
14 made for the Administration, of such device as the Presi-
15 dent shall approve, and judicial notice shall be taken of
16 such seal.
17
SEC. 202. (a) In addition to the functions vested in the
18 Administrator by section 201 of this title the Administrator
19 shall prepare and recommend to the President plans for the
20 development and maintenance of a career service in the
21 Federal Government.
22
(b) The A dministrator is further authorized to-
23
(1) Plan, establish, supervise and coordinate em-
24
ployee training programs and similar activities of the
25
various agencies of the Government, and make avail- .
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1
able to such agencies any employee training facilities at
2
his disposal;
3
(2) Obtain information, through the Administra-
4
tion, or in cooperation with other agencies, organiza-
5
tions, or groups, relating to personnel standards, prac-
6
tices, or policies in other governmental jurisdictions or
7
in private industry, and make such information avail-
8
able to the various agencies of the Government;
9
(3) Cooperate with the public personnel agencies
10
of States, Territories, and possessions of the United
11
States (including the Philippine Islands), and political
12
subdivisions thereof, and the District of Columbia, in
13
the adoption, development, or extension of the merit
14
system in their respective jurisdictions, and upon the
15
request of any such agency render advisory or con-
16
sultative personnel service or establish eligible registers
17
for such agency or establish or assist in the establish-
18
Merit of joint eligible registers;
19
(4) At the direction of the President, or upon
20
the request of the head of any agency of the Govern-
21
ment, cooperate or assist in the installation or development of personnel standards, practices, or policies for
22
24
any agency of the Government, or review and investigate personnel standards, practices, or policies of such
25
or the
agency, and report thereon to the President
23
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Federal Reserve Bank of St. Louis
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1
officer making the request. Any agency receiving any
2
cooperation or assistance under this or the preceding
3
paragraph may be required to reimburse the Admin-
4
istration for all necessary expenses incurred in connec-
5
tion therewith, and the payments representing such
6
reimbursements shall be deposited as refunds to the
7
appropriations from which such expenses were origi-
8
nally paid, instead of being covered into the Treasury
9
as miscellaneous receipts;
10
(5) Request persons not in the service of the
11
Federal Government who are experts in some aspect
12
of personnel administration to attend conferences with
12
representatives of the Administration or to consult or
14
advise with them, in the District of Columbia or else-
15
where, and reimburse such experts for their subsistence
16
and other expenses at a rate of not to exceed $25 per
17
day for time spent in attending and traveling to and
18
from such conferences, or in consulting or advising with
19
such representatives, plus the actual cost of trans-
20
portation.
21
(6) Purchase manuscripts from private persons,
22
corporations, or other organizations, or meet the costs
23
of special studies made by them, at the request of,
24
or in cooperation with, the Administration; and
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1
(7) Pay in advance membership fees or dues in
2
personnel associations, or in organizations which issue
3
publications to members only or to members at a lower
4
price than to others.
PRESIDENTIAL APPOINTIVIENTS
5
SEC. 203. The President, by and with the advice and
6
7 consent of the Senate, shall make appointments to fill any
8 vacancy in any office or position of head of any bureau,
9 division, service, or other similar agency which is in or
10 under the jurisdiction or control of and is directly responsible
11 to the head of an executive department, independent estab12 lishment, or independent 'agency, but only if the President
13 finds that such -office or positiony determining hi
14 character. Any determination by the President that any
15 such office or position is policy determining in character
16 shall be final, and the power of the President to make suc.li
17 determinations shall expire three years after the date of
18 enactment of this Act.
EXTENSION OF CLASSIFIED CIVIL SERVICE
19
20
SEC. 204. (a) In addition to the authority vested in
21
the President by the civil-service laws, the President is
22 authorized to cover into the classified civil service any offices
23 or positions in any agency of the executive branch of the
.
24 Government, and in any corporation a majority of the stock
25
of which is owned by the United States and of which no
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1 member of the board of directors is elected or appointed
2 by private interests, except offices or positions to which
3 appointments are required to be made by the President by
4 and with the advice and consent of the Senate: Provided,
5 That in the case of any such corporation organized under the
6 laws of any State, Territory, or possession of the United
7 States (including the Philippine Islands), or the District
8 of Columbia, the President is authorized to direct that such
9 action be taken as will require appointments to such offices
10 or positions in such corporation to be made in accordance
11 with the civil-service laws, but such action shall not be ineon12 sistent with the laws under which such corporation wtts
13 organized or with the charter or articles of incorporation
14 of such corporation.
15
(i)) The provisions of this title relating to the covering
16 into the classified civil service of offices and positions shall,
17 in addition to being applicable to any office or position
18 authorized by existing law, be applicable to any office or
19 position authorized by this Act, or hy any subsequent Act
20 unless the Congress specifically provides otherwise.
21
SEC. 205. The incumbent of any office or position which
22 is covered into the classified civil service under the pro23 visions of this title shall not thereby acquire a classified civil24 service status, except (1) upon recommendation by the head
25 of the agency concerned within one year after such office
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1 or position has been covered into the classified civil service,
2 and certification within such period by such head to the
3 Administrator that such incumbent has served with merit
4 for not less than six months prior to the date of the appro5 priate Executive order covering such office or position into
6 the classified civil service, and (2) upon passing such suitable
7 noncompetitive examination as the Administrator may
8 prescribe.
EXTENSION OF CLASSIFICATION ACT
9
SEC. 206. (a) Subject to the limitations hereinafter
10
11 provided, whenever the President, after such classification
12 and compensation surveys or investigations as he may direct
13 the Administrator to undertake, and after consideration of
14 the Administrator's resulting reports and recommendations,
15
shall find that an extension of the provisions of the Classifi-
16
cation Act of 1923, as amended, to any office or position
17 not at the time subject to such provisions in any agency of
18 the Government is necessary to the more efficient opera-
_________-- -19 tion of the Government, he may by Executive order extend
20 the provisions of such Act to such office or position: Pro21
vided, That any action taken under this subsection with
22 respect to any office or position in any corporation a
23
majority of the stock of which is owned by the United
24 States and of which no member of the board of directors is
25 elected or appointed by private interests shall not be
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1 inconsistent with the laws under which such corporation
2 was organized or with the charter or articles of incorporation
3 of such corporation.
(b) Whenever the President, upon report and recom-
4
5 mendation by the Administrator, shall find that one or more
6 offices or positions to which such Act as amended and ex7 tended is applicable may not fairly and reasonably be allo8 cated to any of the classification services or grades defined
9 in the compensation schedules of such Act, he may by
10 Executive order prescribe and define such additional classification services and grades thereof as he may deem neces12 sary, and he shall define and fix the ranges of compensation
13 for the grades of such services within the limits of such Act
14
so that they shall be comparable, as nearly as may be, with
15
the grades defined in such Act for offices or positions that
16 are comparable as to duties, responsibilities, qualifications
17 required, and other conditions of employment.
18
(c) Whenever the President, upon report and recom-
19
mendation by the Administrator, shall find that the rates
20
of the compensation schedules of such Act are inadequate
21 for any office or position to which such Act as amended
and extended is applicable, he may by Executive order
22
schedules of differentials in the rates
23 establish necessary
24
prescribed in such compensation schedules, but the differen-
of any such office or position shall
25 tial in the compensation
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1 not exceed 25 per centum of the minimum rate of the grade
2 to which such office or position is allocated under such com3 pensation schedules: Provided, That the provisions of this
4 subsection shall be applicable only to offices or positions
5
which are located at stations that are isolated, remote,. or
6 inaccessible when compared with stations at which offices
7 or positions of the same character are usually located, or
8 which involve physical hardships or hazards that are ex9 cessive when compared with those usually involved in offices
10 or positions of the same character, or which are located
11 outside the States of the United States and the District of
if the Administrator finds
12 Columbia: Provided further, That
hardship, hazard, or foreign
13 that the factor of isolation,
each office or position in
14 service is uniformly applicable to
positions, the differential pro15 any given class of offices or
shall not apply to any office or
16 vided for in this subsection
17 position in such class.
18
19 the
(d) Except as Congress may otherwise provide by law,
power granted to the President by this section shall not
20 apply to the following21
Service the
(1) Offices or positions in the Postal
23
compensation of which is fixed under the Act of Con
Stat. 1033), as
gress, approved February 28, 1925 (43
24
amended;
25
ans,
(2) Offices or positions of teachers, librari
of the comschool-attendance officers, and employees
22
26
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1
munity-center department under the Board of Educa-
2
tion of the District of Columbia, the compensation of
3
which is fixed under the Act of Congress, approved
4
Jime 4, 1924 (43 Stat. 367), as amended;
5
(3) Offices or positions in the Metropolitan Police,
6
in the Fire Department of the District of Columbia, and
7
in the United States Park Police, the compensation of
8
which is fixed under the Act of Congress, approved July
9
1, 1930 (46 Stat. 839);
10
(4) Commissioned officers and enlisted personnel in
11
the military and naval services and the Coast Guard,
12
and commissioned officers in the Public Health Service
13
and the Coast and Geodetic Survey, the compensation
14
of which is fixed under the Act of Congress, approved
15
June 10, 1922 (42 Stat. 625), as amended;
16
(5) Offices or positions in the Government Print-
17
ing Office the compensation of which is fixed under the
18
Act of Congress, approved June 7, 1924 (43 Stat.
19
658)
20
(6) Offices or positions of Foreign Service officers
21
in the Foreign Service of the United States the coin-
22
pensation of which is fixed under the Act of Congress,
23
approved May 24, 1924 (43 Stat. 140), as amended;
24
(7) Offices or positions of clerks in the Foreign
25
Service of the United States the compensation of which
S. 2970
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18
1
is fixed under the Act of Congress, approved February
2
23, 1931 (46 Stat. 1207) ;
3
(8) Offices or positions of commercial attaches,
4
assistant commercial attaches. trade commissioners. assist-
5
ant trade commissioners, and clerks and other assistants
6
to officers, including clerical and sub-clerical assistants,
7
in the Foreign Commerce Service of the Department
8
of Commerce, the compensation of which is fixed under
9
the Act of Congress, approved March 3, 1927 (44 Stat.
10
1394), as amended;
11
(9) Offices or positions of verifiers-openers-packers,
12
clerks, guards, inspectors, station inspectors and laborers,
13
in the Customs Service of the Treasury Department the
14
compensation of which is fixed under the Act of Con-
15
gress, approved May 29, 1928 (45 Stat. 955), as
16
amended;
17
(10) Offices or positions of inspectors in the Immi-
18
gration and Naturalization Service of the Department
19
of Labor the compensation of which is fixed under the
20
Act of Congress, approved May 29, 1928 (45 Stat.
21
954), as amended;
22
(11) Offices or positions the duties of which are
99,
to serve as an officer or member of the crew of a vessel;
2
and
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1
(12) Offices or positions the duties of which are
2
to perform the work of an apprentice, helper, or
3
journeyman in a recognized trade or craft, or other
4
skilled mechanical craft, or the work of an unskilled,
5
semiskilled, or skilled laborer; except that whenever
6
such offices or positions involve work in the regular
7
custody, operation, or maintenance of a Government
8
building, or other Government property, or work which
9
is subordinate, incidental, or preparatory to work of
10
a professional, scientific, or technical character, the
11
President, upon a finding that the characteristics and
12
working conditions of such offices or positions render
13
them substantially the same as comparable offices or
14
positions in the District of Columbia included within
15
the Classification Act of 1923, as amended, may by
16
Executive order extend the provisions of such Act to
17
include them.
18
SEC. 207. The President is authorized, after suitable
19 investigation by the Administrator which shall include con20 sultation with representatives of the heads of the executive
or independent
21 departments, independent establishments,
jurisdiction of which the offices or
22 agencies in or under the
designated are located, and upon find23 positions hereinafter
is necessary to the more efficient opera24 ing that such action
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1 tion of the Government, to exclude, by Executive order,
2 from the provisions of the Classification Act of 1923, as
3 amended and extended4
(1) Offices or positions the work of which is
5
financed jointly by the United States and a State, Terri-
6
tory, or possession of the United States (including the
7
Philippine Islands), or political subdivision thereof, or
8
cooperating persons or organizations outside the service
9
of the Federal Government, the pay of which is fixed
10
under a cooperative agreement with the United States;
11
(2) Offices or positions none or only part of the
12
compensation of which is paid from funds of the United
13
States;
(3) Offices or positions filled by inmates, patients,
14
15
students, or beneficiaries in Government institutions;
16
(4) Offices or positions outside the States of the
17
United States and the District of Columbia filled by
18
natives of Territories or possessions of the United States
19
(including the Philippine Islands) or foreign nationals;
20
(5) Emergency or seasonal offices or positions in
22
the field service, or other field offices or positions the
duties of which are of purely temporary duration or
23
which are required only for brief periods at intervals;
24
and
21
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1
(6) Offices or positions filled by persons employed
2
locally on a fee, contract, or piecework basis who may
3
lawfully perform their duties concurrently with their
4
private profession, business, or other employment, and
5
whose duties require only a portion of their time, where
6
it is impracticable to ascertain or anticipate the propor-
7
tion of time devoted to the service of the Federal
8
G overnment.
9
SEC. 208. Whenever an extension of the Classification
ive under this title
10 Act of 1923, as amended, becomes effect
with respect to any office or position12
(1) The allocation of such office or position to the
13
appropriate service, grade, and class shall be made as
15
provided in section 4 of such Act and in accordance with
a uniform procedure to be prescribed by the Adminis-
16
trator; and
14
17
18
19
20
21
(2) The initial compensation of the incumbent of
such office or position shall be fixed in accordance with
section 6 of such Act; except that if such incumbent is
receiving compensation in excess of the maximum rate
prescribed for the appropriate grade, no change shall
23
nues to
be made in his compensation so long as he conti
or pooccupy the same office or position, but the office
24
whenever it besition shall be correctly allocated and
22
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22
1
comes vacant the compensation attached thereto shall
2
be brought within the proper compensation schedule.
3
SEC. 209. Nothing herein contained shall be construed
4 to prevent the promotion of an officer or employee from an
5 office or position in one class to a vacant office or position in a
6 higher class at any time in accordance with civil-service laws,
7 and when so promoted the officer or employee shall receive
8 compensation according to the schedule established for the
9 class to which he is promoted.
10
TITLE III—ACCOUNTING AND AUDITING
11
TRANSFER OF ACCOUNTING FUNCTIONS
SEC. 301. (a) The General Accounting Office and the
12
offices of Comptroller General and Assistant Comptroller
14 General are hereby abolished, and all functions vested in the
15 General Accounting Office, the Comptroller General, and
16 the Assistant Comptroller General by law in force on the
17 date of enactment of this Act, except functions vested in the
18 General Auditing Office by this Act, are hereby vested in
19 the Bureau of the Budget and the Director of such Bureau.
20 Nothing in this section shall be construed to authorize the
21 Bureau of the Budget to exercise any functions vested in
22 the General Auditing Office by this Act or to direct the
23 manner in which such functions shall be exercised.
24
(b) The Attorney General of the United States shall
25 render an opinion with respect to the jurisdiction of the
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Federal Reserve Bank of St. Louis
23
1 Director of the Bureau of the Budget in connection with the
2 settlement of any public account, upon request therefor by
3 the said Director or the head of the executive department,
4 independent establishment, or independent agency concerned,
5 and any such opinion of the Attorney General shall be final
6 and conclusive upon the said Director and all other officers
7 and agencies of the Government.
(c) The records, property (including office equipment),
8
9 personnel, and unexpended balances of appropriations of
10 the General Accounting Office shall be transferred to the
11 General Auditing Office and the Bureau of the Budget upon
12 the effective date of this section as the President shall
13 prescribe by Executive order. The transfer of such personnel
14 shall be without change in classification or compensation,
15 except that this requirement shall not operate after the end
16 of the fiscal year during which the transfer is made to prevent
17 the adjustment of classification or compensation to conform
18 to the duties to which such transferred personnel may be
19 assigned.
