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FDH NEW S RELEASE F B X I U DfPOVT INHMANCI C O trO t ATOM PR-96-75 (12-4-75) FOR RELEASE UPON DELIVERY C om m en ts on S. 2298 and the G en era l Issu e o f Bank R egu la tory R e fo rm Subm itted byF rank W ille , C hairm an F e d e ra l D ep osit In suran ce C o rp o ra tio n to the C o m m itte e on Banking, H ousing and Urban A ffa ir s United States Senate D e ce m b e r 8, 1975 FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St. N.W., Washington, D. C, 20429 • 202-389-4221 Starting in January, a t o p -le v e l staff grou p within the F e d e ra l D ep osit In su ran ce C o rp o ra tio n has been attem pting to identify sig n ifica n t and d e m o n stra b le points of fr ic t io n within the p re se n t F e d e ra l bank r e g u la to ry stru ctu re w hich m ight ju stify recom m en d a tion s fo r m a jo r C o n g r e s sion al r e fo r m . That grou p has a lso re v ie w e d the F e d e ra l s u p e rv is o r y e x p e r ie n ce o v e r the past fiv e y e a rs in dealing with la rg e p ro b le m banks and a n u m ber of la r g e bank fa ilu r e s to d eterm in e if that e x p e r ie n ce m ight ju s tify s im ila r re co m m e n d a tio n s. F in a lly , the group has attem pted to analyze the poten tial advantages and disadvantages qf a sin gle F e d e ra l bank re g u la to ry a g en cy w hich m ight e x e r c is e a ll of the p o w e rs w hich a re today v ested in the C o m p tr o lle r o f the C u rre n cy and the FDIC as w e ll as the exam in ation and s u p e r v is o r y p o w e rs p re se n tly v e ste d in the F e d e ra l R e s e rv e System . Stated s u c cin c tly , the grou p has id en tified only two sign ifica n t and d em on stra b le points o f fr ic t io n within the p re se n t stru ctu re : one relating to d iffe re n t a g e n cy attitudes tow ard bank a cq u isitio n s under the F e d e ra l Bank M e rg e r A ct, the oth er relatin g to the ov erla p p in g authority o f the F e d e ra l R e s e r v e S y stem in con n ection with on e-b a n k holding co m p a n ie s in w hich the only bank su b sid ia ry is eith er a national bank su p e rv ise d by the C o m p tro lle r of the C u rre n cy o r a n on m em b er bank su p e rv ise d by som e state banking departm ent at the state le v e l and the FDIC at the F e d e ra l le v e l. A s the C om m ittee w ill r e c o g n iz e , n eith er of th ese item s had anything to do with the fa ilu r e o r n ea r fa ilu r e o f United States N ational Bank, F rank lin N ational - Bank o r S e cu rity N ational Bank. 2 - The group fu rth er found that the existin g a g en cy stru ctu re w as not a sig n ifica n t fa c to r in any o f the re ce n t fa ilu r e s w h ich have b een so w id ely p u b liciz e d and that a d iffe re n t bank agen cy stru ctu re at the F e d e ra l le v e l w ould not n e c e s s a r ily have p rev en ted any o f them . T h is finding r e fle c t s , I am su re , the tru is m that no a gen cy w ill b e any b e tte r than its le a d e rsh ip o r the m en and w om en who staff it. If re ce n t bank fa ilu r e s p ro v id e no ju s tifica tio n in fa ct fo r stru ctu ra l r e fo r m of bank reg u la tion at the F e d e ra l le v e l, the c a s e fo r a co n so lid a te d bank a g en cy w h ich co m b in e s a ll the p o w e rs o f the th re e existin g a g e n cie s m u st r is e o r fa ll on the w eight w hich C o n g re ss attaches to its r e s p e c tiv e advantages and d isa d v a n ta ges. The cre a tio n o f such an a g en cy w ould be such a fa r -r e a c h in g and d ra m a tic change in the existin g o r d e r of things that I b e lie v e the C om m ittee m ight find u sefu l ou r s t a ff's su m m ary o f the p r o s and co n s o f such an a g en cy . ARGUM ENTS IN F A V O R O F A CONSOLIDATED F E D E R A L BANK R E G U L A T O R Y A G E N C Y OUTSIDE THE F E D E R A L RESERVE SYSTEM 1. C o m m u n ica tio n . S im p lifica tio n of A d m in istra tion ; Im p rov ed Internal and E xtern al A co n so lid a te d agen cy w ould p ro v id e a sin gle fo c a l point fo r C o n g re s s io n a l and A d m in istra tio n con ta ct on m a tte rs o f bank reg u la tion and su p e rv is io n . A d d ition a lly , a ll pu blic in q u irie s on m a tte rs o f banking and bank reg u la tion cou ld b e a d d re ss e d to the sin gle a g en cy . A ll agen cy a ction s and d e c is io n s w ould o rig in a te , p re su m a b ly , fro^n a sin gle A d m in istr a to r o r a sin gle B o a rd . Instead o f 14 FDIC re g io n s , 14 N ational bank re g io n s and - 3 - 12 F e d e r a l R e s e r v e D is tr icts (few o f w hich a re today id en tica l) a m uch sim p le r re g io n a l setup cou ld be a ch iev ed . 2. E lim in a tion o f M on etary P o lic y as a C on flictin g G o a l. The fa ct that the sco p e o f r e s p o n s ib ilitie s d iffe r s am ong the th ree F e d e ra l banking a g e n cie s re su lts in a n u m ber of in tern al c o n flic ts with r e s p e c t to the handling o f s u p e r v is o r y p r o b le m s . T his is thought by m any to be a p a r tic u la r p r o b le m fo r the F e d e ra l R e s e r v e S ystem w h ose p rin cip a l function is the fo rm u la tio n and im plem en ta tion of m on eta ry p o lic y . T h ese o b s e r v e r s b e lie v e that w h ere the im plem en tation o f m on eta ry p o lic y g oa ls is com b in ed with re g u la r bank exam ination and su p e rv isio n , the fo r m e r w ill alw ays be view ed as m o r e im portan t than the la tte r and w ill p reven t a co n s iste n t, evenhanded a p p roa ch to m a tte rs of bank su p e rv isio n . T his p ro b le m w ould be re d u ce d by setting up a sin gle bank re g u la to ry agen cy d iv o rce d fr o m m o n e ta ry p o lic y r e s p o n s ib ilit ie s . 