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Reproduced from the Unclassified I Declassified Holdings of the National Archives m y 11, 1933 Mr. Goldenweieer Bidder plan for reopeniHP Ur. Rlefler olosed banks Tha continued presence of thousands of olosad banks sails for iamedjj*^ action, both to free depositors' funds to the Talus of existing assets and also to proTlde a renewal of essential banking faollltlea. In aany local- itles, furthermore, where the majority of banks are olosed, the looal loans held by these banks eannot be liquidated until the loeal depositors in these banks again obtain control orar at least a part of their inoblllsed funds. In the Journal of Coneroe for Mar 8, 1933, Mr* Joseph S. Bidder ad vanced the following plan for reopening closed banks as branches of other banks in the same State: ”1. The aseats of closed banka shall be offered for purchase to all tha banks of the State in which the olosad bank is located. These institutions will be inrlted to make a bid for such assets! after reasonable examination. The purchasing institution shall be authorised to maintain a branoh at tha location of the closed banks, but otherwlee no extension of branoh banking is permitted. It is anticipated that the desire to obtain the right to operate an additional office in the coanunlty in which .the olosed bank is located will cause an offer to pay 100 cents on the dollar to depositors in olosed banks in a large nuaber of cases, eTen when the assets alons do not Justify such an offer. ”2. Zaoh such purchase of assets will be subject to approYal by the Comptroller of the Currency, who oust be satisfied that such a purchase will leare the purchaalng bank in satisfactory position as regards liquidity. *3. The Reconstruction Finance Corporation will subscribe to the preferred stock of the purchasing bank when deslrsd, on the sane terms as It would to the Reproduced from the Unclassified I Declassified Holdings of the National Archives -8- preferred shares of a new bank organized to taka over the assets of a cloaed institution. *4. Ia order to prevent any farther expaaaion of branch banking than ia naceasary to accoaplish the baaic purpoee of reopening closed banka, tha Comptroller of the Currency say, ia accepting bids, prefer banka near tha of fice of the oloaed institution to one located at a sore dlatant point." Thla plan appeara to aa to be quite feaaible, although I doubt whether aaay 100 per cant blda will ba received. I would add, however, the following provisos: A. Ho bid ahall be accepted which ia leaa than the value of the aaaeta aa appralaed by the Comptroller of the Currency or the Reconstruction Finance Corporation. B. Bothing in the plan ahall be construed to diminish any existing liabil ity of stockholders to depositors in closed lnstltutiona. C. The Reconstruction Finance Corporation should also be permitted, If It deems It wise, to combine two or sure closed banks Into a new branch banking organization without the bid of an exiatlng open bank. D. All lnstltutiona reorganized under this plan should becoae maaber banka of tha Federal Beserve Systsa. Reproduced from the Unclassified I Declassified Holdings of the National Archives , Juno 3, 1 M » fcx. &oldaavola«r Oloaod kaakai Ur. ^ O U p fir t t f W M i Tbo probloai of tho aloaa4 baak aad w r t iaporta*tl? at tbt dope*itor la tbo iXoi«d buik la o m of U m »r«it ftprtt la tbo pr«i«nt situation aad will miifi oo for ao«a U m to ooaw. aooially, tba laportanoo or tbo probloat arlaoa out of tbo largo nnbor of aaall dopooltora wbo through no fault of tboir own bavo loot otoeuat* which ara largo to tba loaor though in tba aggro* gato thoy aot bo larga aa o<Mparad witb total dopoolta out ®taBdln*, ;o- lltioally, olao« tho i N l l w allalii otttrtaBOlsg laporta&oo booauao of tho largo aunbor of dopooltora involved aad booauao of tbo foot that dopooltora, oapooially wall dopooltora, bavo a right to ooaaldor baak dopoaita as risk** loos, opooltora who bavo m ! la foaorel glvoa ap tho bopo tbat thair ooaoy will avwatually bo *aatorod to tfco* will eoaatituto a difficult political pvtbloK whoa thoy finally vaallso tho oatont of tho looaoo which tbo; a u t boar. Tho roporouaalona which or* bouad to arlao fr « thla situation aro to a ooaaldorabla — aw o Justifiable,for tho equities of tho mall dopoaltor la a oloood boak troaoopwrt tbo liquidating valuo of It* aaaata. Tboro lo a vital aad lo<laato diatinotloa to bo aada botvooa tho oqult> of a dopoaltor whooo baak baa failed purely because of niaasiaageaeat end tbo dopoaltor wboao baak baa failed partly or wholly because of alrouaataaoos outside of lt« control* Tboro aro further oquitloa to bo ooaaldorod la ooanootloo with the dopoaltor, particularly the o&all dopoaltor, who baa had no borrowla* relations