(d) The Director of the Bureau of the Budget, with
20
21 the approval of the President, shall make such rules and
22 regulations as may be necessary to carry out the functions
23 vested in him by this section.
24
(e) Section 2 of the Budget and Accounting Act, 1921
25
U. S. C., 1934 ed., title 31, sec. 2), is amended by inserting
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Federal Reserve Bank of St. Louis
24
1 after the word "including" the words "any independent
2 establishment as defined in section 5 of the Reorganization
3 Act of 1937".
4
5
GENERAL AUDITING OFFICE
SEC. 302. (a) There is hereby established a General
6 Auditing Office which shall be an agency of the Congress
7 and independent of the executive branch of the Govern8 ment and shall be under the direction and control of an
9 Auditor General.
10
(b) The Auditor General and an Assistant Auditor
11 General shall be appointed by the President, by and with
12 the advice and consent of the Senate. The Auditor
13 General shall receive a salary at the rate of $10,000 per
14 annum, and the, salary of the Assistant Auditor General
15 shall be fixed in accordance with the Classification Act
16 of 1923, as amended. The Assistant Auditor General shall
17
perform such functions as the Auditor General may pre-
18 scribe, and shall act as Auditor General in the absence of
event of a vacancy in that
19 the Auditor General or in the
20 office.
21
(c) Except as hereinafter provided in this subsection,
General and the Assistant Auditor General
22 the Auditor
for fifteen years.
23 shall bold office
The Auditor General
eligible for reappointment. The Auditor Gen24 shall not be
Assistant Auditor General may be removed
25 eral or the
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25
1 at any time by joint resolution of the Congress after notice
2 and hearing, when, in the judgment of the Congress. the
3 Auditor General or the Assistant Auditor General has be4 come permanently incapacitated or has been inefficient, or
5 guilty of neglect of duty, or of malfeasance in office, or
6 of any felony or conduct involving moral turpitude, and
7 for no other cause and, in no other manner except by im-
8 peachment.
Any Auditor General or Assistant Auditor
9 General removed in the manner herein provided shall be
10 ineligible for reappointment to that office.
When an
11 Auditor General or Assistant Auditor General attains the
age of seventy years, he shall be retired from his office.
12
SEc. 303. (a) The Auditor General shall make an
13
, and
14 audit of the receipts, expenditures, money, securities
make a complete
15 funds of the Government, and shall
16
annual report to the Congress not later than March 1 of each
preceding
17 year with respect to such audit made during the
18 fiscal year. Such report shall be made as nearly as prac-
19 ticable in accordance with accepted principles of auditing,
20
and shall contain all necessary memoranda and tables,
21 together with an appropriate certificate of audit and such
22
comments as may be pertinent to the subject matter of the
23
audit.
24
(b) Claims and demands against the United States
25
shall be audited by the General Auditing Office promptly
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Federal Reserve Bank of St. Louis
26
1 after payment, but prior to final settlement of the disbursing
officers' accounts by the Director of the Bureau of the
2
3 Budget. Each such audit shall be conducted as nearly as
4
practicable in the vicinity of disbursing offices of the United
5
States in the District of Columbia and elsewhere.
6
(c) Claims which the Director of the Bureau of the
7
Budget is authorized by law to adjust and settle prior to
8
payment shall be audited by the General Auditing Office
9
after payment, and the certificates of settlement in such
10 cases shall be accompanied by a certificate of the adminis11 trative officer, if any, having jurisdiction over the appro12
priation involved in the settlement, setting forth his recom-
13
mendations thereon.
14
(d) The accountable officers of the Government shall
15
promptly transmit their accounts, together with all supporting
16
documents, to the appropriate representatives of the General
17 Auditing Office for audit. Whenever such representatives
18 take exception to any item in any account so transmitted,
19 notice thereof shall be immediately given to the accountable
20 officer concerned, to the Director of the Bureau of the Budget,
21 and to the Auditor General, together with a statement of the
22
reasons for such exception. After audit by the General
23
Auditing Office, the account shall be transmitted to the
24
Director of the Bureau of the Budget, and the Director shall
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Federal Reserve Bank of St. Louis
27
1 take all such exceptions into consideration in settling such
2 account.
(e) The Director of the Bureau of the Budget shall
3
4 furnish promptly to the General Auditing Office copies of
5 all certificates issued by him in settlement of accountable
6 officers' accounts, and the General Auditing Office shall
7 examine the copies of such certificates of settlement. The
8 Auditor General shall repOrt promptly to the said Director
9 and to the Congress all public accounts deemed by him to
10 have been improperly settled by the said Director; but no
11 such report shall be made to the Congress with respect to
12 any disagreement between the General Auditing Office and
13 the said Director until the expiration of thirty days after
14 the said Director has been notified of such disagreement,
15 and no such report shall be made to the Congress if the said
16 Director revises his decision in accordance with the views
17 of the General Auditing Office.
(f) The Auditor General shall also report to the
18
19 Director of the Bureau of the Budget and to the Congress
20 any expenditure of public funds which the General Auditing
21 Office deems to have been unwisely or improvidently made
22
by or under the authority of the head of any agency of the
23 Government.
24
(g) The Auditor General shall make such investigations
25 and reports as shall be requested by either House of Congress,
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28
1 or by the Joint Committee on Public Accounts, or by any
2 other committee of either House having jurisdiction over
3 expenditures, appropriations, or revenue; and the Auditor
4 General shall furnish any such committee such aid and infor5 mation as it may request.
6
(h) All reports required by this section to be made
7 to the Congress shall be made to the Joint Committee on
8 Public Accounts when the Congress is not in session.
9
SEC. 304. The Auditor General, or any officer or em-
10 ployee of the General Auditing Office when duly authorized
11 by him, shall, to the extent necessary to perform the func12 tions vested in the General Auditing Office, have access
13 to and the right to examine any books, documents, papers,
14 or records of the Bureau of the Budget or of any other
15 agency of the Government; but nothing in this section shall
16
be construed to repeal or modify the provisions of section 291
17
of the Revised Statutes (U. S. C., 1934 ed., title 31, sec.
18
107), or any other provisions of law expressly restricting the
19 audit of expenditures or receipts.
20
SEC. 305. (a) The Auditor General is authorized, sub-
21 ject to the civil-service laws, to appoint such officers and
22 employees as he deems necessary to enable the General
23 Auditing Office to exercise the functions vested in it by law;
24 and the compensation of all such officers and employees shall
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Federal Reserve Bank of St. Louis
29
1 be fixed in accordance with the Classification Act of 1923,
2 as amended.
(b) The Auditor General is authorized to delegate to
3
4 any officer or employee of the General Auditing Office any
5 functions vested in the General Auditing Office by law.
(c) The Auditor General is authorized to adopt an
6
7 official seal for the General Auditing Office, and judicial
8 notice shall be taken of such seal.
(d) The Auditor General is authorized to prescribe
9
y
10 such rules and regulations as may be necessary to carr out
this
11 the functions vested in the General Auditing Office by
12 title.
13
14
SEC. 306. The General Auditing Office shall not exercise any functions except those vested in it by this title, and
construed to author15 nothing contained in this title shall be
the settlements of
16 ize the General Auditing Office to revise
et, or to
public accounts made by the Bureau of the Budg
vested in the Bureau
18 direct the manner in which the functions
ised.
19 of the Budget by this title shall be exerc
17
JOINT COMMITTEE ON P UBLIC ACCOUNTS
lished a joint
SEC. 307. (a) There is hereby estab
21
ittee to be known as the Joint Committee
22 congressional comm
(hereinafter referred to as the "joint
23 on Public Accounts
twenty-four members as
committee"), to be composed of
20
24
25 follows:
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30
1
Four members, two from the majority party and two
2 from the minority party, who are members of and are chosen
3 by each of the following committees: In the Senate, the
4 Committee on Expenditures in the Executive Departments,
5 the Committee on Appropriations, and the Committee on
6 Finance; and in the House of Representatives, the Commit-
tee on Expenditures in the Executive Departments, the Com8 mittee on Appropriations, and the Committee on Ways and
9 Means.
10
(b) No person shall continue to serve as a member
11 of the joint committee after he has ceased to be a member
12 of the committee by which he was chosen; except that any
13 such member chosen by any such Committee of the House
14 of Representatives who has been re-elected to the House
15 of Representatives may continue to serve as a member of
16 the joint committee notwithstanding the expiration of the
17 Congress.
18
(c) A vacancy in the joint committee shall not affect
19 the power of the remaining members to execute the func20 tions of the joint committee, and shall be filled in the same
21
manner as the original selection; except that in case of a
22 vacancy during an adjournment or recess of the Congress
23 for a period of more than two weeks, the members of the
24 joint committee who are members of the committee entitled
25 to fill such vacancy may designate a member of such
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Federal Reserve Bank of St. Louis
31
1 committee to serve until his successor is chosen by such
2 committee.
(d) The joint committee shall elect a chairman and a
3
4 vice chairman from among the members of the joint com5 mittee, and shall have the power to appoint and fix the
6 compensation of a clerk and such experts and clerical, sten7 ographic, and other assistants, as it deems advisable.
(e) The members of the joint committee shall serve
8
9 without compensation in addition to that received for their
10 services as Members of Congress; but they shall be reim11 bursed for travel, subsistence, and other necessary expenses
12 incurred by them in the exercise of the functions vested
13 in the joint committee, other than expenses in connection
14 with meetings of the joint committee held in the District
is in session.
15 of Columbia during such times as the Congress
(f) It shall be the duty of the joint committee to exss and
17 amine and study all reports submitted to the Congre
18 to the joint committee by the Auditor General as provided
16
19 in section 303. The joint committee shall submit to the
20 Senate and the House as promptly as possible such findings
reports as
21 and recommendations with respect to any such
advisable.
22 the joint committee deems
23
24
(g) The joint committee, or any subcommittee thereof,
shall have power to hold hearings and to sit and act at such
to require by subpena or otherwise the
25 places and times,
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32
1 attendance of such witnesses and the production of such
2 books, papers, and documents, to administer such oaths, to
3 take such testimony, to have such printing and binding done,
4 and to make such expenditures, as it deems advisable. Sub5 penas shall be issued under the signature of the chairman
6 of said joint committee, and shall be served by any person
7 designated by him. The provisions of sections 102 to 104,
8 inclusive, of the Revised Statutes (relating to examination
9 and testimony of witnesses) shall apply with respect to any
10 person who is summoned as a witness under authority of
this subsection.
12
(h) Amounts appropriated for the expenses of the joint
13 committee shall be disbursed one-half by the Secretary of
14
the Senate and one-half by the clerk of the House of
15
Representatives.
16
TITLE IV—DEPARTMENTS OF WELFARE AND
17
CONSERVATION AND NATIONAL RESOURCES
18
PLANNING BOARD
19
DEPARTMENT OF WELFARE
20
Six. 401. (a) There shall be at the seat of govern-
21
ment an executive department to be known as the Depart-
22 ment of Welfare, and a Secretary of Welfare, who shall be
23 the head thereof, and shall be appointed by the President,
24 by and with the advice and consent of the Senate, and shall
25
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Federal Reserve Bank of St. Louis
have a tenure of office and salary like those of the heads of
33
1 the other executive departments. Section 158 of the Re2 vised Statutes, as amended (U. S. C., 1934 ed., title 5,
3 sec. 1), is amended to include such department and the
4 provisions of title IV of the Revised Statutes, including all
5 Acts amendatory and supplementary thereto, shall be ap6 plicable to such department.
(b) There shall be in the Department of Welfare an
7
8 Undersecretary of Welfare and two Assistant Secretaries
9 of Welfare, who shall be appointed by the President, by
io and with the advice and consent of the Senate, and a Solicitor,
who shall be appointed by the Secretary of Welfare, all of
12 whom shall exercise such functions as may be prescribed
13 by the Secretary of Welfare or required by law. The
14 Undersecretary and the Solicitor shall each receive a salary
15 of $10,000 per annum, and the compensation of the
16 Assistant Secretaries shall be fixed in accordance with the
17 Classification Act of 1923, as amended.
(c) The Secretary of Welfare shall administer the
18
19 laws relating to the public health and sanitation; the pro20 tection of the consumer; education ; the relief of unemploy21
ment and of the hardship and suffering caused thereby; the
22 relief of the needy and distressed ; the assistance of the aged;
23 and the relief and vocational rehabilitation of the physically
24 disabled.
S. 2970-3
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Federal Reserve Bank of St. Louis
34
1
(d) The Secretary of W.elfare shall cause a seal of
2 office to be made for the Department of Welfare, of such
3 device as the President shall approve, and judicial notice
4 shall be taken of such seal.
5
(e) The Secretary of Welfare shall annually, at the
6 close of each fiscal year, make a report in writing to the
7 Congress, giving an account of all money received and
8 expended by the Department of Welfare and describing the
9 work done by that Department. He shall also from time
10 to time make such special investigations and reports as he
11 may deem necessary, or as he may be required to make
12 by the President, or by either House of Congress.
13
14
DEPARTMENT OF CONSERVATION
SEC. 402. The Department of the Interior shall here-
15 after be known as the "Department of Conservation", and
16 the Secretary of the Interior shall be known as the "Secre17 tary of Conservation", and all the provisions of titles IV
18 and XI of the Revised Statutes, including all Acts .amenda19 tory and supplementary thereto, and all other Acts referring
20 to the Department of the Interior, the Secretary of the
21 Interior, or any other officers or employees of that Depart22 ment, are amended accordingly.
23
24
NATIONAL RESOURCES PLANNING BOARD
SEC. 403. (a) There is hereby established in the execu-
25 tive branch of the Government a National Resources Plan-
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Federal Reserve Bank of St. Louis
1 ning Board (hereinafter referred to as the "Board") which
2 shall be composed of five members to be appointed by the
3 President, by and with the advice and consent of the Senate.
4 One of the members of the Board shall be designated by the
5 President as chairman, and one of such members shall
be
6 designated by the President as vice chairman. The vice
7 chairman shall act as chairman in the absence of the chair8 man or in the event of a vacancy in that office. The mem9 bers of the Board shall be compenated at the rate of $50
10 per day for time spent in attending and traveling to and
)I.1, from meetings, or in otherwise exercising the functions of
the Board, plus the actual cost of transportation: Provided,
)3_, That in no case shall a member be entitled to receive corn14 pensation for more than thirty days' services in any two
15 consecutive months.
16
(b) The Board shall cause a seal of office to be made for
17 such Board, of such device as the President shall approve,
18 and judicial notice shall be taken of such seal.
19
(c) The Board shall determine the rules of its own pro-
20 ceedings, and a majority of its members in office shall con21 stitute a quorum for the transaction of business, but the Board
22 may function notwithstanding vacancies.
23
SEC. 404. The Board is authorized to-
24
(1) Investigate, examine, study, analyze, assemble,
25
and coordinate and periodically to review and revise
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Federal Reserve Bank of St. Louis
36
1
basic information and materials appropriate to plans
2
or planning policies for the development and utiliza-
3
tion of the resources of the Nation, both natural and
4
human, and on the basis thereof, to initiate and pro-
5
pose in an advisory capacity such plans and planning
6
policies;
7
(2) To obtain data and reports from, to cooperate
8
and participate in the work of, and to consult with,
9
any agencies af the Federal Government and of any
10
State, Territory, or possession of the United States
11
(including the Philippine Islands), or political sub-
12
divisions thereof, as well as any public planning or
13
research agencies and institutions; and
14
(3) Prepare and submit studies, reports, and
15
recommendations upon matters within its jurisdiction
16
under this Act for presentation to the President or upon
17
the request of the President.
18
SEC. 405. (a) The Board is authorized, without regard
19 to the civil-service laws, to appoint a director, and, subject
20 to the civil-service laws, to appoint such other officers and
21 employees as may be necessary to carry out its functions.