3. E con om y and E fficie n cy o f O p era tion . C o n sid e ra b le econ om y could be a ch ie v e d by com b in in g the le g a l, r e s e a r c h , training and other W ashington O ffic e fu n ction s of the th ree existin g bank re g u la to ry a g e n c ie s . T h ere w ould b e a red u ction in se n io r agen cy staff tim e spent com m unicating with and keeping cu rre n t with the a ctiv itie s of oth er a g e n cie s . M o re e fficie n t u se cou ld be m ade o f ex a m in er tim e , training and s p e c ia liz e d c a p a b ilitie s . A sin gle agen cy would elim in ate d iffe r e n c e s in the fo r m and su bstan ce o f r e p o r ts o f exam ination and would be able to iss u e u n iform in stru ctio n s to a ll e x a m in e rs. T ra v e l tim e of ex a m in ers cou ld be - 4 - red u ced , and in m any in sta n ces w h ere it has not h e r e to fo r e been fe a s ib le , all banks within a p a r tic u la r com m unity cou ld be exam ined sim u lta n eou sly . A sin gle a g en cy cou ld m ake m o r e e fficie n t u se o f s p e cia liz e d e x p e rtis e to handle co m p lica te d c r e d its and to co n ce n tra te on such a re a s as trust a ctiv itie s , in tern ation al d epartm ents and fo re ig n o ffic e s o f in su red banks, ce rta in data p r o c e s s in g and oth er a re a s o f autom ated a ctiv ity , and c o m p lia n ce with F e d e ra l and state statutes in the co n su m e r p ro te ctio n a re a . E con om y cou ld be a ch iev ed through a sin gle training p ro g ra m w hich would not only red u ce existin g d u plication , but fa cilita te the d evelopm ent o f m o r e advanced and s p e c ia liz e d train in g. A sin gle a g en cy w ould elim in ate d iffe r e n c e s in re p o rts file d by in su red banks, th ereb y elim inating som e duplication o r redundant e ffo rt in a d m in isterin g and p r o c e s s in g such r e p o r ts , in com p u ter c o s ts and in pu b lica tion c o s t s . 4. E lim in a tion of A ctual o r P oten tia l P o lic y C o n flic ts . a gen cy w hich w as ex p ected to trea t a ll in su red banks a lik e, r e g a r d le s s of c h a rte r, w ould brin g to ta lly u n ifo rm treatm ent in such m a tte rs as ru le s, re g u la tion s, standards and p r o c e d u r e s . F o r ex a m p le, a sin gle, rather than th ree sep a ra te g u id elin es on a su b je ct, such as in s id e r tra n sa ctio n s , cou ld be e ffe c te d . A ls o , u n ifo rm a p p lica tion o f statutory p o w e rs , such as c e a s e and d e s is t p o w e r s , w ould re su lt. Banks would a lso be su b ject to g re a te r u n ifo rm ity with r e s p e c t to loan c la s s ific a tio n s , p o lic ie s on ca p ita l A single - 5 - adequacy and oth er a re a s re la te d to bank exa m in a tion s. C on solid a tion o f this kind w ould a lso re su lt in a sin gle p o lic y on ch a rte rin g , branch ing and */ m ergers. 5. F a cilita tin g the Handling o f F ailin g Banks. It has been a lle g e d that the in v olv em en t o f th ree F e d e ra l banking a g e n cie s in the handling of som e fa ilin g banks p ro lo n g s and o v e r ly c o m p lica te s an a p p ro p ria te re so lu tio n of the p r o b le m . A sin gle a g en cy p ro b a b ly cou ld re d u ce the tim e in v o lv e d . Under p re se n t a rra n g e m e n ts, it is d ifficu lt to co n s id e r all a lte rn a tiv e s m o r e o r le s s sim u lta n eou sly , b e ca u se the th ree a g e n cie s have som ew hat d iffe re n t p o w e rs re la te d to solvin g th ese p ro b le m s (e, g . , the C orn p troller has c o n s id e ra b le fle x ib ilit y in a rra n gin g a national bank m e r g e r w hich d oes not re q u ire s p e c ia l G ov ern m en t fin a n cia l a s s is ta n c e o r gu a ra n ties, w hile the F e d e ra l R e s e r v e can p ro v id e liq u id ity a s s is ta n c e and the FDIC can p ro v id e oth er types o f fin a n cia l a s s is ta n c e to in su red banks r e g a r d le s s o f ch a r te r ). 6. Im p ro v e d R egu lation o f Bank Holding C om p a n ies, T h eir A ffilia te s , and C erta in O ther Bank R e la tio n sh ip s. A sin gle F e d e ra l bank a g en cy w ould have r e s p o n s ib ilit y 'fo r exam ining banks and th eir holding com pan y a ffilia te s , th ereb y fa cilita tin g a m o r e co m p le te p ictu re of the entire op e ra tio n and the a s s e s s m e n t o f the o v e r a ll r is k e x p o su re of the holding com pan y and its * / The C o m p tr o lle r is the only F e d e r a l banking agen cy having ch a rte rin g and b ran ch in g au th ority, but the FDIC and to a le s s e r extent the F e d e ra l R e s e r v e each p lay an im p orta n t r o le in the esta b lish m en t and bran ch expansion of State banks. - 6 - a ffilia ted banks and nonbank b u s in e s s e s . Under p re se n t a rra n g em en ts the F ed e ra l R e s e r v e has ce rta in re g u la to ry authority o v e r the a ctiv itie s of holding com p a n ie s w h ose p rin cip a l a s s e ts m ay be banks su b ject to the regu lation o f the oth er two F e d e ra l banking a g e n cie s . When C o n g re ss a d d re ss e d the bank holding com pany iss u e in 1970 and con cen tra te d re g u la to ry authority within the F e d e ra l R e s e r v e , C o n g re ss was p r im a r ily co n c e rn e d with the range o f p e r m is s ib le nonbank but bankrela ted a ctiv itie s to be m ade a v ailab le to such holding co m p a n ie s. In m o r e recen t y e a r s is s u e s re la te d to fin a n cia l a rra n g em en ts of holding com p a n ies and th eir im p a ct on bank r is k have b e c o m e m o r e im portan t than p e r m is s ib le a ctiv itie s , and the p re se n t re g u la to ry a rra n g em en t d oes not se e m to be w e ll suited to deal with th ese is s u e s . Even apart fr o m the holding com pany fra m e w o rk , th ere e x ist in tod a y ’ s banking sy ste m m any co m p lica te d fin a n cia l a rra n g em en ts a s s o c ia te d with join t ven tu res and sh ared c r e d its w h ere the p resen t F e d e r a l re g u la to ry stru ctu re m akes it d ifficu lt to get a co m p le te p ictu re o f a b a n k 's r is k e x p o su re in a p a rticu la r tra n sa ctio n . A sin gle agen cy cou ld a m e lio ra te this situation. 7. A g e n cy . Gains to Banks and Bank C u sto m e rs fr o m a Single F e d e ra l D iffe r e n c e s in re g u la tio n s, in exam in ation standards and rep ortin g req u irem en ts am ong the F e d e ra l banking a g e n cie s m ay re su lt in d iffe re n t trea tm en t o f s im ila r situations and, as a re su lt, in som e in e q u itie s. In addition, th ere a re c o s t s im p o s e d on the banks and the pu blic in having to w ork with and understand th ese d iffe r e n c e s . - 7 - 8. A dju stin g to a R apidly Changing E n viron m en t. Rapid ch an ges have b een o c c u r r in g in banking in re ce n t y e a r s - - fo r ex a m p le, in such d evelop m en ts as the grow th o f b a n k -re la te d a ctiv itie s a c r o s s state lin e s through h oldin g co m p a n ie s, innovations in the paym ent sy ste m and the grow in g im p o rta n ce o f in tern ation al o p e ra tio n s in the a ctiv itie s of la r g e banks - - and th ere is no re a s o n to a ssu m e that this p r o c e s s w ill d e c e le r a te . A sin gle F e d e r a l banking a g en cy m ay be in b e tte r p o sitio n to com m an d the te ch n ica l and s p e c ia liz e d r e s o u r c e s and to e