with hlo baak and baa aot benefitted la any way from liberal lo&dtae polioiaa. Flaal- lyt tboro m a t bo ooaaldorod tho dopoaltor who will roallao only a faw ceata Keproduced from the unciassitiea / Declassified Holdings of the National Archives on the dollar beeeuaa hi* baa* waa kept open too loi**' tr.rou*fc the a*tio& of superTUorj authorities aided by t e availability of fteei>netruotloa /laanee Corporation loans fcagaltude of rrobiea *t tha preeat tl&a, ttie Wo k value o dapoalte loe**d up ia oloaed tai»ka la la tha neighborhood of *d,000,00^,^0 ;.h-3 pa. or Talua of the aaaeta held again** theee depoalte ia In the neighborhood of «d,0JO,C00,0DQ tJ *7,000, 000, while tha ultimate li niidatiut value of theae aa«eta a d depoaite *111 bo around $S,600 ,000 ,000 , Iha comparetiva «a«altude of tj.e ;rabies o«n be Ju3g*fi from the following two eotmparlfona. yirat, the total Toluca at all fans feort|M** outetandln*- la thia aountrj about which no much aaa baas, hoard, in* eluding Mortgagee la gao.l addition a* well aa &ortga&aa in difficulty, ia In the neighborhood of J0,00 v Jj O. oeo&dl^, tha total decline in aanus1 pe>- roll* of manufacturing eetabliah«ietttt between 19ZV and 1 hood of .7,000,^0 ,3^0. wae In the neighbor- from a eoelal eud polltloal, aa well at» an economic •tandpoint, therefore, a prompt Handling of tne eloeed bank aituatloa le highly iaportest. The magnitude of the problem la ou»plloatad ly tha time el•••«*>at, aa wall aa V t a bo'i)' of funds l&volTed. It may be that depoalt^r« in cloaed banace will eventually raeover *8,800,-000,000 but la tha saaatloa sa^y aeetionfi of the country are without adequate ba&k faellltlee aad depoeltorn oTer ev«n wider eeetlona have been deprived of tba uae of *g,0 ^0 ,000,,>00, It hoa long been eoicnowl - edfed that the tie consumed la following routine reeeiverahlp procedure looking to the eatabllahaant of mm baakiag faellltlee aad to ll^aldatioa of tha aeaete n closed fcanka would prolong thia i.TW>billaatiaa of banka aad depoaltn far beyond tine time that le Juetlfied ia a period of emergency such as the preaent* a reault vnrioua attenpte hare elraady baea node to aat up maohlaery for a more Reproduced from the Unclassified / Declassifiea Holdings of the National Archives problem. ti-a already enplaned or about to be authorised art il) authorization for tha heoo&atruetioa ?lnanae Jorporation to &a<e loana to aloaad banka, k£J authorization for tha baeonatriotIon Mae nee Corporation to eubaeribc to preferred atoo- la reorganised backs, aad \Z) authoriaatioa In the pending Glaae bill for tiia .epotit In^urtaoe Corporation to nake adTaxaea agalaat aeeet* ia cloned bankr. Vulufible ae the«e devices ara, they tauet bo nupplamented If tha problem la to le dlapoaed of with reasonable replait;/, for la addition to tha laauffleieney of fuads involvad.t whic?h alii ba brought out la tar, tha> ail envisage a pleaanaal taokling of the problerr l-nk. by basic, on tha baala of tha liquidating value of aaeh bajik's aaoetb. ihta procedure will neoeaaarily tast tlna, far «ore tlaw thar* iu juntified la via* of t£e aituation, f> t it la ispoaaibla to groaead quickly either aith tha reorganisation of aaa bank* or tha liquidation of old, when all ^>f t e inriTlr u-.l eaaat itaaja of thoaaaada of aloaad bank* Bust firat ba evaluated to lnaure that loans baaad upon thee laTolva no riak ta tha Government. Saoaottlc probiaa of cloaad baa tea 7x021 an economic point of view, it ia <aaentltl tnat dapoaita ba releaaed to tiapoaltora before aseat* la eloped banka ara offared for liquidation, ,epoa- lta represent funds vhioh tha depoaltar® consider aa good mom y aval labia for tha payjaent of debta« *iien a bank alo«ea» tfeeae dapoaita beooat rrosan an-* contribute ta tha further fraaaln^ of dabta. *hea a uunber of bankc in a particular loaallty ara aloaad, furthanaore, it baaoaaa alaoat lapoaaibl* for tha racalver to liquidate tha aaaeta la order to restore that part uf theae dapoaita atiioh ia <<sDOd, beaauae the potential purehaaara of tha papar In tha main ara dapoaitore is tha sane banka. In othar aorda, If all banka were eloped it w->uld ba i poealble for Reproduced from the Unclassified / Declassified Holdings of the National Archives -4to liquidate any of tha tM tti ainoa th«ra would b« no om who • could for thae. Thl« would ba trua avac though tha aaaata eowarad tba dapoait llabilitias by 100 par oant at tha ti&a of cloning. la a vary raal aaaaa, tharafora, ban* auapanaloaa, by fraa*in« taatporarlly dapealta ahiah faava aeoa nat worth, oontributa aharply to daflation. inflation of thia aort aan ba atoppad by suatlng. a aubatantial payvtant to dapaaltora ia aloaaJ banka bafora tha aaaota ara liquidated. Whan tfala ia dona, tha fund* dlaparaad to dapoaitor# ara aval labia to halp bay