22 The compensation of the director and such other officers and
23 employees shall be fixed in accordance with the Classification
24 Act of 1923, as amended.
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Federal Reserve Bank of St. Louis
37
(b) The Board shall prepare and submit annually to
2 the President a report setting forth and summarizing its work
3 during the preceding year, and shall include therein such
4 information, data, and recommendations concerning matters
5
within its jurisdiction as the Board may deem advisable.
(c) The Board is authorized to delegate to the director
6
7 or to any other officer or employee of the Board any functions vested in the Board by law.
(d) The Board is authorized to prescribe such rules
9
10 and regulations as may be necessary to carry out its functions.
SEC. 406. The National Resources Committee, estab-
11
12 lished by Executive Order Numbered 7065 of June 7, 1935,
13 is hereby abolished, and the records, property (including
14 office equipment), and personnel of such Committee, and
15 the unexpended balances of funds available for expenditure
16 by such Committee, shall be transferred to the Board.
TITLE V—MISCELLANEOUS
17
18
SEC. 501. Subject to such regulations as the President
19
may from time to time prescribe, the President and the heads
20
of the Executive departments, independent establishments
21
and independent agencies of the Government, for the pur-
22
poses of consultation, investigation and research in connection
23
with the exercise of functions vested in them by law, or, in
24 the case of the heads of such agencies, for the purposes of con-
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Federal Reserve Bank of St. Louis
38
1 ducting such investigations or research as may be required
2 of them by the President, are respectively authorized, with3 out regard to the provisions of other laws applicable to the
4 employment and compensation of officers and employees of
5 the United States, to appoint and fix the compensation of
6 such experts and consultants for temporary periods as may
7 be necessary.
8
SEC. 502. The President is authorized to appoint six
9 Administrative Assistants without regard to the provisions
10 of other laws applicable to the employment of officers and
11 employees of the United States, and to fix the compensation
1.2 of each of them at not to exceed $10,000 per annum. Said
13, Administrative Assistants shall perform such duties as the
14 President may prescribe.
15
SEC. 503. There is hereby authorized to be appro-
16 priated out of any money in the Treasury not otherwise
17 appropriated such sums as may be necessary to carry out
18 the provisions of this Act.
19
SEC. 504. If any provision of this Act, or the applica-
20 tion thereof to any person or circumstance, is held invalid,
21 the remainder of the Act, and the application of such pro22 vision to other persons or circumstances, shall not be affected
23 thereby.
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Federal Reserve Bank of St. Louis
39
SEC. 505. (a) Subsection (c) of section 201 shall
1
2 become effective when the first Civil Service Administrator
3 appointed under section 201 takes office.
(b) Sections 301 to 306, inclusive, and section 401,
4
5 shall become effective upon the expiration of one hundred
6 and eighty days after the date of enactment of this Act
7 unless the President shall by Executive order provide for
8 an earlier effective date.
(c) Section 406 shall become effective when a majority
9
10 of the members of the National Resources Planning Board
11 first appointed under the provisions of section 403 take
12 office.
SEC. 506. This Act may be cited as the "Reorganiza-
13
tion Act of 1937".
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Calendar No. 1286
75TH CONGRESS1
1ST SESSION
J
S. 2970
[Report No. 1236]
A BILL
To provide for reorganizing agencies of the
Government, extending the classified civil
service, establishing a General Auditing
Office and a Department of Welfare, and
for other purposes.
By Mr. BYRNES
AUGUST 16, 1937
Read twice and referred to the Select Committee on
Government Organization
AUGUST 16 (calendar day, AUGUST 17), 1937
Reported without amendment
\
Union Calendar No.550
75TH CONGRESS
iST SESSION
H. R. 8202
[Report No. 1487]
IN THE HOUSE OF REPRESENTATIVES
AUGUST 10,1937
Mr. WARREN,from the Select Committee on Government Organization,
reported
the following bill; which was committed to the Committee of the Whole
House on the state of the Union and ordered to be printed
A BILL
To provide for the reorganization of agencies of the Government,
to establish the Department of Welfare, and for other
purposes.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3
4
TITLE I—REORGANIZATION
SECTION 1. (a) Title IV of part II of the Legislative
5 Appropriation Act, fiscal year 1933, as amended (U. S. C.,
6
1934 edition, title 5, secs. 124-132), is hereby reenacted
7 and is amended in the following respects:
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Federal Reserve Bank of St. Louis
2
1
(1) Section 401, as amended (U. S. C., 1934 edition,
2 title 5, sec. 124), is amended by striking out the first para3 graph and the words "Accordingly, the" in the second para4 graph and inserting in lieu thereof the word "The";
5
(2) Section 402, as amended (U. S. C., 1934 edition,
6 title 5, sec. 125), is amended by inserting after the word
7 "establishment," the words "corporation owned or controlled
8 by the United States," and by changing the period at the
9 end of the section to a comma and inserting thereafter the
10 following: "but shall not include, except as to the function of
11 preparing estimates of appropriations, the Interstate Com12 merce Commission, the Federal Trade Connnission, the
13 Federal Power Commission, the Securities and Exchange
14 Commission, the Federal Communications Commission, the
15 National Labor Relations Board, the National Bituminous
16 Coal Commission, the United States Maritime Commission,
17 the Engineer Corps of the United States Army, the Coast
18 Guard, the General Accounting Office, and the United States
19 Tariff Commission.";
20
(3) Section 409, as amended (U. S. C., 1934 edition,
21 title 5, sec. 132), is stricken out.
22
(b) No Executive order issued by the President under
23 the authority of subsection (a) of this section shall become
24 effective unless transmitted to the Congress within two years
25 from the date of the enactment of this Act.
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Federal Reserve Bank of St. Louis
3
TITLE II—BUDGETARY CONTROL
2
SEC. 201. Section 2 of the Budget and Accounting Act,
3 1921 (U. S. C., 1934 edition, title 31, sec. 2), is amended
4 by inserting after the word "including" the words "any
5 independent regulatory commission or board and".
6
7
TITLE III—THE DEPARTMENT OF WELFARE
SEc. 301. There shall be at the seat of government an
8 executive department to be known as the Department of
9 Welfare, and a Secretary of Welfare, who shall be the
10 head thereof, and shall be appointed by the President, by
11 and with the advice and consent of the Senate, and have a
12 tenure of office like that of the heads of the other executive
13 departments. Section 158 of the Revised Statutes, as
14 amended (U. S. C., 1934 edition, title 5, sec. 1), is amended
15 to include such Department and the provisions of title IV
16 of the Revised Statutes, including all Acts amendatory
17 and supplementary thereto, shall be applicable to such
18 Department.
19
SEC. 302. There shall be in the Department of Welfare
20 an Under Secretary of Welfare and two Assistant Secre21 taries of Welfare who shall be appointed by the President,
22 by and with the advice and consent of the Senate, and a
23 Solicitor, who shall be appointed by the Secretary of Wel24 fare, and all of whom shall exercise such functions as may
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Federal Reserve Bank of St. Louis
4
1 be prescribed by the Secretary of Welfare or required by
2 law.
SEC. 303. The Secretary of Welfare shall promote the
3
4 public health, safety, and sanitation; the protection of the
5 consumer; the cause of education ; the relief of unemploy6 ment and of the hardship and suffering caused thereby; the
7 relief of the needy and distressed; the assistance and benefits
8 of the aged and the relief and vocational rehabilitation of the
9 physically disabled; and in general shall coordinate and pro-
10 mote public health, education, and welfare activities.
SEC. 304. The Secretary of Welfare shall cause a seal
11
12 of office to be made for his Department, of such device as
13 the President shall approve, and judicial notice shall be
14 taken of such seal.
SEC. 305. The Secretary of Welfare shall annually, at
15
16 the close of each fiscal year, make a report in writing to the
17 Congress, giving an account of all money received and ex-
-18 pended by him and his Department and describing the work
19 done by the Department. He shall also from time to time
20
make such special investigations and reports as he may be
21 required to make by the President, or by the Congress, or
22 as he himself may deem necessary.
23
24
TITLE TV—GENERAL PROVISIONS
SEC. 401. There is authorized to be appropriated, out
25 of any money in the Treasury not otherwise appropriated,
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Federal Reserve Bank of St. Louis
5
1 such sums as may be necessary to carry out the provisions
2 of this Act.
3
SEC. 402. This Act may be cited as the "Reorganiza-
4 tion Act of 1937".
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Union Calendar No. 550
75TH
1ST
SESSION
CONGRESS}
H• R• 8202
[Report No. 1487]
A BILL
To provide for the reorganization of agencies
of the Government, to establish the Department of Welfare, and for other purposes.
By Mr. WARREN
AUGUST 10, 1937
Committed to the Committee of the Whole House on
the state of the Union and ordered to be printed
312-'*°\
75TH CONGRESS 1. HOUSE OF REPRESENTATIVES j
1st Session
J
t
f'
REPbRT
No. 1487
REORGANIZATION OF EXECUTIVE DEPARTMENTS, ESTABLISHMENT OF DEPARTMENT OF WELFARE
AUGUST
10,
1937.—Committed to the Committee of the Whole House on the
state of the Union and ordered to be printed
Mr. COCHRAN, from the Select Committee on Government Organizations, submitted the following
REPORT
[To accompany H. R. 8202]
The Select Committee on Government Organization, to whom was
referred the bill (H. R. 8202) to provide for the reorganization of
agencies of the Government, to establish the Department of Welfare,
and for other purposes, having considered the same, report it back
to the House without amendment and recommend that the bill do
pass.
GENERAL STATEMENT
H. R.8202 reenacts title IV of the act of June 30, 1932, as amended,
with certain limitations and additions noted below. This title of
that act authoiized the President to investigate the wdsting organization of executive and administrative agencies of the Government,
and under policies and limitations set forth in the act to regroup,
consolidate, transfer, or abolish agencies and functions. Under that
act any Executive order issued under the authority of the act was
required to be submitted to the Congress while in session and did
not become effective until 60 days thereafter. Also the authority
granted to the President was limited to a period of 2 years from the
date of enactment. These limitations, as well as the others provided
in that act, are embodied in the bill.
Legislation authorizing administrative reorganization under policies
and limitations set forth by the Congress has been enacted previously
on a number of occasions. The Overman Act of May 20, 1918, is a
notable example. Similar authority WaS granted to the President in
connection with the creation of the Department of Commerce and
Labor in 1903 and the Veterans' Administration in 1930. In 1932
authority to reorganize was granted to President Hoover by the act
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Federal Reserve Bank of St. Louis
2
REORGANIZATION OF EXECUTIVE DEPARTMENTS
of June 30, 1932. This act, which was extended and amended on
March 3, 1933, and again on March 20, 1933, is reenacted by this
bill.
It is well recognized that administrative reorganization can be
brought about only by authorizing the Chief Executive to make the
- detailed investigations required, and under policies and limitations
set forth by the Congress, to carry into effect reorganization in the
interest of economy, efficiency, and the orderly conduct of the work
of the Government. The constitutional functions of the Congress
are exercised in the determination of the policies and limitations of
such reorganization, and the consideration of Executive orders before
they become effective. The detailed provisions are properly left to
the Executive.
The need for administrative reorganization and a reduction of the
administrative agencies of the Government is apparent to all. The
President's Committee on Administrative Management has testified
that there are at present in the Government 133 separate departments,
commissions, boards, authorities, and other agencies. This multiplication of independent agencies defeats the ends of efficient and economical administration of the affairs of government. A thoroughgoing reorganization has been needed for years, and is more imperative now than ever before. Repeated efforts during the last 17
years by the Congress to enact the detailed reorganization have proved
to be futile. A considerable amount of reorganization was accomplished by the President under the authority of the act of June 30,
1932 before it expired, through the issuance of a number of Executive
orders, but the attention of the administration during this period was
necessarily turned to the urgent problems created by the disastrous
depression, and the real task of administrative reorganization had
to be postponed until a more favorable time. That time has now
come.
The authority granted to the President by this bill is considerably
less than that granted to him in previous legislation. His power to
make transfers affecting independent commissions and boards charged
by law with regulatory functions is strictly limited, though no such
limitation was provided in the 1932 act. The only authority granted
to the President with respect to the independent regulatory commissions and boards is that which will enable him to exercise a salutary
budgetary supervision over such agencies. This is necessaiy if we are
to have a sound budget applicable to all agencies of the Government.
Within recent years there has been a tendency of some independent
commissions and boards to regard themselves as above any budgetary
review by the President. This is contrary to the intent of the Budget
'and Accounting Act of 1921;it is contrary to the principle of Executive
responsibility to the Congress.
H. R. 8202 also creates a new Department of Welfare, which is
charged with the promotion of public health, education, and welfare
activities of the Government. The creation of this executive department is essential to an effective administrative reorganization. It has
been advocated and considered for years. There are numerous permanent agencies of the Government in this general field which do not
belong within any of the 10 existing executive departments. Unless
a welfare department is created, most of these agencies would have to
remain independent. The most urgently needed reorganizations
would thus be defeated.
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Federal Reserve Bank of St. Louis
REORGANIZATION OF EXECUTIVE DEPARTMENTS
3
. .
Administrative reorganization of the Government is a difficult and
complicated task. It cannot be accomplished without painstaking
investigation and careful deliberation. A thorough reorganization
will involve the consolidation and merging of similar or related activities to bring about greater economy of operation, more effective planning and responsibility, and the avoidance of unnecessary duplication.
It will require time. If it is to be done during this administration, the
President should be granted the necessary authority at this session
of the Congress.
ANALYSIS OF THE BILL
TITLE I. REORGANIZATION
Section 1 reenacts title IV of part II of the Legislative Appropriation Act,fiscal year 1933, as amended by section 16 of the act of March
3, 1933, and by title III of the act of March 20, 1933 (U. S. C., 1934
ed., title 5, secs. 124-132). In making this reenactment, this section
of the bill also makes the following amendments to the provisions of
title IV of that act:
(1) The first paragraph of section 401, as amended (U. S. C., 1934
ed., title 5, sec. 124), containing a general declaration of the existence
of an emergency due to an economic depression, is stricken out.
(2) The definition of the term "executive agency" contained in
section 402, as amended (U. S. C., 1934 ed., title 5, sec. 125), is
amended by inserting the words "corporation owned or controlled by
the United States". This amendment brings the Government corporations within the President's power of reorganization.
Section 402 is further amended by expressly excluding from the
meaning of the term "executive agency" certain designated independent regulatory commissions and boards, the Engineer Corps of the
United States Army, the Coast Guard, and the General Accounting
Office, except with respect to their functions of preparing estimates
of appropriations. As the result of this amendment, the President
will have no power under the bill to reorganize these agencies, other
than to transfer the function of preparing the estimates of the appropriations for such agencies.
(3) Section 409, as amended (U. S. C., 1934 ed., title 5, sec. 132),
is stricken out. This section prescribed the date of the expiration of
the President's authority under the old law.
Subsection (b) of section 1 of the bill provides that the President's
authority under the bill shall expire at the end of 2 years from the date
of its enactment.
TITLE II. BUDGETARY CONTROL
Section 201 amends section 2 of the Budget and Accounting Act,
1921 (U. S. C., 1934 ed., title 31, sec. 2), by inserting in the definition
of the term "department and establishment" the words "any independent regulatory commission or board and". Recently a number
of independent regula tory commissions and boards have taken the
position that they are not within the scope of the budgetary provisions of the Budget and Accounting Act, 1921. Although the provisions of that act were plainly intended to include them, the purpose
of this amendment is to remove any doubt on the subject by expressly
including within that act all independent regulatory commissions and
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Federal Reserve Bank of St. Louis
4
REORGANIZATION OF EXECUTIVE DEPARTMENTS
boards, such as, for example, the Interstate Commerce Cornmission
and the Federal Trade Commission.
TITLE III. THE DEPARTMENT OF WELFARE
Section 301 establishes an executive department to be known as the
-Department of Welfare, and creates the office of Secretary of Welfare.