x e r c is e the a d m in istra tiv e fle x ib ilit y n e c e s s a r y to co p e with this changing en viron m en t. ARGUM ENTS AGAINST A CONSOLIDATED F E D E R A L BANK R E G U L A T O R Y A G E N C Y TH A T COMBINES A L L THE EXAM IN ATIO N . SUPERVISION AND R E G U L A T O R Y POW ERS OF THE TH R EE EXISTING F E D E R A L AGENCIES 1. The P r e s e n t S ystem Has W orked R ea son a b ly W ell. D espite what a p p ea rs to be a c u m b e rs o m e stru ctu re on p a p e r, the p re se n t sy ste m , fo r the m o s t p a rt, has w o rk e d w e ll. In co n s id e rin g the substantial r e v is io n n e c e s s a r y to b rin g about a sin gle a ll-p o w e r fu l a g en cy , it is im portan t to r e a liz e that such a co n s o lid a tio n w ould in v o lv e a c o n s id e r a b le d isru p tion in o r d e r ly o p e ra tio n s and that it m igh t take y e a r s f o r a sm ooth -ru n n in g a g en cy to be esta b lish e d . The c o s t o f this d isru p tion should be w eigh ed against the a ssu m ed b e n e fits of such a sin gle a g e n cy . 2. Such an A g e n cy W ill Not be a P a n a ce a . A sin gle a ll-p o w e r fu l a g en cy w ill not a s s u r e u n ifo rm and quality p e r fo r m a n c e in a ll exam in ation s and in a ll s u p e r v is o r y a c tiv it ie s . Q uality d iffe r e n c e s w ill p e r s is t . Our own study o f the exam in ation p r o c e s s su ggests that th ere a re re g io n a l and quality - 8 - d iffe r e n c e s within each a gen cy w hich m ay e x ce e d in tera g en cy d iffe r e n c e s . With r e s p e c t to im p ro v in g the flo w of in form a tion , g re a te r in tera g en cy co o rd in a tio n , even within the p re se n t sy ste m , m ight a c co m p lis h m uch of what cou ld be a c co m p lis h e d through a sin gle a g en cy . Under the p re se n t sy stem th ere m ay be co n s id e r a b le r o o m fo r im p rovin g exam in ation techniqu es and im p rov in g the a llo ca tio n o f s u p e rv is o r y r e s o u r c e s , and we have been devoting co n s id e r a b le e ffo r t in this d ire ctio n at the FDIC, H ow ev er, a sin gle a g en cy w ill not, by its e lf, bring about such im p ro v e m e n ts. 3. C on cen tra tion of P o w e r and the E lim ination of R egu la tory C h o ic e . C reating a sin gle a ll-p o w e r fu l agen cy w ould con cen tra te an e x tra o rd in a ry am ount of p o w e r w ithin a sin gle unit of g ov ern m en t. Banks and the public cou ld be s u b je ct to r e la tiv e ly a rb itr a r y o r re la tiv e ly in fle x ib le b e h a v io r. One advantage of the p re se n t sy ste m o r one containing m o r e than a sin gle agen cy is that such a sy ste m p ro v id e s C o n g re ss and the a g e n cie s th e m se lv e s with an in fo r m e d g rou p of poten tial c r i t ic s w hich hs-ve no v e ste d fin a n cia l in te re s ts in the o u tco m e o f a p a rticu la r c o u r s e of a ction . T his is a luxury that has not alw ays been a v a ila b le in the c a s e of oth er G overn m en t re g u la to ry a g e n c ie s , w h ose c r it ic s g e n e ra lly have co m e fr o m the industry being reg u la ted . W hile the existin g F e d e ra l and state a g e n cie s have at tim e s app ea red to be com p etin g in th eir attem pts to a cco m m o d a te banks under th eir im m ed ia te su p e rv isio n , d iffe r e n c e s in a gen cy p o lic y , so m e tim e s in flu en ced by the threat o f a shift in s u p e r v is o r (s ), have a lso p e r fo r m e d a p o sitiv e r o le in lim itin g u n rea son a b le , in fle x ib le o r a r b itr a r y b e h a v io r on the part o f one o r m o r e of - 9 - th ese a g e n c ie s . in te r e s t. Not a ll "a g e n cy shopping" has been co n tra ry to the public Indeed, th ere a re nu m erou s in sta n ces w h ere the op p o site has o c c u r r e d , w h ere the in itia l agency was not su fficie n tly re ce p tiv e to public need o r changing p r a c t ic e o r w h ere it was too stron g ly in flu en ced by the existin g banking esta b lish m en t, as fo r exam ple in its ch a rterin g o r b r a n c h ing p o lic ie s . In such in sta n ces a change of su p e rv is o r y authority by the d is s a tis fie d bank o r its o r g a n iz e r s m ay w e ll have been in the pu blic in te re s t. The a v a ila b ility of a c h o ic e am ong su p e rv iso r y au th orities h a s, of c o u r s e , been the life b lo o d of the dual banking sy ste m in this cou n try. 4, B en efits of D iv e r s ity . W hile a sin gle a ll-p o w e r fu l a gen cy cou ld m o r e re a d ily support s p e c ia liz e d training and r e s e a r c h , this m ay be o u t w eigh ed by the poten tial b en efits fr o m the d iv e r s ifie d and som ew hat independent e ffo r ts o f th ree sep a ra te F e d e ra l a g e n cie s , ju st as it is by the d iv e r s ifie d and independent e ffo r ts o f som e state banking d epartm en ts. T h e re m ay be a g r e a te r ten den cy to e x p e rim e n t and to be r e ce p tiv e to change with th ree such a g e n cie s than with only on e, sin ce the odds a re high that at le a st one of the th ree m ight be r e c e p tiv e to experirhentation and change at any point in tim e . T his is lik e ly to be the c a s e not only fr o m the standpoint of d evelopin g exam ination and s u p e r v is o r y tech n iq u es, but a lso fr o m the standpoint of accep tin g and e n c o u r aging innovation in banking p r a c t ic e s . In the past this p oten tial fo r fle x ib ility and ex p erim en ta tion on a s ta te -b y -s ta te b a sis o r by sep a ra te a g e n cie s has p ro d u ce d substantial pu blic b en efit, and it is lik e ly to do so in the fu tu re. 10 - */ D ir e c to r L e M a istre and I b e lie v e it w ould be a g ra v e m ista k e to co n s o lid a te the existin g p o w e rs of a ll th ree F e d e ra l bank a g e n cie s into one sin gle a ll-p o w e r fu l a g en cy of the type d e s c r ib e d , la r g e ly b e ca u se we b e lie v e it w ould elim in a te any m ean in gfu l c h o ic e betw een the re g u la to ry op tion s now a v a ila b le to the n a tio n 's in su re d banks. We b e lie v e that o v e r the y e a r s the banking p u b lic has ben efitted fr o m the fle x ib ilit y in ch a rterin g and su p e rv isio n w hich that c h o ic e entails and that it should not be ligh tly d is c a r d e d . Such a co n s o lid a tio n re p r e s e n ts one e x tre m e , h o w e v e r, o f the b roa d sp e ctru m of p r o p o s a ls w hich m ight a p p ro p ria te ly be c o n s id e r e d by the C o n g re ss if it d e te rm in e s that sig n ifica n t change should be m ade in the