up tha aa- aatc of tha oloaad bank and thua aid in its liquidation. it ia of tha utaoat i-portanaa, tharafora, that tha waahanim of the mauranaa ittrporation piovidad in tha das* bill for m k i m Partial paymant* to dapoaitor* ia advanoa of liquidation ba appliad aa rapidly aa poaaibla. Iaadaqnaay of propoaad Glaaa Inauranaa vorporation TUi naahasiatt, hoaavar, ia not auffioiant foi tfea taax. It will bava at tha moat only #8,^00,000,000 to work with, eounting both tha total of It* capi tal aoaMltmante ana tha total voluaa of dabanturaa autherlnad. & large part of thia authorination, furthariBora, will hava to ba kapt in raaarva for uaa ia eonnaation with tha dapoalt guaranty proTicton* of tha Glaaa till. Tha aaount arallabia for a ra'tolTlng fund to aa<a advanaaa agalnat aaaata ia ©loaad banka, tharafora, will probably ba in tha nalghborfcood of $&00,:Jg0,000 and will oar* talaly not axoaad 11,000*0 ;Q,0O0. «hila this la probably aa anaah aa a liqui dating aftanay a/«r*ad alth tha handling of all tha datail of bank liquidation oaa usa ia a ravoicing fond, it will not paralt a vary rapid ralaaaa of tha depoalts now tiad ap in oloaad banka, whlah aesrajrata around * 6,000,000,000 in faee aasount* It la impoaalbla to find out now tha ultiaata liquidating valaa of thaaa dapoaita, but on tha ava*aga tfcay will probably fca worth around rwpiuuuueu iium uiu u/juassiifea / ueaassineo nojomgs or me iNiauonai ^rcmvos 00 Mata on the dollar, thie eoouat will rary aoi+fsU enable fpjra bank to bank, but It ia dear that in the aK£TQ«s«ta the llcul^aUut. era?; stioa aat ap in the Glaas bill would have to advance abottt 43.■> O, >00,000 if it undertook to m k* a anfeataBtial aa veil me a rapid distribution to iiapoaitors of funds now tied up in eloped ban*** it baa nowaere near eaou&h raaouroefc to do this, *veju if it aould wor* oat tha taebnioal dataile of valuation of tbe aaaete of thouean&e of individual banka with euffioiant aj.aad to offer iussediate relief to tbe da* poeitors. la tbe proara* of bank i it*iIda tIon envisaged In the Ola re bill, it Is con template*! that the laauraaoe Corporation m .© loan* eoourad by tfta assets of closed banka to tbe reaeivers a;: theae iaatitutiona in order to pemit a quick distrIbutioa to dapositors. Yaia nea&a that auel; distribution iLuat await a valuation of tha aaaate and, also, tkat no dapoaltor «ill receive sure than hi a prorata share, which on the average will probably be aruund 60 cants on the dol lar. The fl*ia danger of social and political reparcuaaioaa from thla distribu tion will not proceed directly free the reeaatieeet of tha depoaitor who receives 00 cent* on tha dollar tat rather fros the plight of tne depositor whose bank waa parwiited to regain open too Ion? so that t^a ultimate liquidation bring.* leas than to Mate on tha dollar* Juat aa popular resentient agaiaat the 0 and f par cent discount rata of the yadaral reaerve banks ia 1^- 0 became . ocuaed on tha progressive panali; rate* whereb? a sae.ll additional loan to one bank could ba described aa paying a diaeount rata of 6? per cent, as the widespread popular proteat against loaaee of depositora will not ba daacribad la terr^ of an aver age loss of about 40 par aant but will focus itself on the social plight of the widow ia tha bank which liquidated at 10 cents on tha dollar. Reproduced from the Unclassified / Declassified HoJdirjgs of the National Archives Soetally and politically, ae veil aa equitably, therefore, it vould be adveategeoue to b m aovenuoeiit funds to avoid leasees to the saalleet flepoalt era Aid to U 4 t loeooa to the — Hoy depoeltore to GO por oeat. It loo&a •« the^s-4 the (lOYanMGt »ay be oailed ypoa to abeorb aueh loeeee ss ere aeeeeaary to iaeure depoeita up to 100 per eeat la baa&a now open. 1 would auggeet tfcet the CrO'verzmst sl&o oocalder the poeeibllity of si*jcla£ this lafuranoe pertl»lly retroaatlre, i.e. that op pert df e larger pro*rao for deal* lag with tha eloeed beak jroblesj, tha £overaa»Bt caauae an; loa* aeeeceery to eeeure that eeoh depositor la a beak ao« la reeeiverahlp or under a eooeerTator reeel?ea 100 senta an the dollar* If hip total deposit aggregate* 100 dollare or leea. ana If hie depeeit exceed* loO dollars, to aeeure hla 100 eeata oa tha collar for the firat 100 dollerr aad IK) coat? oa th& dollar for the lettalBiler up Vo • Maxl&um aaeuraaee of #1 0 ,fr>0 to <se«a ladlvidual depoeltor* Tha 90 at to the Co*eraaent or tfaia bardec «oold aggregate ebout +®U0,000,- X>0, iftUh Bight be Tulaad by a special tax w 1 pei cant on all beak depoelta aov la «xlete&ee, tne tax to be eolleete<3 by the bank but levied agaiast ttm depositor* aeootahllghaoat of adequate beaKlag faeUitiea ffea eaauaptlon of thi i\ burden by tba Goreraireat roald eleo ualocs the Jam vhleh baa preheated