Section 302 creates in the Department of Welfare an office of Under
Secretary, two offices of Assistant Secretaiy, and an office of Solicitor.
Section 303 describes the functions of the Secretary of Welfare. In
general, these functions relate to the coordination and promotion of
public health, education, and welfare activities.
Section 304 authorizes the Secretary of Welfare to adopt an official
seal for the Department of Welfare.
Section 305 requires the Secretary of Welfare to render to the
Congress an annual report upon matters concerning the Department
of Welfare, and contains other provisions regarding investigations
and reports by him.
TITLE IV. GENERAL PROVISIONS
Section 401 authorizes such appropriations as may be nece.ssary to
carry out the provisions of the bill.
Section 402 prescribes the short title of the bill.
CHANGES IN EXISTING LAW
In compliance with paragraph 2a of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the bill
are shown as follows (existing law proposed.to be omitted is enclosed
in black brackets; new matter is printed m italics; existing law in
-which no change is proposed is shown in roman):
(Legislative Appropriation Act, fiscal year 1933:)
TITLE IV. REORGANIZATION OF EXECUTIVE DEPARTMENTS
DECLARATION OF STANDARD
SEcTioN 401. [The Congress hereby declares that a serious emergency exists
by reason of the general economic depression; that it is imperative to reduce
drastically government expenditures; and that such reduction may be accomplished in great measure by proceeding immediately under the provisions of this
title.
[Accordingly, the] The President shall investigate the present organization of
all executive and administrative agencies of the Government and shall determine
what changes therein are necessary to accomplish the following purposes:
(a) To reduce expenditures to the fullest extent consistent with the efficient
operation of the Government;
(b) To increase the efficiency of the operations of the Government to the fullest
extent pra,cticable within the revenues;
(c) To group, coordinate, and consolidate executive and administrative agencies of the Government,as nearly as may be, according to major purposes;
(d) To reduce the number of such agencies by consolidating those having
similar functions under a single head, and by abolishing such agencies and/or
such functions thereof as may not be necessary for the efficient conduct of the
Government;
(e) To eliminate overlapping and duplication of effort; and
(f) To segregate regulatory agencies and functions from those of an administrative and executive character.
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Federal Reserve Bank of St. Louis
REORGANIZATION OF EXECUTIVE DEPARTMENTS
5
DEFINITION OF EXECUTIVE AGENCY
SEC. 402. When used in this Title, the term "executive agency" means any
commission, independent establishment, corporation owned or controlled by the
United States, board, bureau, division, service, or office in the executive branch
of the Government and, except as provided in section 403, includes the executive
departments [.] , but shall not include, except as to the function of preparing estimates of appropriaFons, the Interstate Commerce Commission, the Federal Trade
Commission, the Federal Power Commission, the Securities and Exchange Commis-sion, the Federal Communications Commission, the National Labor Relations Board,
the National Bituminous Coal Commistion, the 'United States Maritime Commission, the Engineer Corps of the United States Army, the Coast Guard, the General
Accounting Office, and the United States Tariff Commission.
POWER OF PRESIDENT
SEC. 403. Whenever the President, after investigation, shall find and declare
that any regrouping, consolidation, transfer, or abolition of any executive agency
or agencies and/or the functions thereof is necessary to accomplish any of the
purposes set forth in section 401 of this title, he may by Executive order—
(a) Transfer the whole or any part of any executive agency and/or the functions
thereof to the jurisdiction and control of any other executive agency;
(b) Consolidate the functions vested in any executive agency; or
(c) Abolish the whole or any part of any executive agency and/or the functions
thereof; and
(d) Designate and fix the name and functions of any consolidated activity or
executive agency and the title, powers, and duties of its executive head; except
that the President shall not have authority under this title to abolish or transfer
an executive department and/or all the functions thereof.
SEC. 404. The President's order directing any transfer, consolidation, or elimination under the provisions of this title shall also make provision for the transfer or
other disposition of the records, property (including. office equipment), and personnel, affected by such transfer, consolidation, or elinnnation. In any case of a
transfer or consolidation under the provisions of this title, the President's order
shall also make provision for the transfer of such unexpended balances of appropriations available for use in connection with the function or agency transferred
or consolidated, as he deems necessary by reason of.the transfer or consolidation,
for use in connection with the transferred or consolidated function or for the use
of the agency to which the transfer is made or of the agency resulting from such
consolidation.
SAVING PROVISIONS
SEC. 405. (a) All orders, rules, regulations, permits, or other privileges made,
issued, or granted by or in respect of any executive agency or function transferred
or consolidated with any other executive agency or function under the provisions
of this title, and in effect at the time of the transfer or consolidation, shall continue
in effect to the same extent as if such transfer or consolidation had not occurred,
until modified, superseded, or repealed.
(b) No suit, action, or other proceeding lawfully commenced by or against the
head of any executive agency or other officer of the United States, in his official
capacity or in relation to the discharge of his official duties, shall abate by reason
of any transfer of authority, power, and duties from one officer or executive agency
of the Government to another under the provisions of this title, but the court, on
motion or supplemental petition filed at any time within twelve months after
such transfer takes effect, showing a necessity for a survival of such suit, action,
or other proceeding to obtain a settlement of the questions involved, may allow
the same to be maintained by or against the head of the executive agency or other
officer of the United States to whom the authority, powers, and duties are
transferred.
(c) All laws relating to any executive agency or function transferred or consolidated with any other executive agency or function under the provisions of this
title, shall, in so far as such laws are not inapplicable, remain in full force and
effect, and shall be administered by the head of the executive agency to which the
transfer is made or with which the consolidation is effected.
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Federal Reserve Bank of St. Louis
6
REORGANIZATION OF EXECUTIVE DEPARTMENTS
WINDING UP AFFAIRS OF AGENCIES
function
SEC. 406. In the case of the elimination of any executive agency or
for
the President's order providing for such elimination shall make provision
the
winding up the affairs of the executive arncy eliminated or the affairs of
executive agency with respect to the functions eliminated, as the case may be.
EFFECTIVE DATE OF EXECUTIVE ORDER
the President makes an Executive order under the pro •
Whenever
407.
SEC.
visions of this title, such Executive order shall be submitted to the Congress while
in session and shall not become effective until after the expiration of sixty calendar
days after such transmission, unless Congress shall by law provide for an earlier
effective date of such Executive order or orders.
APPROPRIATIONS IMPOUNDED
SEC. 408. The appropriations or portions of appropriations unexpended by
reason of the operation of this title shall not be used for any purpose but shall be
impounded and returned to the Treasury.
[TERMINATION OF POWER
[SEc. 409. No Executive order issued by the President in pursuance of the
provisions of section 403 of this Title shall become effective unless transmitted
to the Congress within two years from the date of the enactment of this Act.]
provides
(Nom Sec. 1 (b) of H. R. 8202 contains a new provision, analogous to the old sec. 409, which
that all Executive orders must be submitted within 2 years after the enactment of H. R. 8202.)
(Budget and Accounting Act, 1921:)
SEC. 2. When used in this Act—
The terms "department and establishment" and "department or establishment" mean any executive department, independent commission, board, bureau,
office, agency, or other establishment of the Government, including any independent regulatory commissio-n or board and the municipal government of the
District of Columbia, but do not include the Legislative Branch of the Government or the Supreme Court of the United States;
The term "the Budget" means the Budget required by section 201 to be transmitted to Congress;
The term "Bureau" means the Bureau of the Budget;
The term "Director" means the Director of the Bureau of the Budget; and of
The t,erm "Assistant Director" means the Assistant Director of the Bureau
the Budget.
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Federal Reserve Bank of St. Louis
eta.r
BOARD OF GOVERNORS
_awn*
r-
6
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 23, 1937.
Subject:
Program for strengthening banking situations where such need is ineicatee 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 thu Board brought up for
discuseion the desirability, as a System matter, of working out programs to take care of any State member banks which may bc in a weakened condition or faced with such unfavorable nrospects Ls to raise
a question as to their future. In reality, such a concerted program
would be a continuation of the 1-ehrbilitation program begun ia the
summer of 193Z, with the difference thet, wherers the earlier phase
of the program was concerned primaril:y with the strengthening of the
capital position of the banks, tha current phase of the program,
while not ignoring the question of adeqaacy of capital or negLecting
effort, to obtain adjustments where needod, would be concerned primarily with the fundamental questicns of management and 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 thich, if any, banks are faced with serious difficulties, either
becnuse of an over-banked community, lack of economic justification
on any other grounds, inefficient managfment, or any other reaecn.
If u bank's difficulties are due to an inefricient man;ement,
every effort should be made to effect an improvement in the management.
Such a suggestion does not contemplate, of course, that the 1).eserve
banks are to attempt to run tie State :dember banks, select their managements, or dictate to the manacements. It eoes contemplate, however,
that, if a bank is suffering ;)ecause of management or its future appears uncertain on that account, the situation be brought clearly and
emphatically to the attention of the directors of the bank, and thut
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Federal Reserve Bank of St. Louis
•
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S-6
the directors be urgcd t3 fulfill their prinrry respensibility uf provirang a proper manwoment. In ouch situations it is feLt thct effrts should be made to enlist tne cooperation of the f,ppropriate
St',:te authorities, if they ere nct elrendy workirg on the problem. If
the dire:eters are unable or unwilling t4. nrovide adequate manegoment
in the circumstnnces, it wruld seem tnnt the Federal Reserve bank and
3tzte Tuthorities sneulc"' ccnsider cL,refulLy 7hethef the best interests
3f the depositcrs, the stockhelders, the comnunity itself, and the Fedel.L1 De2osit Insurance Corporation would not require that the bfInk be
abso2bed by some other institution or 1)1eed in voluntary liqui:flation
at -1 time when the deposits may be paid off without loss to the depositors or the Federal Leposit Insurance Corporation, end the stockholders
may :ret receive something on their ctock.
If the question is not cne of management, but of the lack of
besic justification for the existencc of the Lank, a similar progrm
fer absexption or voluntary liquidation would seem to be in order.
The suggested program invlvos, of course, cooperatim to the
fullcst extent b7 the F,derel Reserve banks, the State euthritjes, the
Ccmptruller of the Currency, the Federal Deposit InsurEnce Corpratien,
and the Reconstruction Finance Corporation where thet Corpor7tion is
interested, as situatims may indicate all manners of conEolidations or
morgcrs, State merl;Jr banc aith other Str.te member b'anks, with national banks, ur with insured nonnember banks, or any other combination of
the thre classes of b'laks; perhaps even tlie orgenization of a new bank
to assame the liabilities of existing institutions. In this connection
you rie familiar with the fact that the Federal reposit Insurance CorDurqtion has m:dc a numno-r of absorptions possible through loons on
unt.cceptable assets, ancl it shou3d be noted that the right of the Federnl Leposit Insurance Corporation to purchase assets or mak,- such loans
e:vtires July
1939.
The Board appreciates the fact that, working along the lines
dircussed in tl-is letter, the Feder9.1 Reserve banks have been instrumental in a number of cases in bringing about mergers and effecting
changos in mangemeats, and that in other c.2ses tha 116serve banks are
worKing on d€.fini_te progr'ims to improvc existing banking situations.
It ic blicAred, hot,3ver, that intensification of efforts Llong these
and a d,:velopment of a prop-ram for the Eystem as e whole is highly
desirable.
It is requt:stod that a report
submitted to the Board by Septomber 1, 1937, as to thE results of tne survey, the accomplishments
t: drlte, and the status of Each of the other cases 'Ahere it is felt
that action of some kind or degre along the lines discussed is desiraLle. in acking for a reprrt by September L, it is realized, of course,
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Federal Reserve Bank of St. Louis
r•
that consideroble time will be necessary in working out some of
the individua3 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 boen satisfactorily adjusted by that time.
Very truly yours,
)--y)0-v&t:ef
Chester Morrill,
Secretary.
TO ALL PRESIDENTS
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Federal Reserve Bank of St. Louis
)
C
i )1„,
0*, i
June 1, 1957
MR. PAULGER
Correspondence Files on
Mr. Hostrup
National Benke
is you 'mow, in analyzing examination reports of national banks in
oonnection with voting permit matters, we have always requestel the Comptroller's
oorreipondence filee regarding the banks under anal,ysis. Recently I was informed by Mr. Bartz that the Comptroller's file room had discontinued furniahing the correspondence file& with the examination reports. So Nit' as I know
we have not been informed as to apy particular reasons for the discontinuance
but it may be presumed t'-tat the Comptroller's office has in tie past soffered
some inconvenience because of having their files held out too long, not only
by us but possibly also by the R4r.c. and the F.D.I.C.
In working up reviews of general voting permit cases, it is very
deeirable that we have access to the Comptroller's oorrespondence files on
national banks, with particular regard to t":le following matter whiee is quoted
from the suggested form for voting permit review memortneat
VII. CO5DITI3N AND MANAGEMENT OF .E:ANKS IN Tla GROUPt
(C) gaapliance_witil 'Paragraph _2 of agreement
(Notes This heading ap2lies only to subsidiary benks.
The discusmion
elow, in summary form, toe extent
which
tle
involved
have eliminated losses and
to
banks
depreciation shown in the latest available examination
reoorts, and for that reason there ehould be noted on
toe respective analysis raeets the information on VIE
point shown in the examination reports or in the &coolslanying correspondence files.)
In many cases the reporto of examination of national banks do not
show that the estimated losses have been eliminated, but such information fre-
quently apneRrs in the oorrespondence files in toc form of a letter from the
bank to the Comptroller of the Currency. Accordingly, this section of the review memoranda can not be completed satisfactorily in most caves unless the
correspondence is available to ue. (Incidentally, we freqoently stumble into
other useful information in t4e correspondence files - the examination reoort
does not always give us the whole story.)
It ee:ems to me that the section of the memorandum quoted above is
veAy important. The information on this point disclosed by the review mom.
ores& 1117 he very useful in determining the general policy to be followed in
ohecking up compliance by holding 'company affiliates witol paragraphs I wad t
of the general voting permit agreements, and it is therefore desirRble that
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Federal Reserve Bank of St. Louis
the memorands shor as much information as possible in thin regard.
I an 117.!ting Mis memorandum to you with t'ne th-mght that you
me, wish to discuss rith
Folger, or possibly Mr. Gough, ttle matter of
borrowing their oorresoondemee files. If the discontinuance of the practice
of furnishing the corresnondenes 'with examination reports is due to the
fact that their files helm been kept out too long in the last, I am sure
that it 'ill be satisfactory for our rourposes to hold then only a very short
time. We could, if socidimalr, wee that all oorrespondenCe files borrowed
from them will be returned within twenty—four !lours.
GL.d:EG
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Federal Reserve Bank of St. Louis
(COP!)
BOARD OF GOVIRNORS
OF THR
FEDERAL RFSERVI SYSTIN
rbicago, Ill.
October 27, 1957
Pvulger, Chief
Mr.
Division of Nominations,
Board of Governore of the 7,1ceral keserve Syetft
Washington, D. C.
Dear Mr. Paulger:
During the couroe of this examination I have talked with Nr.
Schaller and Mr. Young as to what the prospects were for receiving applications for membership in this distric, and I thought you might be
interested In their reactions.
Mr. Young stated that were it not for two factors, namely, bank
officer in Iowa and Vleconsin, and the apparent reluctance of the Federal Deposit Insurance Corporation to rolinquia ;All.ervision, a eiseable number of banks, all with good aaset condition, could be procurer4
as members.
The statutes governing the operations of bank offices in Iowa and
receiving statiomm in isconsin are attached
Ft,
a matter of information.
Although no effort hhs been made to interest banks operating officee in
membership in the Syntosi it is stated that officera of such banks have
in many cases volunteered the information that they would apply for assi.
bership if the law defining branches were amended to exclude bank offices
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Federal Reserve Bank of St. Louis
- 2-
and receiving stations. Mr. Schaller stated that
7,,---Ir:;-=,dent of
Banks of the State of Iowa recently told him that if this law was amended,
he could procure 55 umbers for the Chicsgo Aeserve Bank.