ex istin g stru ctu re of bank reg u la tion at the F e d e ra l le v e l. We b e lie v e , fo r ex a m p le, that it m ay be p o s s ib le to a ch ie v e m any o f the advantages o f g re a te r ce n tra liz a tio n without giving up the m eaningful re g u la to ry c h o ic e to w hich w e have r e fe r r e d . A C E N T R A L IZ A T IO N P R O P O S A L WHICH PR ESER V ES A R E G U L A T O R Y CHOICE T h is m orn in g I am p re p a re d to o ffe r such an in te rm e d ia te p r o p o s a l - a p r o p o s a l w hich cou ld r e a liz e a sig n ifica n t n u m ber o f the b en efits w hich ought to flo w fr o m a g r e a t e r 'c e n t r a liz a t io n o f bank re g u la to ry fu n ction s at the F e d e ra l le v e l, yet reta in s what I b e lie v e to be the key b e n e fits of innovation, s t a t e -b y state d iv e r s ity and p ro te ctio n against b u re a u cra tic rig id ity and in fle x ib ility * / The C o m p tr o lle r of the C u rre n cy , who s e r v e s ex o ffic io as the third m e m b e r of the FDIC B oard o f D ir e c t o r s , w ill no doubt be e x p re ssin g his sep a ra te v ie w s on the g e n e ra l su b ject of bank re g u la to ry r e fo r m , and nothing in this statem ent should be co n stru e d as re fle ctin g the v iew s of h is o ffic e on any fa c e t o f bank re g u la to ry r e fo r m . w hich flo w fr o m the re g u la to ry c h o ic e p re s e n tly a v a ila b le to a lm o st all in su red banks. Unlike a n u m ber of oth er v a ria n ts on re g u la to ry co n s o lid a tio n that have b een advanced, this one cou ld be e a sily and q u ick ly im p lem en ted with v e r y little d isru p tion of existin g p e rso n n e l and p r o c e d u r e s . It m aintains a sp irit of co n tr o lle d co m p e titio n betw een re g u la to ry o f fic ia ls , th ereb y en cou ra g in g in tern al re v ie w and b e tte r re g u la to ry p e r fo r m a n c e . F in a lly , it has the v irtu e of being su s ce p tib le to fu rth er evolu tion in the light of actual e x p e r ie n c e with its b e n e fits and d e fic ie n c ie s and in the light of ongoing d e v e lo p m ents in the fin a n cia l stru ctu re , such as m o r e in ten sive co m p e titio n betw een c o m m e r c ia l banks and th rifts, m o r e ex ten siv e in tersta te banking and m o r e co m p re h e n s iv e d e p o s ito r s e r v ic e through E F T fa c ilit ie s and w ir e tra n s fe r s y s te m s . B r ie fly stated, it contains th ese e le m e n ts: 1. The O ffic e o f the C o m p tr o lle r of the C u rre n cy w ould be c o n - tinued with on ly two sig n ifica n t m o d ific a tio n s in its ex istin g p o w e rs and ju r is d ic t io n . The fir s t w ould a u th orize the C o m p tr o lle r to a p p rov e o r deny nonbank a cq u isitio n s by on e-b a n k holding co m p a n ie s in a c c o r d a n c e with R egu lation Y § 2 2 5 .4 w h ere the only bank su b sid ia ry of the holding com pan y is a national bank and w ould s im ila r ly p la ce in the C o m p t r o lle r ’ s O ffice fu ll exam in ation and s u p e r v is o r y p o w e rs o v e r each such on e-b a n k holding com p an y. The secon d sig n ifica n t m o d ifica tio n I w ould re co m m e n d w ould be to tra n s fe r ju r is d ic t io n o v e r m e r g e r s and s im ila r types of a cq u isitio n s w h ere the resu ltin g bank is a national bank to the m u lti-m e m b e r b o a rd d e s c r ib e d b e lo w . 2. The bank exam in ation and s u p e r v is o r y p o w e rs of the F e d e ra l R e s e r v e S ystem and the FDIC dealing with S ta te -c h a rte red banks w ould be 12 - com b in ed in a new o f f i c e , headed by a sin gle a d m in istra to r, as su ggested by the Hunt C o m m is s io n . T his o ffic ia l, who w ould s e rv e a f iv e - y e a r te r m lik e the C o m p t r o lle r 's , m ight be nam ed the " F e d e r a l S u p e rv iso r of State B anks. " He too should be a u th orized to a p p rov e o r deny nonbank a cq u isitio n s by on e-b a n k holding co m p a n ie s in a c c o r d a n c e with R egu lation Y § 2 2 5 „4 w h ere the only bank su b sid ia ry of the holding com pan y fa lls within his ju r is d ic tio n (if e. , w h ere it is S ta te -c h a rte re d ) and to con d u ct a ll F e d e ra l exam in ation and s u p e r v is o r y a c tiv itie s with r e s p e c t to such a holding com p an y. J u r is d iction o v e r m e r g e r s and s im ila r types o f a cq u isitio n s w h ere the resu ltin g bank is a State bank w ould be tr a n s fe r r e d to the m u lti-m e m b e r b o a rd d e s c r ib e d b elow . 3. A fiv e -m e m b e r F e d e ra l Banking B oa rd w ould be c r e a te d , with th ree ex o ffic io m e m b e r s : the C o m p tr o lle r o f the C u rre n cy , the F e d e ra l S u p e rv iso r of State B anks, and a G o v e rn o r o f the F e d e ra l R e s e r v e S ystem design a ted fo r this p u rp o se by the B oa rd of G o v e r n o r s . The two rem ainin g m e m b e r s w ould be appointed by the P re s id e n t and co n firm e d by the Senate fo r te r m s o f fiv e y e a r s each , one o f w hom the P re s id e n t w ould d esign ate as C hairm an. The p o w e rs of this B oard should be lim ite d to th ose n e c e s s a r y to im p lem en t u n ifo rm national p o lic y in the regu la tion o f the n a tio n 's banks and should be v e r y ca r e fu lly and s p e c ific a lly d etailed by the C o n g re ss in its enabling le g is la tio n . Since I b e lie v e the C o n g re s s has a lre a d y in d ica ted the d e s ir a b ility of a u n ifo rm national p o lic y in the follow in g a r e a s , I w ould a ssu m e that each - 13 - o f them w ould be a d m in iste re d by the p r o p o s e d F e d e r a l Banking B o a rd : (i) the F e d e r a l d e p o sit in su ra n ce p r o g r a m , including the p re se n t liq u id a tion and r e c e iv e r s h ip fu n ction s o f the FD IC , the p re se n t fin a n cia l a s s is ta n c e authority of the FDIC with r e s p e c t to banks in danger of c lo s in g , and the p o w e rs o f the FDIC rela tin g to the cu sto d y , c o n tr o l and in v estm en t o f the FDIC tru st fund; (ii) the bank holding com p an y p o w e rs p re s e n tly v e ste d in the F e d e ra l R e s e r v e B oa rd - - oth er than th ose re la te d to on e-b a n k holding co m p a n ie s w hich I w ould a s s ig n to the C o m p tr o lle r o f the C u rre n cy o r the F e d e ra l S u p e rv iso r of State B anks, i. e. , the p o w e r to a p p rov e o r deny s p e c ific nonbank a cq u isitio n s of on e-b a n k holding co m p a n ie s in a c c o r d a n c e with R egu lation