a aere rapid reorganiiatloa of batxtce to piorlae ade quate baa*i&£ faeUitiea ta areaa where failure* have beee diaproportioaetaly large, /xm an eooaoale point of rlew it le eeeaatlal that adequate tanking: faellltlea exiftt oa e wide aeaie. I.e. It 1b eeaeatiai that our people have adequate faellltlea, reasonably eloee at ftaad for eaehiag obaak?, obtei&iag curraae}, depoaitlog exeeaa %m<Ia, and obtaining ooiaaeroi'l eredlt. Theae Reproduced from the Unclassified / Declassified Holdings of the National Archives faailltlea are now lMfcine la those loaadltles whare a large proportion of tha bank* hae su»»aitt*3, aad aanao toe furalsfaad qulafcl^ if the oreeiilratiou of new banking of fleas awaits xat only &a adTar.ee stalest tfi<* deposit# la the olosed bank* but alao a »«tieulo<&* examination end ▼erlflaatlon of the assets In tha closed benfc*. If tha OowarnsMmt should undertake, however, to guarantee a Mini m i repayment jf deposits alonr the line# iiuieateu above, It wouK be possible to reorrenlie these banfet> Buafa a»re rapidly, for tha& the saw Institution oould be sat up as soon aa the yu1u»s of deposits eo&lag wlttln tha uoTeraasat guarantee *as detexained and the aasete a&tlnat these deposits rni^ht eonslat in tha beginnine of 100 par osat li$ul« Sowernaast papsr raprasentiia# the olala on tfe# uoTezrt»ent arising oat of tills guarantee. banidiu offiaea reorganized in thie m i m r would not only ba sat tip quloslj but would sloa ba dinpoeed or easily, I.e. tha* eould ba marked with existing Institutions nor* aaall/ where «uoh Marmara eaeaec daairable. To further tha progress m' reeatabllahMent of adequate bankii^ f««ll* itles, I would alao sufgaat that, If a i^ogr** «lo/i£ Oiese ll&ee Is adopted, tha fodoral Baservw Soard Inolaaa In its request to Uoofcresa that all legal restrlo tion* on branah banking ba suspended Insofar as they r*y lin.lt tha efforts of tha authorities to raaatabliah adequate banfcla* reellitiss In »raa* whara the* h*v* baoowa inadequate hy reason of benx suspensions. Spoalfle p m w * «• Legislation 1. tat ^oncress expand tha 4*h*nturee «fcloh the lnsurana* Oorp-ra tion la penaltt*d to l&aua froa *&,CK>0,000,000 to .6 ,000 ,0 0 J,Q00. 2. Lot Congress I®pose a tax of i par sent on all dopoaits in all banks in the ’-failed rtatea as of Apr 11 1, 193S, the tax to ba eolloatad through the ban* by 4e<?notion free the depositors' aaaounts. Reproduced from the Unclassified / Declassified Holdings of the National Archives •6* 8* tot O flH T M i tax* « n v the p ro m d a of thla tax aa aapltal to tbo Iaauranee Oorpocratloa and author 1m tho Inourenee Corporation to make oa l n l U t o dleburoeaant to eeeh dopoaltor la o bttk a»« la reoelverehip or optntlac aad or « oooaervator oa tho koala of 100 ooato oa tho dollar oa tho flret 100 dollara of auah depoalt aad 00 ooata oa tho dollar oa a ll amount* la oaoooa of 100 dollaro with a — Tlmaa limit of #10,000 to oar oao dopoaltor. There should ho doduetod frea euoh dleburaemani any dividend already ■ado oa dopoolta la baaka la n o o lt o r A lp and aay wlthdreoal al ready permitted oa banka operating aad or oonaervator*. 4. Let Oeaoroae relax all pwhibltlone acalnat braaoh tomklac lneofar aa thoy would hooper or limit tho effort* of tho Xaourmaoe Oorpoxotloa to roopoa beake now aloood. B. Proeedare 1. Tho laeuranee Oorporatloo, vita tfceee authorisation* from Ooagrooa, afaeuld prooood aa rapidly aa poaalble to organize aoo national beak* la tho gw oral aaaaar aot forth la tho dopoelt laouraaoo aoatloa of tho Close h ill for oaoh baak, etate, or aatleaal, aoo aloood or op*ratine undor a eoaeerrator. The amounts made available to depeeltore la thooo testa w ill aot la the flret laataaoo be dotonalaod by aa examination of lto aaaeta, aa aoo provided la tho ttL*e* b ill, but *111 eoaalet of tho maeuata author ised uader above, thla *111 permit a w l mere rapid ootloa la aaklat fund a available to dopoaltor* oIxmo tho aala pa par vork w ill ooaolat of a vorlfloatloa of depoalt* ea tho hooka of oaoh aloood baak and a a amputation of tho amount lsa*edlately aade available to oaoh dopooltor under tho eehedule outlined la kf-Z above. Reproduced from the Unclassified / Declassified Holdings of the National Archives -9- *. Aaaets of reorganised banka Ia order to avoid the neeeeaity of having ths latunnti Corporation M il it* debentures in t&s starket to rtlM the fund* to Mitt those deposit s l a in , lot the Insuranoe Corpor ation dalIvor to ssofa now bank so organ!sod its debentures in tha aggrogats aaout of the deposits raise sod under tha schedulo in A»9. this delivery will tafce tha Porm of a loan to tha depositor* of tha old bank. To aoouro this loan, depositors in tha roorganiEod tank will ba aaked to sign ower to tha Insur ance Corporation all elaisw whioh