A$ to the attitude of the Federal Deposit Insurance Corporation
toward membership of insured State banks in the Syetem, L-r.. Young 'eels
that
(orperation is loath to pass over the supervision of tilch banks
and has adopted a policy of ineisting upon varirus requirements being
adhered to which are not insisted upon while the applicant bank ie under
the Coriporationts supervision.
An instance
WAV
gtven where e Corpora-
tion's examiner had classed approximPtely al9,000 of phper in the teak
of a prospective memb?..r as doubtfa and the ten to one ratio of capital
structure to teposits
VbX
out of line 117 approximately ::J5,000.
The Cor-
poration took the attitude that the bank should sell M.000 new capital
before being admitted to momberuhip notwithstanding the fact that subsequent to the filing of the Corporation examiner'a zeport,
J21111:111
Ihl
Dvarl:duiliaiduted jja1111, ancl in addition the bank wae known
to have title to certain parcels of good real ectr.te carried ae a nonbook asset having an estimated forced sale value in excess of 'i55,000 and
a potential value greatly in excess of that amount. (Nabash Valley Trust
Co., Peru, Ind.) .another example of the Corporation's attitude is shown
in the attached letter, which, of course, shows the Corporation to be exceedingly drastic as well au unreasonable in its demands.
Ur. Young ac-
knowledges the importance of the relation of capital structure to deposit
liability, but foils that in thr. case of a well managed bank with good
asset condition, the ten to one rule Ohould be flexible as a membership
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Federal Reserve Bank of St. Louis
•
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requirement and that if the Corporation would adopt ruch at attitude that
once banks are admitted to membership their capital ratios could, by proper
permasion and within a reasonable time, be brought within satisfactory
limits.
A list of nonmember banks which are reported to be well managedi in
good condition as to assets and eligible for membership except as to the
ratio of capital structure to deposits was reviewed with Mr. Young.
De-
posits of these banks ranged from 1'600,000 to '12,000,000 and in no case
did the capital ratio appear to be too far out of line to preclude membership or rectification within a rekisonable length of time. It was understood that there are 4P, inch nonmember harke with total depoeite of 0114,000,000 located in the following States.
State
No. of poseible
DrospeKtive members
Illinois
Ini'lana
Iowa
Michigsr
lAsconsin
9
8
10 *
0
15 *
Average deposAs
42,200,000
4,200,000
1,700,000
2,100,00C
2,100,000
* None of these banks operate offices or receiving statione.
Mr. Toeing has recently shorn le three lettere which h_e had received
within the pest few days from the rupervieing examiner of the Federal Deposit Insurance Corporation at Madison, wisconsin, offering ieormation
frost hiE files in regare to prospectivP members, are I gathere41 that Mr.
Taming considers this a notable advance on the part of the Corporation
toward cooperation with the Reserve Bank.
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Federal Reserve Bank of St. Louis
Very truly youre,
(SIGNED)
L. A. A. Sieme
Federal Reserve Examiner.
;el
Form F. R. 131
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
From
Messrs. BlAimer, Dreibelbis,
Tingfield, Thurston, and Bryan
C. E. Cagle
Date November 1 , 1937.
Subject:
On page 1 of American Banker, November 13, 1937, arpears an article
headlined:
"F. R. Regulations on Purcl'ases of Securities Proven Sound -
J. F. T. O'Connor".
The article anpearing thereunder, dated El Paso, Texas, November
12, starts off:
"The Federal Reserve Board's regulations governing the
purchase of investment securities by national and State member banks have
been proved sound in the light of decline of the bond market, Comptroller
of the Currency J. F. T. O'Connor declared today, in an address to a bankers'
meeting here".
Further poragraphs in the article itself do not show that such regulations are issued by the Comptroller Of the Currency, not the Federal Reserve Board. In all probability the Conptroller's speech made very clear
that his office promulgated the regulations.
This seems to be a very good illustration of the confusion which
arises out of a lack of system of Federal bank surervision under at least
three Federal agencies.
If intelligent and accurate reporters and editors of such an outstanding organ as the American Banker are unable to distinguish between the
actions and responsibilities of the respective Federal supervisory agencies
and print such front-page articles as above indicated, is it to be
expected
themselves,
that the general public, and possibly a large number of bankers
to arpeal to
would not bqo confused at times with respect to which agencies
responsibility for
for counsel, advice, or assistance or upon which to place
failure to exercise proper supervision?
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Federal Reserve Bank of St. Louis
Form F. R. 131
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To _
Mr. Blattner
From
C. E. Cagle
Date Noveaber
Subject:
, 193'7_
\c_
The draft of letter to Presideat Hamiltoa at Kansas City, replyiag to letter dated October 26, 1937, from C. K. Suderman, vice
president of the Midland National Bank, Newton, Kansas, addressed
to the
Comptroller of the Curr,,ncy and referred to the Board of
Goveraors for
reply, illustrates three points which have been consid
ered in the bank
suspension study; namely, (1) lost motion by the superv
isory authoriies,
(2) confusion to bankers, Irld (3) the diffic
ulty or impossibility of
coveriag in the laws or regulations every little
detail with respect to
the operations of a bank, emphasizing the
common sense in the recommendation that the supervisory authorities be given
brol3d authority to
examine and su?ervise banks in the light of sound
banking
'—
rather than in accordaace with technical, legal defiai
tions and restrictions or limitations which are often easily evaded by
certain types of
people, both baakers and supervisory authorities.
The principal facts in this case may be briefly
summarized as
follows:
three executive officers of the bank owned 650
of the 800 shares
of common stock of the corporation until Januar
y 1939, when they transferred to their wives all of their holdings
except about 25 per cent of
their combined holdings, leaving them the
malt);
shareholders.
It is
' now proposed to change the corporation
into a partnership, ostensibly for
the purpose of avoiding certaia taxes.
In all probability the corporation h
s been and is under the
real ownership and control of the three execut
ive officers, and doubtless
the company, as a partnership, will contin
ue to occupy the same position.
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Federal Reserve Bank of St. Louis
December 1, 1937.
19MMORANDITY
When Mr. Suderman Eets the reply to nis letter, if as per the
'ila-LaA4laki
draft modified as suggested by lia4-410effleter44c memorandum, he may or may
not write back to the Board, depending upon rhether he wants to reach
his own conclusion as to the transfer beinE bona fide, etc.
If he de-
cides to write back to the Board setting forth any additional facts
thich are not definitely requested, he may expect to get a reply thereto
by the Board.
It would seem, under the present set-ur, that it vould
be proper for the Comptroller of the Currency to make the ruling pursuant to the nossible next reouest by Mr. Suderman inasmuch as a
national bank is involved.
The Board's letter is regarded here as en interpretation of
the regulation which the Board was responsible for making, pursuant
to the lew.
In the case of national banks, it does not quite seem
proper, and certeinly should not be a definite responsibility, for the
Board to rule on specific cases because such rulinE would require the
Board to accept the statements made by the complainant or make its own
investiEation of the facts.
The Comptroller of the Currency's examiners
are in a position to make such investigt,tion of the facts in this
particular case,
63
in the case of all othor national banks which are
deemed to be necessary.
However, it is obvious that the Comptroller of the Currency might
not be quite satisfied with the Board merely actin
as an interpretatRr
in the case and at the same time placing upon the Comptroller the
responsibility for actually makinE the ruling.
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Federal Reserve Bank of St. Louis
Certeinly the banker can not fully understand such a situation.
Proposed reply to letter of October 26 from the Midland National
Rank, Newton, Kansas, re Reguletion O.
December 1, 1937.
NR. PAULGM:
It is sugg4sted that somethina like the following be substituted
for all but the first two sentences of the next to the last paragrnph:
"Therefore, the provisions of the ',2i,ordi a Reguletion 0, issued
pursuant to section 22(A), are not mplicable to loans to a
partnership in which executive officers of
bank do not in
feet own a mejority interest. In the C8S9 under consideration,
the questien ef whether the discounts for the financins company
after its csnversion into a partnership will come under the provisions of section 22(g) and the Boerd's Regulation 0 will depend upon whether the transfer by the executive officers of a
substentiel part of their interests to their wives is en ectual
bona fide transfer. A mere transfer for record purposes uneer arrangements whereby the executive officers actually retein th., majority
interest ir the partnership roulu not be sufficient, in the opinion
of the Board, to exempt loans to the partnership from the provisions
of section 2210 and the Boerd's Regulation O."
The principal reasons for the essisted chlui6e
1. A definits rulina has been resulsted in a specific cese an it
would seem that P rulinca 6r interpretetion is les order ens not a
mere *no objection."
E. Th9 Law clearly states thnt section 2264) does not apply to
loans to e nertnership in which executive officers have less than
a mejority interest. 'billy shouldn't we say that if in fact the
esecutive officers do own less than
majority interest, the Board's
reauletion likewlse is not applicable.
3. It *does not seem thst a substantial increase in tha renount of
pnper discounted by the bank for ths financina institution has a
hearing on the question of whether ths discounts are subject to the
provisions of section 22(g).
4. As drafted, the letter mivht be reearded as extendina a special
fevor in this case which would not be extended to others in similar
circumstances.
Incidentally, an officer of r national bent writes to the Comptroller
of the Currency for a ruling pertainina to the operations of e nntionel bank.
The Cemptroller refers the inquiry to the Rot:4rd and so edvises the officer
of the netionel bnnk. The Board edvisos the officer thnt it has received
the inquiry and will. eive it consideration. Eventuelly the Federal Reserve
Bank of Kansas City will answer the question. Is this anothsr ride on the
*Washington Merry-go-round?" In the circumstances, wouldn't it be better
for the Board to reply direct to the officer of the national bps:1k?
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Federal Reserve Bank of St. Louis
RFL
CEC
irli4rm F. R. 131
BOARD OF GOVERNORS
0 F TH E
FEDERAL RESERVE SYSTEM
Office Correspondence
T.
Mr. Blattner
From
Date December 1Fr, 1937.
Subject:
C. E. Cacle
,
Illustrative of the exdence, trouble, and confusion inciOent to
the continuation of more than one Federal bank supervisory acency in
Washinr!ton is the proposed letter attached to the file "430.201 - Durfee,
B.M.C., Trust Company, Fall River, Massachusetts".
The letter deals —ith the liberalization of Form 220B, affiliate
reports.
The answer vas drafted apparently some time ago and had been
initialed by six of the Board's staff (some of them bigwigs) when it
TES
withdrawn from circulation and amended, apparently around December 9, as
indicated by Mr. Wingfield's memorandum to the files.
As oriJinally drafted, the letter contained no reference to a note,
secured in part by Government bonds, being exempted to the extent of the
security.
Before reaching the oriEinal conclusion, the Comptroller of the
Currency had been invited, under date of September 9, to indicte his
willingness to participate in a conference and discussion of the matter.
He replied on September 15 that he was willing and auggested that the
Board's staff fix a date.
This was done and several representatives from
the Comjtroller's office were invited down on the fixed date and after
wrangling
a
conclusion
VaiS
reached and proper correspondence passed be-
tween the Board and the Comptroller's office as to the definite conclusion
being agreeable to both offices.
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Federal Reserve Bank of St. Louis
k
Yr. Blattner - (2)
December 13, 1937.
Subsequent to that, before any rulings had been sent out, someone
conceived the idea of amending the conclusion or the interpretation thereof.
This necessitated resubmitting the matter to the Comptroller's office for
agreement.
The Comptroller indicated the change wlas satisfactory to him
and now perhaps the final conclusion can be sent out, unless someone else
gets a brain storm.
I notice from the file that Mr. Smead wrote a memorandum to the
Board under date of August 5 recommending that the Comptroller's office
be asked to discuss the matter.
The letter actually rent out September 9.
After the Comptroller replied that he would be agreeable to conferences,
a conference between several of the Board's staff and several of the
Comptroller's staff evidently was arranged.
This whole case started away back in 1936, predicated upon a note
attached to Schedule 0 which the bank submitted as of June 30, 1936, stating
that it did not regard the com2anies mentioned as affiliates.
After much wTengling, the bank reached the conclusion th2t it would
withdraw from membership before it would publish reports of the affiliates
which were borrowing heavily, but secured entirely by Government bonds.
The excess loans did not constitute a violation but failure to publish
reports a)parently did.
The bank finally indicated thLt it would not with-
draw from membership but would wait to be kicked out.
The files indicate
that the only grounds for kicking the bank out of membership woulc be the
failure to submit or publish affiliate reports because of loans by the bank
to the affiliates secured entirely by Government bonds when the affiliation
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Federal Reserve Bank of St. Louis
Mr. Blattner - (3)
December 13, 1937.
was due entirely to a majority of the small boards of directors of the
companies being also members of the large board of directors of the trust
com:pany.
Incidentally, the president of the bank seemed to be tied into
most of the affiliates and his family name was also involved in most if
not all of them.
The corporations had very small boards.
This illustrates my contention that in many cases the chailman,
the president, and a vice president of a bank, all of whom would be on
its board,ceuld constitute the board of directors of en affiliate
which
might be borrowing heavily from the bank by virtue of the large extent
of
control of credit policies of the bankLI
"
;4 -Y1 !
The amendment as drafted exempting the affiliate in case the interlockinf
,directorates do not constitute more than one-fourth of the directors of the bank appears to me to be largely theoretic
al.
I also fail to
see much logic in waiving affiliate reports where advances
are secured by
Government bonds rhen advances secured by equally good State,
municipal,
or American Tel. & Tel. bonds or stable commodities are not likewise
exampted.
Of course, it appears to be a desire lf,az all Federal bank super-
visory agencies to give preference to Government bonds end give no consideration to State or industrial bonds or other readily marketabl
e
collateral.
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Federal Reserve Bank of St. Louis
DEPARTfENT OF BANKING ) REGULATIONS
OFFICE OF THE SIPERINTENDENT OF RA7KING )
\CD
By virtue of the authority vested in and responsibility imposed. tr;
him by Section 9140 of Chapter 412 of the 1935 Code of Iowa, and in order to
pramotto mere efficient banking, better protect the interest of depositors.
creditors, stockholders, and the public, and facilitate examinations, the
following regulAtions are issued by the Superintendent of Banking, with the
approval of the State Banking Board, effective Janlar) L 1938.
11REGULATION 1 - BOOKS AND RECORDS:
In addition to the usual and customary books and records kept by
Af.r.11 hftnk, the following are required to be kept:
A. A permanent record must be kept of all securitles bought or
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Federal Reserve Bank of St. Louis
sold. Also there must be retained for review by Examiners,
all original invoices of purchases and sales of securities.
The record must show dates of purchases and sales, interest
rates. maturities. par value, cost value. all write ups or
write downs, a full description of the security, from Whom
Tmrchased, to whom sold, selling price. and when, where and
why pledged or deposited.
A permanent daily record must be kept of all Cash Items held
aver from the day's business, including all checks that wouia
cause an overdraft if handled in the regular way.
Items
drawn on banks in same city or.tovn with your bank and held
for clearance the following day are not included in the
above requirement.
C. All checks shall be charged to the proper account upon tsio Aso.
honored and a permanent daily record suet be kept of all
overdrafts created. An overdraft is an illegal extensien of
credit and the courtesy should be grantqd only in extremely
deserving cases, and at no time shall the aggregate amount et
overdrafts exceed $1.00 per $1,000.00 of ths bank's deposits.
7( REGULATION 2.CREDIT INFORMATIONI
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Federal Reserve Bank of St. Louis
A. Financial statements, properly certified, mmst be on file from
those directly liable to the bank in an amount in excess af
$500.00 which obligations are unsecured, or figured only by
endorsements. This applies, also to the endorser rhers such
endorsements are the basis of credit. Such financial statements
shall be revised or renewed upon renewal or extension of the
obligation and no financial statement shall be acceptable as
reflecting the financial condition of a borrower at tho expiration
of 12 msmths from its date. Inure the endorser is a person of
well.bnown finansial standing, a statement signed by three members
of the Executive Committee, eetimating his worth, will be
acceptable in lieu of a financial statement.
