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PRELIMINARY DRAFT - FOR INTERNAL USE

"A PERSPECTIVE ON BANKING DEREGULATION"
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Address by

Û

George A, LeMaistre , Chairman
Federal Deposiîi Insurance Corporation
BEFORE THE

Annual Conference
The National Association




of

of

Mutual Savings Banks

Pittsburgh , Pennsylvania

May 8, 1978

AMERICANS ARE CONCERNED ABOUT GOVERNMENTAL REGULATION
GENERALLY, BUT DIVIDED VERY OFTEN ABOUT WHAT TO DO SPECIFICALLY.
THERE IS, ON THE ONE HAND, A RECOGNITION THAT REGULATION IS COSTLY:
IT RAISES PRICES AND CONTRIBUTES TO INFLATION AND IT SOMETIMES
MEDDLES NEEDLESSLY IN PRIVATE DECISION-MAKING.

ON THE OTHER HAND,

THERE IS ALSO A RECOGNITION THAT REGULATION IS NECESSARY IN A
COMPLEX ECONOMY, SOMETIMES TO PROTECT WEAK, DISADVANTAGED, OR
UNAWARE CITIZENS, OR TO MAKE ECONOMIC MARKETS FUNCTION BETTER.
TO BE SURE, AMERICANS WILL OFTEN FIND REASONS FOR
FAVORING REGULATIONS ADVANTAGEOUS TO THEMSELVES, BUT EVEN AT
THAT I PERCEIVE A CONSENSUS IN FAVOR OF LESS REGULATION. AND
THE CONSENSUS GOES BEYOND THE BUSINESS COMMUNITY.

CONSUMER

ADVOCATES, TOO, UNDERSTAND THE EFFECTS OF REGULAION IN RAISING
PRICES CONSUMERS MUST PAY. NONETHELESS, THEY ARE WARY OF
ACCEPTING TOO QUICKLY THE CRY OF HIGH COSTS FOR FEAR THAT IT IS
A "CRY OF WOLF" TO BE RAISED AGAINST ANY PROPOSAL NO MATTER HOW
MERITORIOUS.

IN ANY CASE, BOTH THE DESIRE FOR LESS REGULATION

AND THE CONFLICT OVER WHERE TO DRAW AN APPROPRIATE LINE HAVE
SPURRED A REASSESSMENT OF THE ABILITY OF COMPETITIVE MARKETS TO
PROVIDE FAIR AND EQUITABLE RESULTS AND ALSO SPURRED A SEARCH FOR
LESS COSTLY BUT MORE EFFECTIVE FORMS OF REGULATION.



-

2

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BANKERS HAVE BEEN REGULATED FOR A FAR LONGER TIME AND
IN MORE DETAIL THAN MOST OTHER BUSINESSMEN. AND I WOULD JUDGE
THEY HAVE BEEN MORE TOLERANT OF REGULATION, IN PART BECAUSE THEY
ARE USED TO IT AND IN PART BECAUSE THEY RECOGNIZE THAT BANKING
IS AFFECTED WITH THE PUBLIC INTEREST MORE THAN OTHER BUSINESSES.
HOWEVER, IN MY RECENT MEETINGS WITH BANKERS THEY HAVE BEEN
TESTY AND AGGRESSIVE ON THE ISSUE OF REGULATION. AND IF THERE
IS A GENERAL DRIFT TOWARD LESS REGULATION, THEY BELIEVE THAT
BANKING REGULATION IS GOING AGAINST THE TREND.
TODAY I WOULD LIKE TO PROVIDE SOME PERSPECTIVE ABOUT
REGULATION IN BANKING SO THAT WE MAY UNDERSTAND SOMEWHAT BETTER
THE CONFRONTATION BETWEEN OVER-REGULATION AND DEREGULATION IN
BANKING.