they hewe oa tha asset* of ths oloeed tank up to the anount released to then under the plan* Tha Insurenee Jorpoiation would thus be rspsid out of the liquidation of the assets of the elosod bank up to the saeuat Juatified by the prorata elalne of eaoh depositor. Any distribution OTer the prorata olaim of the depositor in the oloeod bank woul<? fall on the sapital of the Insumaee Corporation and be paid out of the speelal tax on dapoaita in opts banks eetabllahed fur that purpoee. The debentures de~ liTersd to the banks night well bo one-year notes with inter* •at at around a per eent. Thia would ba s«ply oowered by charging A par eent oa the loans advanoed to tha depositors, tha latareat to ba paid direotly by tha rooolver out of tha insane of the aloaad bank. 9. Disposition of reorganized bank Whan this ia dona, there will eiist for aaah bank now aloaad a saw institution with debentures guaranteed by tha the Unclassified / Declassified Holdings of the National Archives -xoUfcitad Btataa (tor*matet, aoaatituting 100 pel crant liquid aaN t a agal oat Its dapoalta. The fast tftat 1 1 would ba a oob- plataly olaan baak would graatly faallltata the raaatabllshnant of bank faallltiaa wbara they are aaadad. This ahould ba doa« ucdar ©araful auporriaion of tha fradaral raaarra a>ata«. ’r-hara faollltlea ara alraadj adaqutzto, tha aa« bank ooald ba cold or nargad with an a*iattn* institution; whara tha? ara m% aciaquata, th« aaw bank oould ba icada a tranaL or aa aziatloe laatltution* or, /rosaibljr in aam ara«F, a j»rt if a new bra^ob banking laatltutloa jr^aniaad for tha purvoaa, to which tha hae^nstruatlon flxuir^a Corporation tai^M ba aakad to contribute aapital. ia aaeu aaea, tha Fadaral raaarva ay*tea. abould undertake to fura* lab aostinui^ euparvlalon ana ax&ainatioa of these saw reor ganized backs to aaaura their eouadaaaa. 4. Diapoaitloa of aloaad bajua The receivers of aloaad banks aould then proaaed satoh *ore rapidly la tha ll<;ul4atlOB of tbeir asaate, rejrajiag the laeur* aaae Corporateoa up to the full amount it had advanced for eaeh dapoaitor and turning tha ramaladar, if any, over to tba da poaitor. Aa vapidly a*< tba laauraaoe Corioratioa reaaived these rapayaaata, it would retire ita debentures fioa tha market. 6. Effect oa Treasury thum&h tfca Xaauraaaa Corj,oratloa Tha cat operation ahould not «u&barrasu either tba Treasury or the ooaay war-at. The loaaaa to the Treasury erieiag out of adwaoaa paymar.ta to dapoaitor* la axeaaa of tha aoouate ulti mately aolleated oa liquidation would ba covered by tba tax oa Reproduced from the Unclassified I Declassified Holdings of the National Archives -1 1 - itpoiUi in opon buxi, isd %h* i s k r u t on ths Corporation's debantura^ the Glass bill ©aaractoad fcy he Xroasttr.) uador Mould ba amply eoraract by tt*« laooaa of 6 par aaist oa tfeaaa lotas to raaolvwrs or slow, bans; t. Tha fast that taffs« loons would ba sada bjr dsilYarln* dabantures K « n a t * # d mu to principal and intarwst by t&o woTarnnsnt without tfaa nacaaaity of raisin*; funds in th* Money aaricst would insura a *loiu.a*& of diaturbanea to Traasury f inanaa for aorsral roaaoas; (1) th»j would ba short-tarn sasuritlsa which tha aaricat would absorb raadily In thosa faw easts wfaara tha raorganlsad ban* would hawa to raaiisa on taere for sash} i&i tha underlying transaction* also, ivoulJ ba »hoT\»%9T& ao that rafuncin^ problask* would ba ssall; ($) tbs fast chat as sets of alosad banks wars not liquidated until sftar funds bad been diaburnod to depoaltora instead of before «uah dis bursal would proYe enoraoualy lstporta^t In unfr*etin& frocan debts and thus would Improve tfce Quailtj of eredlt tftrouirhout tha aar*et. "win me vjnuiaoofiioirv u/cuaasiricu nuiuinys ui uie national Mrcmves June 3 , 1955* MSJORAHDTTii TO UR, ACHKSOSl .Syfe JBg a a iM i. 'i (1) If the Glass bill should fail becausi of objection to some other feature, certainly the Administration should have sorae alterna tive last-minute substitute for closed bank liquidation so that we will no go through another winter without adequatejmehineiy for this most pressing of the banking probloas. (Consideration should also be given to the inadequacy of the resources of the Glass b ill's Insurance Corpora tion to do a significant Job on the liquidation of closed bank deposits; its Insurance Corporation on a capital of $5001000,000 and cebenturea of 11,500,000,000 is expected to attempt not only] the liquidation of the $6 , 000, 000,000 of deposits in dosed banks but' deposit guarantees as well.) rbi (2) I heard this noon of a plan prepared fey an expert of the Federal Reserve Board (which I understand is now before Governor Black) proposing (a) a separate olosed bank liquidating corporation (hereinafter called the Liquidating Corporation) such