B. All real estate given as security to loans of W0.00 or over,
whether direotly 9r indirectly plodged, mmst be appraised either
by the ixecutive or Loan Committee, er by not less than two
persons familiar with real estate values in the community whore
the property is located. This appraisal must be in writing,
must be dated, must be signed by at least two of the committee
-2-
or two outside appraisers and be on file in the bank. The
appraisal must state the amount of the loan, asselett of prior
liens as disclosed by the attorney's title certificate, the
assessed value of the property, value of improvements thereon,
insurance carried, and taxes due, and should describe the
property so it may be easily idsntified.
C. An abstract of title, ototInuot, to dsto dhowing position of
such loan„ must accompany each deed of truAt or mortgage given
as security for loans held by the bank.
D.
Where stock certificates, or similar seeurities, are accepted
as collateral to loans, they must be endorsed and witnessed
in ink, or accompanied by a power of attorney signed and
witnessed Ln ink. Where such collateral is in the name of
another than the maker or endorser of the note, there must be
on file in tho bank written authority from the owner permitting
tho hypothecation of the collateral.
Loans made directly to aarporations must be supported by
aertified copies of resolutions of the Board of Directors of
the corporation, authorising the making of such loans.
F.
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Federal Reserve Bank of St. Louis
!Anti
made directly to partnerships, unless all partners sign
the note, must be supported by a declaration by the partners
showing the composition of the partnership and the proportionate
part owned by each partner.
G. Full eredit information on all unlisted securities, now
awned or hereafter purchased or tevirel must be secured
ate, kept on file in the bank.
.3.
REGULATION 3
MANAGEMENT:
The Laard of Directira of each State Bank, Savings Bank or Trust
Company organised under the laws of Tows, are hereby required to conform tr
and cotply with the following rules and regulations:
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Federal Reserve Bank of St. Louis
A.
Shall employ only competent and reliable officers and employees.
and shall be directly responsible to the Superinterient of
Banking for compliance with this regulation.
B.
Mall at all times meintain safe, sound and conserviAtive policies
in the inlystment program and the general conduct of the bank's
affairs, and whenever in the opinion of the Superintendent of
Banking, an unsafe or tr6und practice or policy exists, failure
upon request
.1;t17 and satir..te3trtrily correct will be
consil'ered a violation of the provisions of Section 9224 of the
Code oi Iowa.
C„
Shall promptly remove any officer or employee whenever such
,,L.ertion is necessary under Regulation 3-8 or whenever in the
c..tnion of the Superintendent of Banking the continued employment
of said officer or employs* causes or contributes to an unsafe
or unsound condition ar practice in the bank.
D. Shall adopt a fair schedule of service Charges, using the Code
of charges recommended and promulgated by the Iowa Bankers'
Association as the beets. 3sid schedule to he adopted without
delay - and become effective not later than January 1, 1938.
rieht to make an erctlrtion to this regulation is reelrve0
provided any State
satisfectorily slim it hme direct
4
competition with a National or Private Bank which will not adopt
a fair service charge schedule.
E. Shall be rosponsible for strict compliance with the following
provisions of tho 1935 Code of Iowa:
Soction 9219
f:ection 9220
-relating to Officers' and Directors' Compemsat or
-relating to Authority for Directors' or Offirlers
Loans.
Section 9223
-relating to Limitations upon Loans.
Section 9224-cl -relating to Examining Committee Reports.
Section 9283-cl.relating to Authority for Officers ar Emplgeos
to engage in other business for remunerat,n,
..
F. Dizre,Tard or violation of any of the foregoing sections of the
::!ode will be considerod as causing or contrtbuting to an unsafe
or unsound condition under Regulations 3-B and 3-C.
G. The Examining Committee shall have access to the last Examiner's
Report whethor made by this Department or the Federal Deposit
Insurance Corporation, upon each occasion of its examination of
the affairs of the bank.
H. No State Bank, Savings Bank or Trust Company shall hereafter be
granted a Charter unless its capital shall be sufficient to
qualify it for membership in the Federal Deposit Insurance
Corporation.
Vo State Bank, Savings Bank or Trust Company shall hereafter
contract to purchase, lease, erect or equip a building for
banking use ure'l cc”lsent of the Superintendent of Banking
i) In”eg',„3rit of capital funds has been obtained.
Z.ne purchase)
speculative or defaulted bonds shall constit,;te
an unsound practice under sub.division "B" and "C" of this
regulation.
witness my hand and official seal this 26th day of November, 1937,
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Federal Reserve Bank of St. Louis
Superintendo.tt of BankiLg
Memorandum to Examinersillkiewina,,Re•ports of Examinatial. Analyses Thereof
The Federal Reserve Board is deeply concerned in seeing that the State merkper
'1%phks are bein
operated in a conservative manner and arc in sound condition,and
this connection, the following paragraphs arc iuotect from the Board's letter of
July 26, 1930, X-6665, with regard to thu .dolicy of the Board in respect to the
examination of member banks:
"If the Federal reserve agent has evidence in the form of letters
or otherwise, that officers and directore of State member banks have
had their attention called to violations of the law und une:ound banking practices by State authorities, it is not necessary for the agent
to duplicate this work.
"If this supervision is not conducted by State uuthorities the
Federal reserve agent is directed to take such action, as in his opinion,
will discharge the responsibilities of the Board.
"When a State member benk fails to correct irregularities within
a reasonable time so as to show material improvement in its condition,
the Federal reserve agent will be expected to lay the information before
the directors of his bank and ask them to mAce u formal recommendation
to the Federal Reserve Board, with reasons, as to whether or not the
State member bank should continue as u member."
Inasmuch as the Foderra Reserve Board is not the immediute supervisory e_uthority of State member banks, necessary correspondence prepared in connection with
the review of reports of examintetion or analyses thereof should not at this time
attempt to cover minor matters of criticism which do not affect the sound condition
of the bank.
Correspondence in general should cover only those points upon which
the Federal Reserve Agent should obtain correction.
The Board has a definite responsibility in seeing thut the provisions of the
Federal Reserve Act, the Banking Act of 1933, the Regulations of the Federal Reserve
Board, and the conditions of membership are being complied with.
The Board also is
desirous that State member banks are operated in accordance with the laws of the
State.
Accordingly, violations of the laws under which the bank is operating,
regulations of the Board, or of the conditions of membership, should be made the
subject of correspondence.
The Board has frequently taken the position, and so expressed itself in writing, that a bank's statement should reflect the true condition of the bank and that
losses
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Federal Reserve Bank of St. Louis
should be eliminated from the bank's assets, and in cases where
1.1014
- 2estimated losses are of any i:iiportance, information shcuh,
developed as tp the
action taken by the bank with respect to their elimination,
and, if satisfactory
disposition has not been made, the Federal Reserve Agent should be requested to
endeavor to obtain correction.
When a bank is in a generally satisfactxy condition and estilaLted losses are
relatively small and are covered by undivided prufits and/or applicable reserves,
kt will not
bc necessary to v,rite specially regarding the disiJositiAl ef zuch losses.
If, however, in such cases, other points are tu bu covered in the currespendence,
the question as to thu fcti)n taken in respect t, the elimination of losses may
properly be included.
In connection with the elimination of losses, the Board has not considered
that a reserve for losses, shown in published statements as a part of the capital
structure, is a proper offset against assets which should be eliminated.
Such
reserves are proper provision only for future losses.
Section 30 of the Banking Act places a definite responsibility upon the Federal Reserve Agents for preventing directors or officers of a State member bank
from violating any law relating to such bank or from engnging in unsafe or unsound
practices in the conduct of the bank's business.
Section 4 of the Federal Reserve
Act requires that Federal Reserve banks shall keep themselves informed of the generai
credit policy of its member banks and requires the chairmen of the Federn1 reserve
banks to report to the Board any undue use of bank credits for speculative purposes
or for any other purpose inconsistent with the maintenance of sound credit conditions.
These sections, particularly, should be kept in mind in revielidng reports.
Whether or not correspondence should be prepared, of course, is a matter of
judgment and no definite rules can be laid down.
It is advisable, however, so far
as possible, to limit the discussion in the letters to the importnt points,such as
Losses
Violations
Unsafe and unsound practices.
In many cases it may be advisable, after discussing the major matters, to
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Federal Reserve Bank of St. Louis
6
•
•
- 3 -
ask the Agent in his reply to reloort en the corroctic,n
which have been iride in
the other unsatisfactory features.
R. 2. L.
April 14, 1934.
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Federal Reserve Bank of St. Louis
FEDERAL RESEEVE BANK OF SAN FFANCISCO
February 26, 1934
Mr. I. L. Smead,
Chief, Division of Bank Operations,
liederal Reserve Board,
Washington, D. C.
Dear Ir. Smead:
I have been reviewing the variety of conditions under whirr)
,
there have been granted admission to membership in the Federal Res(
tem, temporary voting permits, and authority to reduce common stock.
It is noticed that the requirements pertaining to the writingoff of criticized assets vary (mite considerably. I have before me three
cases, for instance:
No. 1 requires the removal of
(a) depreciation in securities not in the four hij-hest Frade:;
(b) doubtful assets.
(This pertains to reouest for a voting permit
as well as permission to reduce common stock
following the issuance of oreferree.)
No.
reouires the removal of
(a) depreciation in securities not in the four hiEhest grades;
dors not reouire the removal of
t3) doubtful assets.
No. 3 does not require the removal either of
(a) depreciation in securities not in the four hip-hLL
(b) doubtful assets.
The most liberal trettment appears to have been accorded the Iasi
mentioned, which
a large bank in bad condition.
It would simplify the difficulties of
under which btate banks may become members, or the
of capital stock or voting permits, if some system
removal of deoreciation in securities in the lower
assets and losses.
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Federal Reserve Bank of St. Louis
those orescribing conditions
conditions governin reductiu
were devised for the autompti
grades as Tell es
If this were done, banks not asking for admission to membership,
151(15
ivir. ,
E L. Smead - - 2
February 26, 1934
voting permits or capital reduction, would be governed by the same set of
rules.
The best ray to solve the nroblem and to remove particularly
the possible charge of discrimination would be to have call re')orts and
published statements prepared in such manner es to reclaire elimination of
assets of the character herein discussed. Bankr which consistently resist
examiners and supervisors would have to ponder the elimination of bad assets
or subject themselves to the conseeuences of publishing false statements of
condition.
Yours very truly,
(sgd.) Ira Clerk
Deputy Governor.
1,7
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Federal Reserve Bank of St. Louis
\I
\ (1
Januery
1,111
144 '
Capital Motes Pullman State Bank,
WashIneton
Mr, Paulgoer
lir. Cagle
Lf. I
This relater to the c(mtents of
b.
letter signed by George H. Gannon,
Cashier ef the Pullman State Bank, dated December 18, 19315, wherein it is
proposed that 480,000 of capital notes sold to the R. F. C. ere to be
included in eurplus and reserves on the boAo and publiehed statementa of
that beak•
Prom the corresondence it appears that this method of uhowing the
capital notes ir resorted to an account of the feet thet the Aate Supervisor
of Banking, under advice of his attorney general, her decided that e reduction
in the common cajtal in not neceesery or deeirable and that the debentures
may be included in the caAtal structure without increeping the total stated
value of the ce.:itel account on the statements.
In connection with the Spokane end Eastern Truet Company voting permit
case (a purt of' the Northwest Bancor2oration grcup), the question af including
caelitel notes az a part of the capital account of the bank without reducing the
par velue of the shares outstanding vas raised and discussed et considerable
length with Me. Thomson, President of Northwest Nanwerporation, his General
Counsel, and the President of the SpOhane hank, These gentlemen did coneidere.
able telephoning to the authorities in leshingten on this object before anyrecommendations with respect to e voting permit were sent by the Division of
Examinetiona to the Board. It
irb$
decided that the Spokane and Eastern Trust
Comny wauld be required to reduce the number of shares of common stock outstanding so that the total amount of capitel shown on its bookm end ito
published statements, consistIng of capital metes and the remaining common
stook, would be equivalent to the par value ef tbe eortificates issued ,
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Federal Reserve Bank of St. Louis
irt,4116
Ars ?tulger - 2
V26/r4
‹.n0 ,Yutstanding. This was contrary to the rulinfe and Arne of the Supervisor
(Jf BAnkinv in the State of Washington.
La the Pullman State Mak cue et heed the groposal, evidentlx sanctioned
by the State Supervieor of Bonking, whereby the liability for the oapital notes
is to be hidden in rumbas anki reserves is, in my opinion, a much m:)re serious
misstatement or false statement than the original ilroposal in the Epokane case,
where the capital notes nee to be included in the eapital *comet with en
explanatory footnote. In the Pullman case
person readimg the published state-
ment would naturally be mislead by the comparatively large overstatement of
sur,lus and reserves, their proposition being to not *barge off any items of
Moe or de,xeciztion at thf present time resulting In a total showing of sur,lue
undivided profits and reserves of t70,00k), which a:lount includes the
tS0,0 1 of capital notes sold to the R. F. C. If there are $50,000 of losses
in tab. emote of the Pullman State Bank which are not chx,rged off, there exists
an impairment of capital to the extent of 1150,000, there being $100000 of
capital cartifioates and notes outetanding as compared with '120000 capital
structure accounts, lose $150,000 of lossee not deducted. Thie is the raw
amount of capitol impairmemt as would be shown by the statement if the ct2ital
notee were set u
therein and the $5.),000 of losses were charged out of the
.iialance sheet, resulting La a change of surplua from $20,000, as it existed
before the sale of the capital notes, to a $50,000 "red" balance in surplus.
If the State bupervisor of Banking does not desire the shares of comion
stook to be reduced an account of the double lihbility feature, which ie
regarded as adding strength to the bank, then shatever strength there is in the
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Federal Reserve Bank of St. Louis
Mr. Paulger - 3
ita/
doable liability feature should be called upon, instead of reeortinF to the
sales of capital notcs to replenish tha capitol accounts.
Amy sanction of the plan indicated in Mr. Gennones letter of December leth
would involve the sanction of
1. continuance of an impaired copital,
2. conceament of im,
,)aired capital,
3. false understatement of a future liability
(if not present),
4. false avsestatsmsat of surplus aseammt,
and amy statement showing the capital acesaats as proposed in the letter woule
be grossly misleading to a ?roapective purchLs-r of the stock, ?resent kale
prospective depositors, and the public in general.
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Federal Reserve Bank of St. Louis
The following paragraph was contained in a letter
from Governor Eccles to Governor W. I. Myers of the Farm Credit
Administration under date of June 17, 1935:
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Federal Reserve Bank of St. Louis
"As you know, under the existing multiplicity
of supervision to vthich the banks of this country are sub—
jected, there is a natural feeling on the part of the banks
that they are being 'reported to death'.
It is hoped that,
through a uniform report, banks can furnish more vcorth
while information hereafter and with less time and effort
than heretofore, particularly if there is no duplication
in the forms of reports submitted to the various super—
visory authorities."
Aerof
1
74i_r 44f.ti
/pat
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Federal Reserve Bank of St. Louis
.3,644uttc
•
1508
TI12.,:s':
. HOR.IrTT
DR.21737:1B IS
SOL01.10N
BLA.T.Tiv72.
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Federal Reserve Bank of St. Louis
Study
/
1
/o/1/
00-ORMIATI4
9.1 Ma& BANKM
APICIR4
Al Egencies are to be
Assuming that all bankine functions of reder
the Peder-1
centered in a single Federal authority. preemmably
der the following:
Reserve Board (or some substitute agency) - consi
1.
2.