Y § 2 2 5 .4 and the re s p o n s ib ility to exam in e and s u p e rv ise such on e-b a n k holding co m p a n ie s and a ll of th eir a ffilia te s ; (u i) bank a c q u i sition s w hich p re s e n tly fa ll under the Bank M e r g e r A ct; (iv) the p ro m u lg a tion of u n ifo rm reg u la tion s a p p lica b le to a ll in su re d banks w hich the C o n g re ss has h e r e t o fo r e a ssig n e d to the F e d e r a l R e s e r v e B o a rd , such reg u la tion s to be e n fo rc e d in the c a s e of national banks b y the C o m p tr o lle r of the C u rre n cy and in the c a s e o f State banks by the F e d e r a l S u p e rv iso r of State B anks; and (v) the c o lle c t io n of b a s ic fin a n cia l data and oth er e s s e n tia l in fo rm a tion fr o m in su re d banks w h ich is n eeded on a u n ifo rm b a s is r e g a r d le s s o f c h a r te r . * / E xa m p les o f such reg u la tion s in clu d e th ose relatin g to nonbank a ctiv itie s under the Bank H olding C om pany A ct and th ose p rom u lg a ted o r to b e p r o m u l gated under the T ru th -in -L e n d in g A ct, the F a ir C red it B illin g A ct, the Equal C re d it O pportunity A ct, and the F e d e ra l T ra d e C o m m is s io n Im p ro v e m e n ts A ct. 14 O b v io u sly , the a v a ila b ility o f a m u lti-m e m b e r B oa rd fo r th ese b a s ic p u rp o se s m ight p rom p t the C o n g re s s to re v ie w oth er statutes w h ich con tem p la te trip a r tite ru lem ak in g and e n fo rce m e n t, such as the Bank P r o te c tio n A ct, but in m y v iew C o n g re s s io n a l additions to the p o w e rs of the F e d e ra l Banking B oard should be s t r ic t ly lim ite d to th ose w h ere the need fo r u n ifo rm ity is ob v iou s and co n v in cin g . T o a ssig n a ll m a tte rs o f su bstan ce to this B oa rd , even if national u n ifo rm ity is not re q u ir e d , w ould only s e r v e to d e tra ct fr o m the fle x ib ilit y and v ita lity that is p o s s ib le with sep a ra te national and state banking s y s te m s . 4. The F e d e ra l Banking B oa rd should have ce rta in p o w e rs of o v e rsig h t in the exam in ation and s u p e rv isio n o f in su red b a n k s. My p roposal con tem p la tes the continued exam in ation o f national banks by the C o m p tr o lle r of the C u rre n cy and the exam in ation o f State banks by the F e d e r a l S u p e rv iso r of State Banks in con ju n ction with state banking d ep a rtm en ts. The p r o p o s e d F e d e ra l Banking B oard w ou ld, h o w e v e r , be a d m in iste rin g the d e p o sit in su ra n ce p r o g r a m and it should rou tin ely exam in e a sm a ll p e rce n ta g e o f both national and State banks annually in o r d e r to evaluate the quality of the exam in ation r e p o r ts it r e c e iv e s on a re g u la r b a s is f r o m th e ir r e s p e c tiv e s u p e r v is o r s . F o r this p u rp o s e , it w ill need a m o d e s t nu m ber of e x p e r ie n ce d and w e lltra in ed e x a m in e rs and support p e rs o n n e l w h ose ranks it can supplem ent by te m p o ra ry d eta ils fr o m the O ffic e of the C o m p tr o lle r and the o ffic e o f the F e d e ra l S u p e rv iso r of State B anks. The B oard should a ls o have the p o w e r 15 - to s y n ch ro n iz e exam in ation s o f a ll bank s u b s id ia rie s and a ffilia te s o f m u lt i bank holding co m p a n ie s, even though the actu al bank exam in ation w ork is p e r fo r m e d by the C o m p tr o lle r o f the C u rre n cy and the F e d e ra l S u p e rv iso r of State B anks, In addition, the B oard should have fu ll authority to c o ord in a te, sy n ch ro n iz e and s u p e rv ise the w orkou t o f sy stem w id e p r o b le m s in m u lti-b a n k holding co m p a n ie s. 5. The F e d e r a l Banking B oa rd should m aintain c lo s e w orking re la tio n sh ip s with the F e d e r a l R e s e r v e S y stem as the n a tion ’ s ce n tra l bank. T h e se re la tio n sh ip s a re lik e ly to be m u lti-fa c e te d in v ie w o f the F e d e ra l R e s e r v e ’ s r o le as ’ ’le n d e r o f la s t r e s o r t , ” fo r m u la to r o f m o n e ta ry p o lic y and the n a tion ’ s re p re se n ta tiv e am ong ce n tra l banks o f the w o r ld . T h is is one re a s o n why the F e d e r a l Banking B oa rd I am p ro p o s in g has am ong its m e m b e r s a G o v e rn o r o f the F e d e r a l R e s e r v e B o a rd , but m o r e e x p licit re la tio n sh ip s w ill be n e c e s s a r y . The F e d e ra l R e s e r v e S ystem should be a u th orized , f o r ex a m p le, to continue to c o lle c t fr o m a ll m e m b e r banks the in fo rm a tio n n e c e s s a r y fo r the fo rm u la tio n and im p lem en ta tion o f m o n e ta ry p o lic y , w h ile the F e d e r a l Banking B o a rd w ould be ch a rg e d with the duty to d e v e lo p , c o m p ile and tra n sm it any o th e r in fo rm a tio n on the banking sy ste m w h ich the F e d e r a l R e s e r v e n eed s in the fo rm u la tio n o f m o n e ta ry p o lic y o r in its o v e r s e a s re la tio n s . The F e d e r a l R e s e r v e S ystem should have re g u la r input into the d e c is io n s o f the C o m p tr o lle r o f the C u rre n cy , the F e d e ra l S u p e rv is o r o f State Banks and the F e d e ra l Banking B oard with r e s p e c t to the a ctiv itie s o f fo r e ig n banks and th eir a ffilia te s in this cou n try as w e ll as - 16 - the a c tiv itie s o f U. S. banks o v e r s e a s . E m e r g e n cy b o rro w in g s fr o m the F e d e ra l R e s e r v e d iscou n t w indow should be a v a ila b le to m e m b e r and n o n m e m b e r banks a lik e upon c e r t ific a t io n by the F e d e r a l Banking B oard that they a re in d an ger of fa ilin g and that such a s s is ta n c e is n e c e s s a r y f o r a te m p o r a r y p e r io d until a m e r g e r , a r e c e iv e r s h ip sa le o r so m e oth er o r d e r ly re so lu tio n o f the b a n k 's p r o b le m s is a rra n g e d . The F e d e ra l Banking B oa rd , in turn, should be a u th orized to guarantee the rep a ym en t o f such b o rro w in g s to the F e d e r a l R e s e r v e S y stem out o f the r e s o u r c e s of the F e d e ra l d e p o sit in su ra n ce fund w hich the F e d e r a l Banking B oa rd w ill be a d m in iste rin g . The F e d e r a l Banking B oard should a lso be re q u ir e d by law to keep the F e d e r a l R e s e r v e S ystem fu lly in fo rm e d with u p -t o -d a t e in fo rm a tio n as to the fin a n cia l con d ition o f a ll such banks engaged in e m e rg e n cy b o rro w in g fr o m the F e d e r a l R e s e r v e 's d iscou n t w in dow . T h e se s p e c ia l p r o v is io n s w ould not a ffe c t oth er types o f b o rro w in g by m e m b e r banks fr o m the d i s count w indow . 