I WOULD ALSO LIKE TO DISCUSS WHAT THE FDIC HAS BEEN

DOING ABOUT THE PROBLEM, AND HOW BANKERS MAY BE CONSTRUCTIVE IN
MINIMIZING REGULATORY BURDENS.
DEPOSITORY INSTITUTIONS IN THE UNITED STATES CAME UNDER
REGULATION EARLY IN THE NATION'S HISTORY. THE STATE GOVERNMENTS
WERE THEN THE REGULATORS, THOUGH TO BE ACCURATE THE TWO BANKS




- 3 OF THE UNITED STATES EXERCISED SIGNIFICANT DISCIPLINE AT TIMES
OVER THE NOTE ISSUE OF STATE CHARTERED BANKS, EVEN THOUGH NOT
THROUGH DIRECT REGULATION. DIRECT FINANCIAL REGULATION OF BANKS
AT THE FEDERAL LEVEL BEGAN IN 1863 WHEN THE NATIONAL BANKING
ACT CREATED THE OFFICE OF THE COMPTROLLER OF THE CURRENCY,
ORIGINALLY WITH THE HOPE OF STRANGLING THE STATE SYSTEM,
ULTIMATELY TO SHARE RESPONSIBILITY WITH IT. TODAY BANKING AND
THRIFT INSTITUTIONS FALL UNDER THE JURISDICTION OF AT LEAST
FIVE FEDERAL BANK REGULATORY AGENCIES: THE COMPTROLLER OF
THE CURRENCY, THE FEDERAL RESERVE BOARD, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL HOME LOAN BANK BOARD AND THE
NATIONAL CREDIT UNION ADMINISTRATION. AND THESE SUPPLEMENT,
OFTEN OVERLAP, THE STATE SUPERVISORY SYSTEM.
THE MOST IMPORTANT REASON FOR REGULATING BANKS IS TO
INSURE THE SAFETY OF CHARTERED INSTITUTIONS, BUT BANK REGULATORS
HAVE BEEN ASSIGNED OTHER MISSIONS AS WELL. THE PRESERVATION
OF COMPETITION IS ONE OF THE OTHER IMPORTANT GOALS. TO THAT
END, FOR EXAMPLE, BANK REGULATORS REVIEW PROPOSED MERGERS AND




HOLDING COMPANY ACQUISITIONS.

BANK REGULATION ALSO PLAYS A

ROLE IN ENCOURAGING HOME BUILDING.

INDEED, THE SAVINGS AND

LOAN INDUSTRY WAS DEDICATED BY LAW AND REGULATION TO THAT
PURPOSE AT THE TIME OF ITS REBIRTH IN THE 1930's AND SOME IN
THE INDUSTRY CONTINUE TO CLING TENANCIOUSLY - AND TOO NARROWLY
IN SOME RESPECTS - TO THAT MISSION.

IN THAT REGARD, SAVINGS

BANKS, TOO, HAVE BEEN A BULWARK OF HOUSING FINANCE, BUT THEY
HAVE UNDERSTOOD THE NEED TO WIDEN THEIR MISSION TO MEET THE
FINANCIAL NEEDS OF CONSUMERS.

IN RECENT YEARS THE PROTECTION

OF INVESTORS AND OF CONSUMERS HAVE COME TO THE FORE AS GOALS
WHICH SOCIETY WANTS BANK REGULATORS TO HELP ACHIEVE. FINALLY,
ONE OF THE OLDEST RESPONSIBILITIES OF BANK REGULATION, NEWLY
EMPHASIZED, IS TO CONTROL IRRESPONSIBLE AND FRAUDULENT BANKING.
IN ANY CASE, THE PERCEPTION OF MANY BANKERS THAT BANK REGULATION
HAS UNTIL THE LAST FEW YEARS BEEN DEDICATED TO A ONE AND ONLY
GOAL - BANK SAFETY - IS INCORRECT.

IN FACT, THE GOALS HAVE

BEEN MULTIPLE AND EVOLVING, AND THE EMPHASIS CHANGES AS THE
AMERICANS BECOME MORE CONCERNED ABOUT ACHIEVING ONE GOAL OR
ANOTHER.