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Federal Reserve Bank of St. Louis
the Ifederal Reserve
tstablish TDIC as An agency subordin,Ae to
the sole nurcose
for
up
set
cial
Board but with separate finan
:
funds
ance
of administering derosit insur
a.
rOrganize deposit insvrance on district basis, cente
.
ing in the iieserve BRuks
b.
sion
Tstablish district tneurknce funds with some provi
.
funds
for re-insurRnce Ell between
&R an agency of tne
Xstablish a Federal management corporation
cial set up
Federal Reserve Board Out with a separate finan
for the yurpose of:
a.
b.
c.
d.
o.
andTaking over the banking activities of RIC (and outst
delilui
to
view
a
with
s)
tment
ing bank loans and inves
tion or continuance.
ve
Conducting authorised activities of Federal Reser
etc.
in field of industrial loans. 10B 'ohne.
of
Advancing capital funds tnd talking over management
to a
banks whose cvpits1 funds have become impaired
law.
by
degree to oe specified
"c
Conducting limidation operations incidental to
part of the FDIC ulan.
and now
t{
with mergers
Undertaking promotional work in connection
a
view to expeand the establishment of brPnches with
diting where necessary the elimination of fr,cilities in
'rine
2.
over-banked communities and the establishment of
propriAte facilities in under-banked communities.
3.
Center all examination and supervisory activities in the
Federal lieserve Board under au administrative officer with
full power WU ject to judicial review and determination of
policies by the Federal heserve Ioard. This official and
his ore--nization would be responsible for:
s. The administretion of sll examination and supervisory
work of the Fedora] Reserve Board.
b. Co-ordination of examination activities and the
activities of the Federal management corporation
by direct partici.ation in or as head of that
corporation.
4.
On the assumption that unification should go beyond the field
of commercial banking, provision should also be made for
further co-ordination of Federal agencies, at least to the
extent of giving the Federal Reserve Board representation on
organization of the Farm Credit
the Home Loan Bank Board and in
Administration.
It is apparent from the above outline that with this set up
there would be little occasion for Ogden gills' colment to the effect
that there were not slificiant duties for Federal i_eserve
members to attract men of the highest calibre to the Board.
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Federal Reserve Bank of St. Louis
FEDERAL
Federal Reserve
Banks
BOARD
Administrative Officer
in Charge of
Examiwition and Supe
sion
Examination
of all banks
Management or Participation
in the management of the
Federal Management Corporation
b)
c)
d)
Or
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Federal Reserve Bank of St. Louis
RESERVE
e)
Banking activities (and investments) of R.F.C.
Federal reserve industrial
loans, 10b loans, etc.
Provide capital funds and take
over banks with impaired
cPpital.
Liquidation of banks under
FDIC and (c) above
Promotional work in connection with mergers and branches
in localitiep with inadequate
banking facilities
Manager
of
FDIC
Administration
of insurance
funds.
r
November 6 l9NNt
1.2
Costs of Examinatio s.
Ir. Pattlger
C. E. Cagle
The matter of making a survey of the costs of examinations of banks,
which I discussed with you in more detail on November 4, has been eonsidered further. I am more convinced that as nearly accurate and definite figures as possible relative to the costs of examinations per bank
and per $1,000,000 of resources by the various agencies in different
sections of the country would be a very valuable weapon, both offensively
and defensively.
As I stated to you, it is my understanding that many of the officers
of the reserve banks are more or less definitely aware of the fact th' t
sonsideration is being given to centralizing aad revamping the banking
ipotesi, especially examinations and supervision. Even if this situation
did not prevail, I still believe that it would be advisable to gather as
oemplets information as possible relative to examination and sunervision
?nses by the various agencies and carefully estimate the number of
mcp,
persons who could be eliminated and the amount of savings in dollars
which could be effected by a reorganization.
Having definite cost
figures and being able to show wherein several millions of dollars could
be saved annually woull be convincing to many bankers who otherwise
night strongly oppose a consolidation movement.
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Federal Reserve Bank of St. Louis
c
MEMORANDUM
Liam dusbands, of tne R.F.C., just telephoned me to state that
the R.F.C. had, aE of September 50, 1.66, preferred stock, capital
notes and debentures
r follows:
182.5 national banks preferreo stock
145 member State banks preferred stock
188 member State banks debentures & notes
026,274,449.69
63,370,772.33
75,574,500.00
1439 nonmember State banks preferred stock
notes
1907 nonmember State banks debentures
5504
104,164,104.n
11%492,050.00
t682,875,876.37
He etated that all of the banks have deposit insurance except
approximatell 8 mutual savings banks; in New York State and 3, banks in
Puerto Rico.
He stated tnat under the contracts the F.I.C. has a right to examine
all banks and ulso the ri),:ht to change the management in a great number of
the banks (the exact number not rerdily available to him), usually when
the R.F.C. puts in more capital than the souno capital of the other stockholders.
He further stated that having the right to change the management
in the- contracts did not mean a great deal because the Corooration usually
acts in all easea where things are not being handled properly, whether
it 'as
b
specific agreement about changing management or not.
He stated that it was the
Corporation's policy not to designate any
particular person, but merely to request the bank to hire its own management satisfactory to the R.F.C.
C.E.C.
10-17-56
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
CROSS-11a'.a4ENCE SHEETS
E"
EMPIRE FOLDER
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300S
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Branches and Agenls in ail rrincixd
9
CR,SS REFERaiCE
"SUGGESTED SMALL BANK METGERS ARuUSE TUMuRS IN :iiID-EST AR&A"
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Federal Reserve Bank of St. Louis
American Banker, Dec.10, 1937
See File # 7
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
FEDERAL RESERVE BOARD
Form 156
THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET
File No. 9
"Over 100 House Members Back Patman Plan on 12 F. R. Banks"
American "Ranker, April a7, =7-
Subject
SEE
File No.
-7A
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
U. A. onvinimmr MINTING firma. loaf
FEDERAL RESERVE BOARD
Form 156
THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET
File No.
Subject
9
"FDIC Holds $20 Million of Assets in U. S. B8nks"
AMERICAN BANKER, December 11, 1936
SEE
File No.
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
U. N. 00V..N WWW
OPTIC. ten •
FEDERAL RESERVE BOARD
Form 156
THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET
File No.
Subject
"State Board Opposed to Int3rstte Branch Bnks"
N.Y.State Body Inttmntes Lack of Co—Operation
by Ccmotroller and Other Federal Agencies.
American Bnnker, January 8, 1937
SEE
File No.
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
FEDERAL RESERVE BOARD
Form 156
THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET
File No.
Subject
"State. Bank Sup.arvi-s-o-r-s- -Gpp-o,s-et
.S-. -on 13-r-Rn-ch-e-s-n
American Banker -February 3, 1937
SEE
# 12
File No.
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
I/.
011V.. .. V PRINTING
orrics7
191,
9
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
Cli.weiL,pageo 56-76 IV= Luna Ilk& Rata= ty Collins (Ch. VZI
*City Bkg.
SEE
File No. otia
Letter of
Dated _
Remarks
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Federal Reserve Bank of St. Louis
;i
110,11M11217'amnia omor 1933
178151
1601
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No. _
Subject
_CUpped_lagai__47.44__b_gclural_lits. norm 1:7 Cfa, imp
SEE
File No. AWA
Letter of
Dated
Remarks
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
s. eoveertreicr P111,171140 orrice: 1933
178151
IA02
5-21-36
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
9
Deposit Insurance - by Lauchlix Currie asciatad-Avilartin:Krast
memorandum prepared by the Viner study group.
SEE
File No.
_Study #7
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
U. 3. 00911041191.11
.
norm.)OFFICIE: 1933
178151
iGn4
6446
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
ftetirpta
on
WM* of lionorable Jo
Covityttalatte -Or
billaciere At-1;0001as
1.950
Fe
9
To O.COMM,
birame the Catforsts,
ilisiesettoo Calif* en Stay AI
SEE
File No. .tuer
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
u. s. eovicamrENT earwax° uric': ion
178151
iGt15
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
Address:
by Carl K. Withers-Commissioner of Banidng and
rnsurence, State of New Xersey at the Pa. likers Assoc.
kialantic City May 22, 1936
"Supervision - What kind and how much?"
SEE
File No.
6
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
u. e.
GOYERNME-NT
nu-wry-No orncr: 1933
178151
Ig06
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject _
9
$Peeoh
Tos_KA__Elai_thp_ First Vice _Prnsident.of__A.__B.__A.*
bafore Oklahoma Bankers Association, May 18, 1956
SEE
File No._
S:tudy
Letter of
Dated
Remarks
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t
00VIII ?I V ENT
ritrvrrro orricr: loss
178151
lAn7
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
9
Clipping from the American Banker1 June 41 19361 "Codifying
U. S. Banking Law."
SEE
File No.
Study /16
Letter o
Dated
Remarks
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Federal Reserve Bank of St. Louis
u.
oovsxmurtrr rancrrsa orncr: 1933
178151
1“n8
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Federal Reserve Bank of St. Louis
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.19B
subject
=Mai tan /MCA MD;ttepteabor 113, Me, enallial
Ailkit -Tax Unite
SEE
File No. -A
Letter of
Dated
Remarks
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11
11
oovemgmesT rRiNTnto orrict
1933
178151
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No. 9B
Subject suispowesmatcassmaksrarseg ink 17• a• boar
nor wavelkuir lissiberettip Sa
SEE
File No. Au
Letter of
--------------------------
Dated
Remarks
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
u. e. Govsamenrr unncrturo orricr: 1033
178151
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No
Subject
Clipping-from --PSIMICALW.1172,1--teptstsber -1-4p 1474.---Maaapendant
Bari.t,.,rse Revolutions CaLl for releption to A. B. 414 Camentions
Cut in Postal Savings Rata, FDIC Cheep
SEE
File No.
Letter of
Dated
Remarks
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
9
II . S.
oovuoiurrr mum.orncr: 1933
178151
9
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
SP EECIM
EMPIRE FOLDER
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306S
Send your Order to the nearest "Y and E"
Representatives or to our I-Erne Office
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Branches and ALculs in all Principal CLies
4
FEDERAL DEPOSIT iNSURANCE CORPORATION
WASH!NGTON
FOR RELEASE AFTER 12:00 NOON, C.S.T., THURSDAY, SEPTEMBER 23, 1937
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Federal Reserve Bank of St. Louis
ADDRESS OF
HONORABLE LEO T. CROWLEY
CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION
BEFORE THE
MEMBERS OF THE KENTUCKY BANKERS ASSOCIATION
LOUISVILLE, KENTUCKY
SEPTEMBER 23, 1937
ADDRESS OF HON. LEO T. CROWLEY, CHAIRMAN, FEDERAL DEPOSIT INSURANCE
CORPORATION, BEFORE THE MEMBERS OF THE K7NTUCKY BANKERS ASSOCIATION
AT THEIR ANNUAL COMIENTION
LOUISVILLE, KENTUCKY
SEPTELMER 23, 1937
GOVERNMENTAL SUPERVISION OF BANKS AND BANKING
I.
The necessity for supervision
II.
Thc objectivcs of supervisicn
III.
IV.
V.
VI.
VII.
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Federal Reserve Bank of St. Louis
The tools of supervision
Has supervision succeeded?
Factors affecting the efficacy of supervision
A.
Failurc to maintain sound bank supervisory policies
unremittingly regardless of fluctuating economic
conditions
B.
Inadequate control over banking practices
C.
Inadequate control over expansion in the
banking system
D.
Failure to recognize essential similarity between
circulating notes and bank deposit currency
E.
Primacy of political and personal considerations in
supervisory decisions
F.
Banking reforms in this country have boon curative
rather than preventive
Recent steps towards improvement
Bankers determine extent of supervision
L DEPOSIT INSURANCE
ADDRESS OF HON. LEO T. CROWLEY, CHAIRMAN, FEDERA
KY
BANKERS ASSOCIATION
KENTUC
THE
OF
S
CORPORATION, BEFORE THE MEMBER
AT THEIR ANNUAL CONVENTION
SEPTEMBER 23, 1937
LOUISVILLE, KENTUCKY
GOVERNMENTAL SUPERVISION CF BANKS AND BANKING
nr. Chairman, Ladies and Gentlemen:
It is pleasant to be able tc meet with you today,
the courtesy of your invitation.
I appreciate
It is my belief that bank supervisors
isory policies
have erred in failing to keep bankers informed of superv
shown a curious
and procedures, and that bankers, in their turn, have
lack of interest in the why and the how of bank supervision.
Certainly
their busibankers should be interested in the ar;encies which regulate
nesses.
superLtkewise, attempts at supervision are fruitless unless
bankers
visors enjoy the confidence and respect of bankers and unless
achieve.
knrm and sympathize with the ends supervisors are trying to
I
s some of the
feel, therefore, that opportunities such as this to discus
.
policies and problems of bank supervision are mutually advantageous
The Necessity For Supervision
be wise
Before we begin to evaluate bank supervision it might
is necessary in the
to ask why such an elaborate system of bank supervision
on.
United States and to attempt a brief answer to that questi
In this con-
this supervinection let us take a look at the banking structure to which
sion applies.
We know that no other banking system in the world is subject
be something quite
to such stringent regulation; there must, therefore,
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Federal Reserve Bank of St. Louis
- 2 -
unique about the American system.
Our banking system, unlike those of other countries, today
consists for the most part of thousands of unit banks, each independently
managed.
It can bo said that this strlIcture grew naturally in response
to tho peculiar demands of our rapid and gigantic economic development
during the nineteenth century.
It was not entirely happenstance that free unit banking should
have continued to flourish in the United States while amalgamation was
combining the units in ether countries into what we know today as Britain's
"Bi:7 Five", Italy's "3ig Throe", and France's "Big Four".
The fear of
monopoly on the part of the American people has been evident in every stage
of the evolution of our banking structure.
Our desire to have banking
facilities available has always been tempered by a fear that the control
of money and credit might become concentrated in too fuw hands.
Popular
opinion has almays su-pported continuation of the unit systom, and that
system was firmly established by passage in 1863 of thc National Bank
Act.
There is no reason to believe that, without this unique popular
pressure, our system would differ today in any essential respects from
the morc common monopolistic systems of tho world.
Public opinion, then, has endorsed and perpetuated the unit
system, and factors inherent in thu system havo necessitated an overgrowing body of law and regulations.
The relative smallness and
omnipresence of the units engendicr competitive factors which load to
unsound practices.
If the system is to be preserved, supervision of
its structuro and of its activities must continuo.
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Federal Reserve Bank of St. Louis
- 3
Tho Cbjoctivos of Supervision
To understand the growth of our system of supervision of the
banking businoss, wo must also recognizc the quasi-public nature of the
banking functicn.
If a bank is chartered to ronder financial service to
thc peoplo of a community, thc chartering authority has tho fight and
duty of assuring thu faithful performance of that sorvicc.
In this
capacity thc supervisor undertakes to assure that tho sorvice is ronderod
at a fair cost, to keep its quality adcquato, to assist chartered institutions to rceivo u fajr rate of return on tho investment of private
capital which they reorcsont, and to discourage unforoseen interruptions
in service.
He Lis° undertakes to maintain a financial structure adequate
to satisfy tho thrift, credit, and general banking needs of the pcople
he serves.
The primary purpose of our banking supervision, however, has
always boon to protLet th. creditors of banks from pecuniary loss.
The
importance of thiF responsibility has not changed, in spite of fundamental shifts in tho relative importance of various types of bunk
nbligations.
You will recall thlt prior to aeout 1860 tho circulating mcdium
in this country ras composed chiefly of the circulating notes issued by
banks.
Tho importanco of the priviloge of issue during this period
is forcefully dcmonstrated by thc virtual extinction of State bunks
through that provision of thc National Bank Act which levied a ten percent tux upon the notos of other than national banks.
A minimum of bank
suporvision was sufficient to assurc the maintenanco at par of their
circulating notes by banks in view of the 100 percent reserves.