as that provided for in the Glass bill of last year* with a capital of $800,000,000 and power to issue debentures up to *5,000,000,000. The capital would be the $500, 000,000 proposed for the Glass Insurance Corporation plus #500,000,000 to be raised by a special tax of 1% on all deposits in open banks. The #500,000,000 of the Glass bill is applied to the Liquidating Corporation on the theory that next year, when it will have largely recouped its advances on deposits out of liquidation of •frozen assets* taken in return, it can take over the permanent de posit insurance if Congress so providesj (b) the Liquidating Corporation would immediately make available to all depositors in closed banks, irrespective of the condition of such banks, 100$ of deposits up to |100 and 50$ on additional deposits up to a total advance of #10,000 fcy the Government in respect to any single deposit. (H*B. there can be no shift of deposits in closed banks)) (c) this advance would be made available through ne?; national banks (possibly operating under a relaxation of the branch-banking laws) formed to take over the deposits to be paid. These banks would aocept a deposit liability equal to the aiaount to be paid the deposit ors in the closed bank in consideration of receiving from the Liquidat ing Corporation its debentures in the amount of such deposits* In con sideration of such payment of deposits, the Liquidating Corporation would require a pro tanto asoignjuent of the rights in the assets of the closed bank of the depositors benefitted, (The Liquidating Corporation would recoup greater part of its advances by a realization on this assigEBnont— any deficiency in particular cases would be met front its capital). (d) the plan hap these advantages | (X) It offers the social and business advantages of lggaediate reeatablishmeat of needed b&nkiag facilities, and of iacaedlate largepercentage disbursement of closed bank deposits without the necessary delay inevitable in working out bank~t&«*bank solutions of the closed bank problem* (2) The new banka* though too small to tand alone indefinitely (tha basis of assu&ption proposed would give each new bank about one* half the dcrpo3it liabilities of the oorrespaoding closed bank) w ill, as 3 :uall completely liquid banks, be so tempting as merger or branch possibilities to other banks in tha vicinity th a t they w ill probably* within a short tiae, become p art of or associated with larger banks* (S) It ensure* ultimate larger recovery on "froaazt* assets through a better market for liquidating such assets because prior to the actual attest to realise upon such assets, advances will be made to dapositors of the closed bank who constitute a large portion of the ultimate pur chasers for local bank collateral. (4} Through the tax proposed, i t w ill minimize extreme losses to depositors in the weakest closed banks and spread these losses upon de positors in open banka* thus i t w ill d istrib u te ovf-r the en tire country p art of the losses th at have fa lle n on innocent depositors through the fa ilu re of the banking system to perform adequately and w ill ahip up & e in te re s t of a l l depositors in a souad system of banking. t* G. Corcoran Reproduced from the Unclassified / Declassified Holdings of the National Archives L I M m xm m M M m 9. 1933. i s a m m m m i r» Subject t Proposal for dealing with deposits In closed banks• Ths Probl— . — (1) At present there a n about $6,000,000,000 of deposits frosen In dosed banka. (2) This floors Is of ths s u m order of Magnitude as the aggregate to I wm of outstanding f a n aortgages sad substantially larger than the volnss of f a n s o r t m e i l& serious difficulty, (3) The figure Is also of tha a n s order of magnitude as the total decline In the annual payroll of SMBufacturlng establish* aunts between 1929 sad 1933. (4) Of the deposits tied 19 is closed basics probably as sncfe as 60 per cent, on ths average, should ultimately be realised, particularly If the asaots are liquidated under favorable alrcoastsnips. Proposal, — It Is proposed that the Beoonst rootion XLnanoe Corporation (or a special liquidation oorporatlon if that Is desired) be given additional power which will definitely pemit It to expedite the release of a substantial proportion of deposits In closed banks, Purpose! (X) fo support business recovery bgr iaaodlate release of paribaetng power now tied qp Im deposits in closed basin. (2) To provide for tha rapid reorganisation of n m bunking **illtlee on a sound basis la regions where banking facilities b*e beoasK inadequate because of bank failures. «S*ert Reproduced from the Unclassified / Declassified Holdings of the National Archives - 2 - Purpose (Continued): (3) To socialise part of the 1oasts to the mall depositor rising