- 5 A PRIMARY SOURCE OF THE INCREASED REGULATION IN BANKING
IS A SERIES OF FAIRLY RECENT CONSUMER CREDIT PROTECTION STATUTES.
THE FIRST OF THESE - THE CONSUMER CREDIT PROTECTION ACT INCLUDES FOUR WELL KNOWN TITLES: TRUTH- in -LENDING (INCLUDING
FAIR CREDIT BILLING AND CONSUMER LEASING), EQUAL CREDIT OPPOR­
TUNITY, FAIR CREDIT REPORTING, AND FAIR DEBT COLLECTION
PRACTICES.

IN ADDITION, THERE ARE SEPARATE ACTS COVERING FAIR

HOUSING, REAL ESTATE SETTLEMENT PROCEDURES, AND HOME MORTGAGE
DISCLOSURE.

THESE LAWS HAVE LOADED A GREAT MANY NEW COSTS ON

BOTH THE REGULATORS AND THE PRIVATE SECTOR. THE REGULATORS
HAVE HAD TO HIRE AND EDUCATE PERSONNEL, PREPARE MANUALS, CON­
DUCT HEARINGS, DESIGN FORMS AND KEEP BOTH CONSUMERS AND BANKERS
INFORMED OF CHANGES IN THE IMPLEMENTING REGULATIONS.

IN ORDER

TO MEET ITS EXTENSIVE RESPONSIBILITIES UNDER THE ACT, THE FDIC
BEGAN IN 1977 TO CONDUCT SEPARATE COMPLIANCE EXAMINATIONS.
AND WHETHER BANK REGULATORS ARE CONDUCTING SEPARATE EXAMINATIONS
OR NOT, THE EXAMINATION COSTS THEY INCUR TO MEET THEIR CONSUMER
PROTECTION RESPONSIBILITIES ARE MUCH HIGHER TODAY THAN THEY
WERE ONLY A FEW YEARS AGO.




-

6

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BANKS HAVE ALSO INCURRED COSTS. BANKS HAVE HAD TO HIRE
AND TRAIN STAFF; TO DEVELOP NEW PROCEDURES, PRINT NEW AND
EVER-CHANGING FORMS; TO PROVIDE FOR ADDITIONAL LEGAL SERVICES
TO INTERPRET THE LAWS AND REGULATIONS AND PERHAPS, DEFEND
AGAINST SUITS; AND THEY HAVE BEEN SUBJECTED TO HEAVIER
RECORDKEEPING REQUIREMENTS.
ALL THIS EFFORT HAS HAD PUBLIC BENEFITS. USE OF THE
UNIFORM TERM APR, ANNUAL PERCENTAGE RATE, HAS MADE SHOPPING
FOR CREDIT MUCH EASIER THAN IT WAS.

INDEED, THE MANY WAYS IN

WHICH THE PRICE OF CREDIT WAS STATED BEFORE THE ACT MADE
COMPARISON OF CREDIT COSTS VIRTUALLY IMPOSSIBLE EXCEPT FOR
HIGHLY SOPHISTICATED CITIZENS WHO HAD MORE THAN A PASSING
KNOWLEDGE OF FINANCIAL ARITHMETIC. THE OTHER TITLES TO THE
ACT ALSO EFFECTED WORTHWHILE ENDS - THE OUTLAWING OF DISCRIMI­
NATION IN THE GRANTING OF CREDIT, THE MAINTENANCE OF ACCURATE
CREDIT HISTORY INFORMATION, m

PROCEDURES FOR THE COLLECTION

OF DEBTS, THE PROTECTION OF HOME BUYERS IN MAKING THE LARGEST
PURCHASE OF THEIR LIVES AND THE PLACING ON THE RECORD THE




-7PERFORMANCE OF DEPOSITORY INSTITUTIONS IN MAKING HOME MORTGAGE
LOANS.
THE CRITICAL QUESTION IS WHETHER THE BENEFITS ISSUING
FROM THESE VARIOUS ACTS HAVE BEEN WORTH THE COST. THAT IS A
DIFFICULT QUESTION WHICH IS UNDER STUDY, BUT I THINK THERE IS
BROAD AGREEMENT THAT THE TRUTH-in -LENDING REGULATIONS NEED TO
BE SIMPLIFIED. THESE REGULATIONS ARE SIMPLY TOO COMPLEX FOR
BANKERS TO ADMINISTER, AND TOO DIFFICULT FOR CONSUMERS TO
UNDERSTAND. SENATOR PROXMIRE HAS BEEN CONSIDERING REVISION OF
THE STATUTE TO HELP EFFECT SIMPLICATION AND WE SUPPORT THAT
INITIATIVE.