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Federal Reserve Bank of St. Louis
- 4 -
Tho gradual change in our national cconomy from local or
rcrional solf-sufficioncy toward national and international trade brought
about an attondant shift from circulating notes to demand deposits as tho
important circulating medium.
Tho offocts of this shift worc:
first, to
rcvivo Statu banking systoms and so to gainsay those who bolieved the
National Bank Act had created a singlo banking system; and second, to
substituto dcmositors for notcholdors as tho chicf croditors of our banks
and as tho porsons supnosod to bonefit from Governmontal supervision of
the banking systcm, honco tho boginninr of bank supervision as
WO
now
know it.
Th. Tools of Suoorvision
You rxe all familiar with tho traditional tools of bank supervisiin, th0 i_nstrumonts through which suporvis)rs vrork to 9rotoct depositors from loss,
Govornmentol regulation of bara-ing is built upon a
statutory oiltlino of Drivilogos and limitations.
in with supplomontary
This outlino is fillod
oxplanatory rulus, intorprotations, and rogulai.
tions, promulgatod undor authority of law as thc nood ariss.
the suporvisor is prcsumatly rrcntod
Finally,
rs of onforcomont through the
bank examination and oth .r visitorial priviloges and through such authority
as ho may have to chartor or to torminate thc affairs of banks under his
jurisdiction.
A significant dcvolopment during rocont years has boon the
tondency of banks to supploment govcrnmontal suporvision with an
increasing amount of sc1V-rogulation through thc medium of cloaring
house associations and similar professional groups.
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Federal Reserve Bank of St. Louis
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Beyond a brief mention of the bank examination I do not
proPosc to burden you with a detLiiled discussion of these supervisory
implements.
Tho purpose of tho bank examination is to discover and
bring to the attention of supervisory authorities and bank directors
the true bank which lies book of book figures.
Examiners also attempt
to appraiso the banking practices and tho management which motivate
thc activity going on behind the dosks and in the cages of our banking
institutions.
It is upon thc findings of examiners that supervisory
decisions concerning individual banks must be made.
The bank examination
should afford an equally valuable guide ror the administrative and policy
decisions of bank directors.
I doubt that most bank officers and directors roalize what a
good thing thcy are prtssing up when thcy give only a cursory reading
to tho official reports of examination of their banks.
In the oxami-
nation report the banker is offered an appraisal of all aspects
of his institution representing the best opinion of a disinterested
person who could have no reason to bc biased in his analysis.
If bankers
would realize that the men who aro sont to examine thcir institutions
have a background based upon contact with the operations and problcms of
hundrods of banks thcy would agree that the ')(timiner's
opinion on most
matters should be not only sound but frequontly superior to the more
localized point of view of the banker himself.
Has Supervision Succecdcd?
The oxtent to which supervision has protected depositors from
the loss of their funds is debatable.
I need not remind you that bank
failures by thc thousand occurred as recently as thc period from 1920 to
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Federal Reserve Bank of St. Louis
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1933.
Complete eradication of bank failures in this country will probably
always be prevented by a faw factors which cannot be legislated away.
There is no reason to believe that the business cycle will vanish in the
near future from thc list of economic phenomena, and the business cycle
always carries with it a hazard which is unpredictable.
Thc personal
clement is uncertain and often unreliable and this factor affects 4ur
banking structure not only through bank management but perhaps equally
through bank supervisors, whose judgment certainly has not in every
case been infallible.
If I may be permitted an analogy in this connection I should
like to point to. the parallel of bank supervision with respect to the
failure hasari and buildinr inspecticn in connection with fire hazard.
The end in view in each case is to limit the hazard.
thought of eliminating the risk entirely.
There can be no
The best we can hope for
in either case is the constant improvement of standards.
In each
of these cases supervision is primarily for the tenefit of the general
public.
The building inspection protects the occupants of your
.5anking house; tho enforcement of banking regulations protects the
creditors of your bank.
It is quite pcssiblc that your particular build-
ing is cmplotely fire-proof and that the inspection is superfluous; it
is equally possible that your institution represents the ideal bank
from the point of view of scund capital, scund assets, and the other
standards by which croditcr protection is measured.
But even if the
standards in each case were not constantly chunging--and they are-it would be imperative that all buildings be inspected and that all
hanks be examined in order that standards might bc established by which
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Federal Reserve Bank of St. Louis
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to gauge the safety of othcr buildings or of other banks.
Further, there
not
is no building so fire-proof and no bank so sound that it is
affected by general conflagration or catastrophe.
It is the function
of inspoction and of supervision tn minimize thc possibility for
growth into conflagration or catastrophe of isolated fires or failures.
Banks arc not cxompt from the failurc hazard which must be
facod by investors in any business.
It is to be expocted that local
economic catastrophes or competition will react just as unfavorably
upon tho banker as upon the hardlw.re merchant or the automobile dealer.
Supervisory authorities can hardly bc indicted, theroforc, simply
because institutions under their jurisdiction arc forced by circumstances
to suspend operations and to liquidate.
In any recitation of the bank mortality statistics of the 70year poriod from 1865 to 1934, the fact that 20,000 commorcial banks
suspendcd operations is of secondary imoortance.
Tho really significant
statistic is that which reveals that depositors in those banks lost about
three and a half billion dollars 4f their funds.
This loss rcflects a
variety of factors which may bu grmupcd under throc heads:
(1) Econlmic
or general factors which lic outside the control of individual bankers
or bank supervisors: (2) unwise or improper policics or practices on the
part of bankers; (3) inadequate or inoffective supervision.
I believe
the first twc groups of factors roprosent the most important causcs
mf bunk failure.
I am convinced, however, that proper supervision
.wfuld have lessened materially the,lpsses to depnsitc)rs as such.
Bank suporvisIrs in the past have not been as forthright and vigorous
us they should have been in insisting on having at all timos a true
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Federal Reserve Bank of St. Louis
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picture of thc conditinn of each of the banks under their supervisi,n.
Too often they have tempnrizod wdth situations and altered their
standards in individual cases because of some expediency.
The result
has been self-deception and failure to take actimn in time to prntect
prnperly the depnsitnrs' interests.
As a consequence, losses accumulated
and banks became sc invnlved as tn make it imprssible for them to meet
the shock of adverse business conditinns.
Above all else it is essential
that bank suoervisors have an accurate picture of the state of affairs
in each bank.
Factors Affecting the Efficcy of Supervision
In retrospcct, the failuro of bank supervision better tn
accomplish its purposo seems to have rcsulted frnm thc interplay and
cumulative effect of many complex economic and pelitical fact^rs.
First
in impnrtance amnng thcse factnrs I would list tho failure to maintain
sound bank supervisory pollicies unremittingzly _roardloss nf fluctuating
economic conditions.
The most impressive display of the disastrnus
possibilities of such a short-cnming occurred during the 20's and the
early 30's.
During and prior tn the 20's banks accumulated a large
velum of assets mf a substandard character.
Such assets were undesirable
to have in the portfolims and were th,, first to become worthless undor
the pressure of adverse economic circumstances.
While the supervisors'
authnrity tn exercise some control over the character 0f assets has been
cmnsiderably loss in the past than the public has generally believed, it
is none the less true that supervisors in general were not sufficiently
firm in insisting that the banks eliminate their losses and their criticized
assets during prospersus times.
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Federal Reserve Bank of St. Louis
Had the banks possessed a better class of assets in the early 30 1 s
they would not have hf:d to accontuato the already declining prices
by calling questionable loans and dumping low grade securities on
the markot,
On the othor hand, they would have boen ablc to stand
by as a stabilizing influence.
Inade uatu control over bankin
pr^-ctices is a socond
factor which has impaired the efficacy of bank supervision.
The actual
polico powers of bank supervisory officials have always been somewhat
less than is commonly beliovcd.
For tho most part, the only statutory
weapon grantod sup:rvisors to onforce observcnce by banks of legal
roquiromonts has boon to place an offending bank in liquidation.
Naturally authorities hositate to apply so drastic a measurc.
In the
morc nebulous but equally important field of controlling banking practices
not defined by law supervisors have until recontly boon
absolutely powerless, having to rely for correction nf unsound practicos
entiroly upon
mrral suasion.
Each of you knows that judgment oxercised in the
broad
field loft to the initiative of bank managors can make
ftr broak a bank,.
We all have comic in contact with cases whorc unscrupul
oous bankers,
living within the letter mf thc law, have brought ruin to the
dopositors
who trusted them and to soundly run ncighboring institutions,
thus
damaging beyond repair the good name of the banking profession.
Yet,
evon when supervisors have known of the existence of such dangerous
situations in tine to accomplish somc correction rind rehabilitation
they
have been powerless to act.
Inadcluato control Ivor oxpansion in the banking sistemi likewise, has greatly hampered supervisors' efforts to minimize lozses
te
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Federal Reserve Bank of St. Louis
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dopositors.
So long as supervisors are required by law to grant charters
to all who apply and so long as supervisors' decisions with respect to the
advisability of now banking facilities can bc ovorruled by snme person
or by some body not familiar with supervisory Policies, banks will fail
unnocessarily and depositors will suffor.
It is nocessary, too, that
the chartering and control of financial institutions other than banks be
coordinatod with supervision of banks.
The devolcpment of a uniform
and effective financial program requires that banks, building and loan
associations, credit unions, and all similar thrift and Ilan institutions
shall work toward the same ond, under uniform supervision.
It is likely that tho failure to recognize the essential
similarity between circulating notes and bank deposit currency contribut
ed
to the loss record of the last seventy years.
At any rate, it would 1,0
interesting to know what line of roasening led to the conclusion that
circulating notes of banks need bo fully securod by oash or immediate
ly
convertible securities and that a cash reserve of seven or ten
percent
offered cemmensurate protection for demand deposits in banks.
Another intangible but undoubtedly important factor
contributing to tho unsatisfactory rocord cf bank supervision has
been
the primacy nf political and porsonal considerations in superviso
ry
decisions.
Hcw illogical it is that the supervision of financial
institutions, a task calling for infinite ability and fcr long-rang
e
planning and consistent and impartial execution of policies, should
continue in these enlightened timos to be little more than a poorly
paid political plum.
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Federal Reserve Bank of St. Louis
Kentucky is fortunate in having so capable a man
as Hiram Mlhoit supervising its banks.
Fortunately for you bunkers
and for depositors, men of ability arc making the same personal sacrifice
in most other Statos.
But I say 1.3t the renumeration of these men be
commensurate wdth their responsibility.
Let matt,)rs be arranged so that
their tenure of office does not depend on politic'd vagaries.
Got good
men in those key positi;ns and keep them there.
Finally, I catach particular importance to the fact that
banking reforms in this country have rllways waited until periods of financial and economic criis made further delay impossible.
The reforms have
been almost invariably carativ.D rather than preventive—specific rather
than fundamental.
Thc story of thL deve1;pnent of our bank supervision
is a story of repe-Itedly plugging the holes in our dike without seeming to
realize that its foundation rested on quicksand.
I quite realize the lazy
attraction of "status quo" and the tremendous force of human inertia against
change of any kind.
However, onc would expect bankers,
RS
leaders in the
business lifc of their communities, to see and to admit shortcomings in
thc banking process as these shortcomings bccone evident.
It is natural
to assume that bankers wnuld realize that thc purprse ,)f proposed reforms
is to achieve results, not merely to undertake "chanp4c for change's sake."
Yet bankers, on the whole, hfl.ve opposcd vigor,,usly—sometimes even
bitterly—every important reform that has boon introduced in this
country.
How much more valuable would this expenditure of effort have
boon if bankers had faced thc facts, subordinated their vested interests,
and waded in themselves to achieve a s•lution of thcir problems.
And
haw much misery and economic waste would have been spared if bankers,
supervisors, and legislators had taken the time to work out together a
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Federal Reserve Bank of St. Louis
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sound oporating busis for the banking system instead cf waiting for
economic cLtastrophos to hold up the weaknosses of that system to the
shriveling heat of trail by firc and to tho bitter gaze of a disillusioned and impoverished people.
These, then, aro some of the major problems which have confronted bank suporvisors.
As continuing problcms, for the most part,
thcy still occupy our attention and will continuo to do so, probably,
short of Utopia.
In previous addresses buforc bankers' associations I
halm dealt at lcngth wdth thc progress that has been made in recent years
and with current efforts to improve thc quality of banking and of bank
supervision.
Rocent Steps Toward Improvoment
Recont banking logislation has been correlated wdth a broad
legislativu program aimed at levolling extremes of tho busincss cycle.
Broadenod credit and rediscount facilities have boon provided to ease
banks through periods of stress.
Thc CorporAion has boen granted broad
power to'curtail indulgence in unsafe and unsound practices.
Not only
has a more reasonablo attitude towards the chartering of now banking
institutions come into favor, but supervisors arc also attacking the
problom of unprofitablc existing institutions through the medium of
surveys of the banking ncods of cach State.
As a result of those sur-
veys it is hopcd we will be able to consolidatO or to relocate institutions with an uncertain outllok.
Frank discussion of the problems of
banking and bunk suporvision is rcmoving those activities from the realm
of mystery and so lossening tho chances fcr political abuse.
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Federal Reserve Bank of St. Louis
Through
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constant and whole-hcarted cooperation among the State supervisors and
betwoon Stato and Fcdoral supervisory agoncios supervision has lost its
haphazard air and has assumed an attitudo of concorted and dotermined
attack on tho forcos which hitherto have hampered its efforts.
Most auspicious of tho recent dovelopmonts affecting bank
suporvision I consider to bo tho crcation of tho Fodoral Deposit
Insurance, Corporation.
By insuring dopositors against loss the
Corporation substitutos itsolf--a compact, single-mindod driving force-for thu inarticulato and disorganizcd millions of depositors who insist
that we shall havc a sound banking structur) and that dcposits shall not
bc dissipated.
The Corporation's tromendous potential liabilitics in
its role as insurer make tho quality and effectivencss of bank supervision
a vital concorn of the Corporation's directors.
In its rolo us b,Ink supervisor thc Corporation is in a position
to make a uniquu contribution to th, banking system and to thc record
of suporvision.
In th,, Fodcral Deposit Insurance Corporation bankcrs
havc for the first time an agoncy concornod with the soundness of tho
ontire banking system and without spocial interests in any class or
scgmont of the mombc:,rship of that system.
The Corporation offers bankers
an unprecedented opportunity tc develop a much nocded uniformity of
practicos and standards without imperilling thcir traditional structural
set-up.
Our exporionce undor this new order is not yet sufficient
to test the adequacy of existing banking legislation or to permit
promises for thc futurc.
I find causo for rejoicing, however, in thc
fact that the tone of supervision has bocome foruard-looking rather
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Federal Reserve Bank of St. Louis
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than retrospective and I can assure you that supervisory authorities
generally feel their responsibility for intelligent aPplication of the
enlarged powers they have been granted.
Bankers Determine Extent of Supervision
I might say further that the goal of present day bank
supervision is not the complete regimentation of the banking profession
which so many bankers seem to fear.
Supervisors clearly realize the
dangers of an autocratic application of arbitrary standards to every
transaction of every banking institution.
Likewise, they realize that
a completely unregulated, and individualized pursuit of the banking
business would end disastrourly.
Somewhere between these extremes
exists a middle road which leads to a sound and prosperous banking
system ane tn safety ''or der)ositors.
It is that road we must find and
follow.
In the last analysis, bankers themselves determine tho extent
to which their activities must be supervised.
It is to the distinct ad-
vantage of all concerned thut the supervisory system should be as
simple
as possible.
I visualize our supervisory systcm as comparable to a fence
surrounding a p]aying field and defining the boundaries of that
field.
Within the enclosure of law and regulation bankers are free to exercise
their initiative and to conduct their business to the best of their judg.ment.
The results of this exercise of initiative and judgment, as re-
flected in the soundness of your institutions and the safety of your
depositlrs' funds, will determine the boundaries et the field.
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Federal Reserve Bank of St. Louis
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