6, The F e d e r a l Banking B oa rd should pay a ll c o s t s o f exam in ation and su p e rv is io n in c u r r e d by the C o m p tr o lle r o f the C u rre n cy and the F e d e r a l S u p e rv is o r of State Banks and should have fu rth e r authority to d e fra y the ex p en ses o f q u a lifie d state banking d epartm en ts w hich take o v e r by co n tra ct I The authority to guarantee such e m e rg e n cy b o rro w in g s fr o m the F e d e ra l R e s e r v e m ay m ake an in c r e a s e d e s ir a b le in the am ount, p re s e n tly $3 b illio n , w h ich the FDIC (and the p r o p o s e d F e d e r a l Banking B oa rd in the fu tu re) can draw fr o m the United States T r e a s u r y on dem and, o v e r and ab ove the a s s e ts a v a ila b le in the F e d e r a l d e p o sit in su ra n ce fund. - 17 - any of the exam in ation o r s u p e r v is o r y fu n ction s o f the F e d e r a l S u p e rv iso r o f State B anks. T h e se e x p en ses can b e re a d ily a b s o rb e d , without the a p p r o p r ia tion o f tax re v e n u e s ra is e d fr o m the g e n e ra l p u b lic, in the g r o s s annual in c o m e d e riv e d by the F e d e ra l Banking B oa rd fr o m F e d e r a l d e p o sit in su ra n ce p re m iu m s paid each y e a r by the n a tio n 's in su re d banks and fr o m the in v e s t m ent in co m e o f the F e d e r a l d e p o sit in su ra n ce fund a ccu m u la ted sin ce 1934. ¡¡¡< >!< >!< sje >!< It is ob v io u s that this p r o p o s a l has two b a s ic fe a tu r e s . One attem pts to a cco m m o d a te the dem ands fo r g r e a te r ce n tra liz a tio n at the F e d e r a l le v e l with the tra d itio n s and p oten tia ls o f our ex istin g sy ste m o f national and state b an ks. The oth er r e m o v e s the F e d e r a l R e s e r v e B o a rd fr o m d a y -to -d a y d e cis io n -m a k in g in m a tte rs o f banking reg u la tion and su p e rv isio n when its p rin cip a l jo b is and w ill no doubt re m a in the fo rm u la tio n and im p lem en ta tion of m on eta ry p o lic y . A w o rd about each o f th ese m a tte rs is n e c e s s a r y . O v e r the y e a r s , the fa c t that com p etin g banks cou ld be ch a rte re d and reg u la ted under e ith e r F e d e ra l o r state law has re su lte d in sig n ifica n t b en efits to the A m e r ic a n p u b lic by way o f fin a n cia l s e r v ic e and co n v e n ie n ce . F o r q u a lifie d p e o p le seeking to en ter the banking b u s in e s s , a tu rn -d ow n by the C o m p tr o lle r o r the lo c a l State S u p e rv iso r w as not n e c e s s a r ily the end of the lin e . Many banks w h ich have su rv iv e d and p r o s p e r e d w ould not be in b u sin e ss today if an a lte rn a tiv e m ean s o f entry had not been p o s s ib le in itia lly . T h is is on ly one e x a m p le, but p erh a ps the c le a r e s t , o f how p u b lic - 18 - co n v e n ie n ce and n eed s can be s e rv e d d e sp ite an in itia l denial by a d iffe re n t re g u la to r . Although m any inn ovations in banking s e r v ic e sin ce I960 have b een en cou ra g e d by ru lin gs o f s u c c e s s iv e national bank a u th o ritie s, only to be a u th orize d th e re a fte r by state s u p e r v is o r s o r state le g is la tu r e s fo r S ta te -c h a r te r e d ban ks, it w ould be w e ll to re m e m b e r that the f ir s t b ra n ch es w e r e esta b lish e d b y State banks a ctin g under state a u th ority, the f ir s t re a l estate loa n s w e r e m ade by State banks and State banks w e r e the on es f ir s t a u th orized to o ffe r fid u c ia r y s e r v ic e s to th e ir c u s to m e r s . M o r e o v e r , one cannot d is r e g a r d cu r re n t state e ffo r ts in the a re a o f e le c t r o n ic funds tr a n s fe r , co n s u m e r p ro te c tio n and fin a n cia l r e fo r m . In this la st re g a rd , I think it h igh ly sig n ifica n t that M aine has a lre a d y im p lem en ted the e sse n tia l elem en ts o f the r e fo r m s p r o p o s e d by the Hunt C o m m is s io n and con tain ed in the A d m in is tr a tio n 's p r o p o s e d F in a n cia l Institutions A ct. S om e banking inn ovations sp rea d on ly fr o m one state sy ste m to a n oth er, fre q u e n tly with v a ria tio n s su g g ested by e x p e r ie n c e o r a d iffe re n t banking en viron m en t. When it fu n ction s p r o p e r ly , the dual banking sy ste m is both p r o -c o n s u m e r , in the sen se that it fo& ters the in trod u ction o f s e r v ic e s bank c u s to m e r s need o r d e s ir e , and p r o -c o m p e t it iv e , in the se n se that a lib e r a l p o lic y in one sy ste m with r e s p e c t to new c h a r t e r s , new b ra n ch e s o r new s e r v ic e s can p erm a n en tly d isru p t a co n fo r ta b le status quo in a given s e r v ic e a re a with ob v iou s b en e fits to lo c a l bank c u s to m e r s . A p r o p e r ly functioning dual banking sy ste m is a ls o a sig n ifica n t p r o te c tio n a gain st u n re a so n a b le , in fle x ib le o r a r b itr a r y r e g u la to ry con d u ct, - 19 - as is volu n ta ry m e m b e rs h ip in the F e d e r a l R e s e r v e S y stem . W ithout new id e a s , p e r s is te n tly a p p lied , nu rtu red and a b s o r b e d , any b u r e a u c r a c y can go through an o s s ific a tio n p r o c e s s ju st lik e the p e tr ifie d f o r e s t s that long ago stopped p rod u cin g t r e e s . T h is h a sn 't happened in bank reg u la tion , o r at le a s t not f o r lon g , la r g e ly b e ca u se the num ber o f re g u la to rs is so la r g e and the p o s s ib ilit y o f sw itching re g u la to rs is so w id e ly r e c o g n iz e d that new id e a s , so o n e r o r la te r , w ill have to be c o n s id e r e d by even the m o s t re sista n t of r e g u la to ry a u th o ritie s. C om p etition am ong bank r e g u la to r s , in oth er w o r d s , can be a healthy thing if it le a d s to b e tte r exam ining te ch n iq u e s, b e tte r a d m in is tr a tiv e p r o c e d u r e s , im p r o v e d fin a n cia l s e r v ic e s fo r the p u b lic, o r a m o r e co m p e titiv e banking en viron m en t. A c c o r d in g ly , I b e lie v e ou r sy ste m o f national and State banks, se p a ra te ly c h a rte re d and reg u la ted , is w orth p r e s e r v in g . T h is a cco u n ts f o r the p ro m in e n ce I w ould continue to g iv e to the O ffic e o f the C o m p tr o lle r and fo r the r o le I w ould