out of bank failuree. (4) To permit the orderly liquidation of the assets of dosed, basics under improved conditions in the Markets for m O h assets. Method: (1) The agency administering the proposed powers would stand ready to reorganise each closed State or national hank aa a Rational bank — or to organise a new national hank. (2) Sach depositor in the dosed hank would he credited with a deposit account in the new baak equal to 100 cents on the dollar up to the first $100 of his net claim on the assets of the old bank, and SO cents on the dollar on all such net claim over $100a the — r i s a initial credit to any one depositor being Halted to $10,000 (50 per eent of the araount of his net claim not in exoese of $20,000). (3) The Reconstruction Tlnaaoe Corporation (or such other liquidation agency as might be designated) would deliver its debentures to the new bank up to the aggregate asxmnt of the credits specified shove, taking a prior lien on the right of each depositor to dividends on the aesets of the closed bazdc up to the amount so advanced to the credit of the depositors. (4) The Beoonstruotlon finance Corporation (or other liquidating agency) would then proceed to liquidate the assets of the closed bank, applying the proceeds to the retirement of Its advances, then distri buting the excess to the depositors (or absorbing the deficiency in oaee the amounts realised were less than the saiount Initially advanced). (1) This will oreate a new 100 per cent liquid bank for each bank now closed, thus facilitating the reestab11 ahment of adequate banking facilities since such new banks could easily be merged with existing institutions if they were not large enough to operate on their own resources, in some eases It mi£it be desirable to operate these new banks as offices or branches of existing banks in neighboring towns; to this end it would be necessary to add to the present proposal language lifting present restrictions on the operation of branch banks by Sational banks in so far as tteeessar* f6v the reorganising of dosed banks. Reproduced from the Unclassified / Declassified Holdings of the National Archives - 3 Effects (Continued): (2) She immediate disbursement of funds to small depositors in closed tank* will partially restore purchasing power whejceit is most urgently needed and will hare incalculable social effects and maxfeed political significance. (3) The disbursement of a substantial payment on deposits In closed banks in advance of a liquidation of the assets in these banks will help unfreeze debts In general and will improve greatly the amount ultimately realised on the assets of the banks since in many cases the depositors in these banks constitute the only market for liquidation of their assets. Finances: (1) The amount Immediately advanced under this scheme would be in the neighborhood of $3,500,000 .000, most of which would be recovered ultimately out of the liquidation of the assets of closed banks. (2) Tne net loss to the Government should net exceed $300,000,000. (3) One of the great merits of the plan is that the machinery set up majces the $3p500*000v000 Immediately available to depositors without the irior necessity of selling securities in the market. Reproduced from the Unclassified / Declassified Holdings of the National Archives July 17, 1933 CLOSED uuns Banks closed sinoe 1929, including those closed during the saeent bank holiday and not yet licensed to reopen, nuaber aeveral thousands and thsir deposits aggregate .$5,000,000,000 or $6,000,000,000. ^3,000,000,000 may ba ultimately m l l M d ganized, or liquidated. Of this amount perhaps tha banka arc merged, reor la tha meantime this large amount of funds repre senting buying power of Individuals and liquid capital of enterprises is un available, and many eoamattlee suffer in addltlea from the abssnee of ade quate banking facilities, A plan la hem gropoeed by tilth Ike hanks sill promptly begin to function and a largo fart of the tfcaAe mss tied ap a ll! become available to la order to restore thie haying poser and theae banking the depositors, facilities to the public the United States Goveraasat *111 have to supply isaediatoly a oonslderable volume of credit, and altiaately to incur a lose that may ba roughly estimated at betseea $800,000,000 and 18 0 0 ,000 ,000 . Briefly stated, the plan voald work aa followsi I. Organise a new bank la place of every bank now la the hands of a receiver or conservator and establish at these banks new hank ecooaats to the credit of eld depositors, equal la the caee of small depositors, havlag met more thaa ssy $100, to the full amount of their old deposits sad la the sees of larger de positors to 100 per seat of the first #100 a d 80 per cent of the amount above that. This would release at onsa