e n v isa g e fo r the p r o p o s e d F e d e r a l S u p e rv iso r o f State Banks v i s - a - v i s state banking d ep a rtm en ts. W hile the C o m p t r o lle r 's O ffic e has been on the d e fe n siv e in the p ast two y e a r s b e c a u s e o f the w id e ly p u b li c iz e d fa ilu r e s and n ea r fa ilu r e s o f la r g e national banks, n u m erou s r e fo r m s have b een instituted and th ere se e m s now to be a g e n e ra l a le rtn e s s to p r o b le m situations and a d eterm in a tion to d eal with them fo r c e fu lly that augurs w e ll fo r the fu tu re. Many state banking d epartm en ts continue to be plagued by lo w s a la r ie s , inadequate n u m b ers o f e x p e r ie n ce d e x a m in e rs and underfunding g e n e r a lly , but the n u m ber o f d epa rtm en ts ca p a b le o f taking o v e r a sig n ifica n t p o rtio n of - 20 - the state bank exam in ation and s u p e r v is o r y lo a d now supplied by F e d e r a l R e s e r v e and FDIC p e rs o n n e l cou ld be su bstan tially in c r e a s e d with F e d e r a l funding fr o m the in co m e stre a m o f the FDIC as con tem p la ted by m y p r o p o s a l. The co n s o lid a tio n p r o p o s a ls now pending in the C o n g re ss a ll se e m to c o n tem p late the e x a ct sam e trea tm en t o f national and State banks at the F e d e ra l le v e l, an h o m o g e n iza tio n w h ich in m y v ie w w ou ld, o v e r tim e , d e s tr o y the v ita lity o f the dual banking sy ste m . I think it im p e r a tiv e , h o w e v e r , that the in su rin g a g en cy , w hich in m y p r o p o s a l is the F e d e r a l Banking B o a rd , should have the p o w e r to s p o tch eck b y actu a l exam in ation each y e a r a sm a ll p e rce n ta g e o f State and national banks. T h is w ill enable the B oa rd to m o n ito r the quality o f the exam in ation r e p o r ts it r e c e iv e s on a re g u la r b a s is fr o m the C o m p t r o lle r ’ s O ffic e , fr o m the F e d e ra l S u p e rv iso r o f State Banks and co n c e iv a b ly fr o m q u a lified state banking departm en ts in states w h ere the F e d e ra l S u p e rv iso r of State Banks has w ithdraw n, in w h ole o r in p a rt, fr o m the exam in ation and su p e rv isio n o f State banks. T h is e x p licit exam in ation p o w e r should help keep both national bank and'State bank exam ining f o r c e s on th eir to e s and should p ro v id e an additional in cen tiv e b eyon d the dual sy ste m it s e lf to keep the im m ed ia te s u p e r v is o r s o f both ty p es o f banks fu lly r e s p o n s iv e to new d e v e lo p m ents in banking and to em e rg in g p u b lic n e e d s. M o r e o v e r , I w ould en v ision that when sig n ifica n t in a d eq u a cies a re found in the a v a ila b le s u p e r v is o r y t o o ls , the F e d e r a l Banking B oard w ould con v ey to the C o n g re ss and o th e rw ise m ake p u b lic its v ie w s and re co m m e n d a tio n s. - 21 - The r e m o v a l o f the F e d e ra l R e s e r v e B o a rd fr o m d a y -t o -d a y d e c is io n m aking in m a tte rs o f banking reg u la tion and s u p e rv isio n is o v e rd u e . In that re g a rd , I sh a re the v ie w e x p r e s s e d by fo r m e r V ic e C hairm an R o b e rts o n a lm o s t ten y e a r s a g o , and e ch o e d by G o v e rn o r B u ch er e a r lie r this y e a r , that "S u p e rv is io n is too im p orta n t a function in it s e lf to be the F e d e ra l R e s e r v e 's p a r t-t im e jo b . " If that w as tru e p r io r to the enactm ent o f the 1970 Bank H olding C om pany A ct A m en dm ents and the v a rio u s "c o n s u m e r p r o t e c tio n " law s the B oard is now a d m in iste rin g , it is even m o r e p e r s u a siv e tod a y. The b a s ic p r o b le m , o f c o u r s e , is that w h ere the im p lem en ta tion o f m o n e ta ry p o lic y g o a ls is co m b in e d with bank reg u la tion and s u p e rv isio n , the fo r m e r w ill alw ays be v iew ed as m o r e im p orta n t than the la tte r and the tem p tation o r th reat is e v e r p re se n t to u se the p o w e rs o f regu la tion and s u p e rv isio n to rew a rd banks fo r th e ir co o p e ra tio n o r to p e n a lise banks fo r th eir la ck of co o p e r a tio n with the B o a r d 's m o s t re ce n t v ie w o f its m o n e ta ry p o lic y g o a ls . S in ce th o se g o a ls change with som e fre q u e n c y , the lik e lih o o d o f a c o n s is te n t, evenhanded a p p roa ch to m a tte rs o f bank reg u la tion and s u p e rv isio n o v e r any length o f tim e is v e r y m uch in doubt. W h erea s p r io r to 1970, this w as a s p e cia l c o n c e r n only of la r g e State m e m b e r banks w hich the F e d e r a l R e s e r v e S y stem a ctu a lly exam in ed o r o f m e m b e r banks f o r c e d to the d iscou n t w indow , it is now the c o n c e r n o f e v e ry bank in a holding com p an y sy ste m . - 22 - A m a jo r ity o f the p re se n t B oa rd o f G o v e rn o rs has stated that "N ow , m o r e than e v e r b e fo r e . . . " the n a tio n 's ce n tra l bank "n e e d s to be in v olv ed in the p r o c e s s o f bank reg u la tion and s u p e r v is io n " sin ce "the F e d 's k ey r o le s as m o n e ta ry p o lic y -m a k e r and as le n d e r of la s t r e s o r t re a ch into t e r r it o r y con d ition ed by p re v a ilin g bank s u p e r v is o r y and re g u la to ry p o lic ie s . E ach o f th ose sets o f p u b lic p o lic ie s a ffe c ts the e ffe c tiv e n e s s o f the o th e r. */ T h e ir c lo s e co o rd in a tio n is m uch to be d e s i r e d ." The p r o p o s a l I am m aking r e c o g n iz e s the need f o r c lo s e co o rd in a tio n , but it d oes not co n c e d e the n e c e s s it y f o r m o n e ta ry p o lic y p u rp o se s o f d a y -t o -d a y in v olv em en t by the B oa rd o f G o v e rn o rs in bank exam in ation , bank holding com p an y d e c is io n s o r the im p lem en ta tion o f n u m erou s " c o n s u m e r p r o t e c tio n " la w s. So fa r as I am a w a re , m y v ie w o f th ese m a tte rs is sh a red by m o s t kn ow led geab le o b s e r v e r s ou tsid e the S y stem and by quite a fe w w ithin it. W ithout ela b ora tin g in d eta il, w hich I w ill file with the C om m ittee in due c o u r s e , I b e lie v e that m y p r o p o s a l a ls o d ea ls e ffe c t iv e ly with the f o llo w ing p r o b le m s o f bank reg u la tion at the F e d e r a l le v e l: -- It p r o v id e s a m o r e lo g ic a l re g u la to ry fra m e w o rk f o r dealing with the expa n sion and soun dn ess o f on e-b a n k holding co m p a n ie s, a holding com p an y g rou p w h ich is lik e ly to in c r e a s e sig n ifica n tly in nu m ber and im p o rta n ce as m o r e and m o r e states m o v e to fu ll statew ide b ra n ch in g . * / July 20, 1975, te stim o n y o f G o v e rn o r H olland b e fo r e the S u bcom m ittee on F in a n cia l In stitu tion s, S u p e rv isio n , R egu lation and In su ran ce o f the H ouse Banking, C u rre n cy and H ousing C o m m itte e . - 23 - -- It c e n te rs in a m u lti-m e m b e r b o a rd , w h ere the F e d e r a l re g u la to rs of national and State banks can both be h e a rd , fu ll r e s p o n s ib ility fo r the d evelop m en t and regu la tion o f m u lti-b a n k holding co m p a n ie s and fo r prom u lga tin g the p e r m is s ib le nonbank a c tiv itie s o f a ll bank holding co m p a n ie s. -- It ce n te r s in the sam e m u lti-m e m b e r b o a rd r e s p o n s ib ility f o r d evelop in g u n ifo rm standards to g o v e rn the a cq u isitio n o f two o r m o r e in su red banks, r e g a r d le s s o f the te ch n ica l fo r m o f the a cq u isitio n and r e g a r d le s s o f the ch a rte r status of the re su ltin g bank. -- It c r e a t e s a b e tte r m e ch a n is m than e x ists today fo r the total co o rd in a tio n o f re g u la to ry e ffo r ts to r e s o lv e the p r o b le m s o f fa ilin g banks, including a lim ite d p o w e r in the p r o p o s e d F e d e r a l Banking B oa rd to o v e r s e e the exam in ation quality o f the C o m p t r o lle r ’ s O ffic e and the o ffic e o f the F e d e r a l S u p e rv iso r of State B anks. * / The p r o p o s a l d oes not attem pt to r e s o lv e so m e im p orta n t, but c u r re n tly p e r ip h e r a l, is s u e s in bank reg u la tion today, such as (i) w hether the p o w e r to set d e p o sit ra te c e ilin g s should continue to r e s id e in th ree d iffe re n t F e d e ra l a g e n cie s o r should be t r a n s fe r r e d e x c lu s iv e ly to the F e d e r a l R e s e r v e as the n a tion ’ s ce n tra l bank; o r (ii) w hether the co n c e p t o f ’ 'm e m b e r sh ip " in the F e d e r a l R e s e r v e S y stem should be r e p la c e d by u n ifo rm r e s e r v e s * / S e v e ra l o th e r a s p e cts of m y p r o p o s a l w ould a ls o c e n tr a liz e and im p r o v e the handling o f fa ilin g banks. T h e se in clu d e the ce n tra liz a tio n within the F e d e r a l Banking B oa rd o f (1) the p re se n t authority o f the FDIC to p ro v id e fin a n cia l a s s is ta n c e to fa ilin g banks; (2) the authority to c e r t ify to the F e d e ra l R e s e r v e S y stem the need f o r e m e rg e n cy d iscou n t w indow b o rro w in g , the m o n ito rin g o f banks in that situation, and the authority to guarantee to the F e d e r a l R e s e r v e S ystem that such e m e rg e n cy b o rro w in g s w ill be re p a id ; and (3) bank m e r g e r d e c is io n s and d e c is io n s on m u lti-b a n k holding com p an y a cq u isitio n s w h ich a re so m e tim e s e s s e n tia l f o r the re so lu tio n o f a fa ilin g bank p r o b le m . - 24 - and equal a c c e s s to F e d e r a l R e s e r v e f a c ilit ie s ; o r (iii) w h eth er in due c o u r s e the r e g u la to ry stru ctu re and in su ra n ce p r o g r a m s fo r savings and loa n a s s o cia tio n s and c r e d it unions should be m e ld e d into the p r o p o s e d F e d e r a l Banking B o a rd . M y p r o p o s a l a ssu m e s that th e se m a tte rs w ill re m a in t e m p o r a r ily as they a r e , pending m o r e d eta iled and co n ce n tra te d study of the in t e r re la tio n sh ip s w h ich w ou ld be changed if C o n g re ss m o v e s away fr o m the ex istin g o r d e r in any one o f th e se a r e a s . I b e lie v e , h o w e v e r , that m y p r o p o s a l w ould b e co m p a tib le with and cou ld be adju sted to m o s t o f the solu tion s w h ich have b een o ffe r e d on th ese c o n t r o v e r s ia l m a tte r s . In that se n s e , the re g u la to ry re stru ctu rin g I am p ro p o s in g should be c o n s id e r e d an in te rim stru c tu re , su s ce p tib le o f fu rth er evolu tion in the ligh t o f e x p e r ie n ce and fu tu re d evelop m en ts in fin a n cia l com p e titio n and s e r v ic e . If th rift in stitu tion s r e c e iv e en la rg ed p o w e rs both on the a s s e t and lia b ility sid e and the p r o te c tio n s they p re s e n tly en joy , lik e the R egu lation Q d iffe re n tia l, a re in tim e r e m o v e d , they should be su b je ct to reg u la tion and r e s e r v e re q u ire m e n ts s im ila r to th ose im p o s e d on c o m m e r c ia l banks. If E F T d evelop m en ts o r the in te rsta te a c tiv itie s o f banks and bank holding co m p a n ie s p r e s e n t d ifficu lt o r in so lu b le p r o b le m s o f reg u la tion f o r state banking d ep a rtm en ts, I w ould e x p e ct a sig n ifica n t shift o f authority o v e r la r g e State banks to take p la c e as betw een state s u p e r v is o r s and the F e d e r a l S u p e rv iso r o f State B anks; at the sa m e tim e , the nationw ide ju r is d ic t io n and ca p a b ilitie s of the C o m p t r o lle r ’ s O ffice m ay b e c o m e an in c r e a s in g ly p o w e rfu l in ce n tiv e f o r such banks to a ssu m e a national c h a r t e r . - 25 - None o f us can be cla irv o y a n t about the future a ctiv itie s o f d e p o sit in stitu tion s in this cou n try ten, fifte e n o r twenty y e a r s h e n ce . change is a c c e le r a t in g , in m y judgm ent, not slow ing down. The p a ce o f What we need is a re g u la to ry stru ctu re that w o rk s w e ll under a w ide v a rie ty o f c ir c u m sta n ce s, that re m a in s r e c e p tiv e to new id e a s , that can endure s t r e s s and still stay fle x ib le in the ligh t o f the new te ch n o lo g y w h ich is con stan tly en la rgin g the re a ch o f ou r fin a n cia l in stitu tio n s. The p r o p o s a l I am m aking today m a y , I h op e, be a con trib u tion to that end. I w ould co n clu d e by stating that the FDIC is not w edded to the existin g bank re g u la to ry stru ctu re . It is quite p re p a re d to see its own p o w e rs and r e s p o n s ib ilit ie s sig n ifica n tly changed if the C o n g re ss b e lie v e s such ch an ges a re lik e ly to lea d to a m o r e ra tion a l sy ste m o f bank reg u la tion in b eh a lf of the A m e r ic a n p u b lic. T h is is a co m p le x a re a , h o w e v e r , f o r le g is la tiv e r e fo r m , and I w ould u rg e the g re a te s t c a r e and d e lib e ra tio n on the p a rt of the C om m ittee as it p r o c e e d s .
@FedFRASER