betseca #8,000,000,- 000 and #9,000,000,000 of depoelts. II. Let the receivers <ar conservators of the eld bankas K e p ro a u ce a rrom tn e u n c la s s ifie d / D ecla ssifie d H o ld in g s o f the N ational A rchives -ft* 1. ftidi a a a a p W a f u n aarlgaoa for aa* M i n i Im M Saak anrt«a«aa; 2- trada aoaaptabl* urban aartgagaa for aa* Tadaxal Ben* Xoaa Bank nortgagaa; S. borrow froa tha Baeoaatruetioa riaftfiea Corporation or tha Dapoait Xaaurane* Corporatioa aa such aa jpaaait-Ia o f tfc« additional amounta necaaaary to oarry out tha p la c, using ae aaourit j tha raaalalug aaaata othar than unqaeetionabls liquid aaaata, eu«h ae caeh, due fra a b n to aad uapladgad United £tat«a aacuritiaa. Tfea prooa*da of thaaa borrow Inga ahall ba turnati ovwr to tha baaka la tha fo r* of Haooaatruotioa Jlaaaea Corporatloa dabaataia* oar kapoalt laaavaaaa Corporation debanturaa, aa tha oaaa &ay ba* III. tat tha raaatwar af tha old baak dallwar aa aaaata ta tha aaw baok tha aaisfc, balaaaaa with othar baaka, aapladgat U<ad Static aaaurlttaa, Tadaaatl Laad m i bads, Fadatftl ttoaa Loaa boada, Baaoaatruatioa yinanaa Corporation litatwta, aad M a t a l Dapoalt laaaraaoa dabaataraa t| to a i t t a w **ual to 00 par aaat af tha aid baafc*a dopoalt aaaaaata. If tha atawa aaaata fall d ar t af thia 00 par aaat, lat tha Haaoaatraa t t o JTtnaaaa Corporatioa aabaarlba praforrad atoak ta tha m i baak ap to tha aaaaat naaaaaary to oorar tha dlffaraaaa aad pay thia aafcaarlptloa la tha flaaa af ita ova dahaatavaa* IT. Xa ordar to g i n dapaaltora a fall #100 aa thalr t i n t #100, lat tha Baoooatruotioa naaaaa Oorparatioa la aaoh oaaa aabaarlba ad ditional prafarrad atoafe aqua! to so dolla ra far aaoh dapaalt aaaaaat la tha old baak aad pay fa r thia atfbaarlftlaa alaa la tfca for* of its ana dabaatwraa. Y. Proaaad to raaeaatrwt adaqaata baaklwg faaiUtlaa tfcraach- oat tha oouatrjr aa tha baala tf tha saaaaatltatad baaka all af vhtah all! htva 200 par aaat ilqpld aaaatai 1. Jfarga auah of tha baaka aa ajpasr to ba aaparflaaaa with atroag axlatlag laatltutlaaa* Reproduced from the Unclassified / Declassified Holdings of the National Archives -32 . Where tttate laws permit, ocavert such banks as are needed by the community but are too snail to promise profitable operation into tranches of strong institutions within the i'-tate 3 . Where branch banking ia not permitted and the new bank baa no proepeot of profitable operation, aell then to ac ceptable local interests, managing them as unit banks under the Keoonstruotion Finance Corporation pending sueh sale. 4 . Where a capital interest still exists end tbe ban* has a prospect of profitable operation— let it function as a reconstructed institution. Y I. Let the Treasury and federal reserve banks take active steps to create a market for Federal Land Bank bonds, Federal Home Loan bonds, Beconstruction Finance Corporation debentures, aad federal Deposit Insurance debentures. VIZ. Let tbe receivers of the old banks proceed to a normal liquidation of their reaalnlng assets, and to tbe collection of the double liability of stockholders, ths proceeds to be appor tioned ia the following Banner: 1 , To the liquidation of loans from the Baconstruetlon /loanee Corporation and Deposit Insurance Corporation; 2. to the repayment and retirement of that preferred stock, if any, which was subscribed by the Reconstruction Finance Corporation under ill above to make up the difference be tween the assets delivered by the bank end 50 per cent of the deposit claims; 3. to all depositors of the old banks prorata in proportion to the ecount of their deposits, ex cept that the first 50 dollars of suoh repayment to each individual depositor would go to the Reconstruction finance Corporation for retirement o f the preferred stock whioh It subscribed for each bank up to this amount under IT above. lmounts involved There Is no data on whioh to estimate the relative contribution which the different agencies would make to carry out thie plan* Roughly it may perhaps be anticipated that the maxinm amounts might be apportioned as follows: Reproduced from the Unclassified I Declassified Holdings of the National Archives -4- Caah, due from bantu, unpledged u . s . securities now held by receivers and conservator*......................... $ federal Land Bank M ortga^as................ ...................... . Hosts Loan Bank Mortgages................... ..................................... . Reconstruction Finance Corporation loans................ . Deposit Insurance Corporation loans........... ............... . Heconatruction finance Corporation preferred stoex....... ......... Total 800,000,000 500,000,000 600,000,000 300,000,000 700,000,000 500,000,000 $3, 000, 000,000
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