OTHER FEATURES OF THE CONSUMER PROTECTION STATUTES

AND REGULATIONS WOULD ALSO BENEFIT FROM A CLOSE REVIEW OF THEIR
ADVANTAGES AND DISADVANTAGES, NOT TO EMASCULATE THEIR EFFECTIVE­
NESS, BUT RATHER TO FIND MORE EFFECTIVE AND LOWER COST WAYS OF
SECURING THE DESIRED ENDS.
I THINK, TOO, THAT BANKERS SHOULD APPRECIATE THAT THE
UNDERLYING PHILOSOPHY OF TRUTH-in -LENDING RELIES ON MARKET
FORCES AND W REGULATORY MANDATE TO EFFECT THEIR ENDS. DISCLOSURE




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IS THE KEY SO THAT BUYERS WILL BE BETTER INFORMED AND WILL MAKE
BETTER CHOICES IN THE MARKET BY DEALING WITH LOW COST, EFFICIENT
CREDITORS AND BY REFUSING TO DEAL WITH HIGH COST, INEFFICIENT
I /f\S

^OOL%OF @.6G-ULt/tTI

CREDITORS.7 ETSCLOSURE A§~ft=?OOL OF BESHLAB aN AND RiSSRiMENTS

m

MINIMUM STANDARDS OF FAIRNESS 4*=€R B f f -flEAEB W S ARE MUCH

TO BE DESIRED OVER WHAT MIGHT HAVE BEEN - MANDATED ASSET
ALLOCATION, OR THE SETTING OF RATES.
INDEED, I CANNOT RESIST A COMMENT ON THE REGULATION OF
INTEREST RATES WHICH FINDS BANKERS DEPLORING LOAN RATE CEILINGS
AND SUPPORTING DEPOSIT RATE CEILINGS. SOMEHOW THE DEDICATION
TO FREE MARKETS MELTS TOO EASILY IN THE WARM SUN OF PERSONAL
ADVANTAGE. AS TO MY OWN VIEWS, YOU KNOW THEM WELL. THE
ELIMINATION OF USURY CEILINGS AND DEPOSIT CEILINGS WOULD BE
BENEFICIAL.

I DO NOT THINK ANYONE OUGHT TO TELL A BANKER WHAT

HE SHOULD PAY FOR MONEY OR CHARGE ON LOANS AS LONG AS HE
OPERATES IN VIGOROUSLY COMPETITIVE MARKETS.

I HAVE GREAT FAITH

IN THE COMPETITIVE SYSTEM IN MOST CASES TO DICTATE FAIR PRICES
ON BOTH SIDES OF THE BALANCE SHEET. THE ISSUE OF THE DIFFEREN­
TIAL, I MIGHT ADD, DESPITE ALL THE HEATED RHETORIC, IS AN




-9OFF-LYING SQUABBLE, SOMETHING AKIN TO THE BATTLE OF NEW ORLEANS
WHICH WHILE IT EMPLOYED SIGNIFICANT RESOURCES AND WAS WAGED
WITH GREAT STYLE, WAS IN FACT A SIDESHOW,
THE REGULATORY AGENCIES ARE NOW FACED WITH IMPLEMENTING
THE COMMUNITY REINVESTMENT ACT. TO THAT END THE FEDERAL AGENCIES
HELD A SERIES OF HEARINGS IN SEVEN CITIES AROUND THE COUNTRY.
THE ACT DECLARES THAT THE CONCEPT "CONVENIENCE AND NEEDS" OF
THE "COMMUNITY" EMBRACES MEETING THE CREDIT NEEDS OF THE
COMMUNITY WITH PARTICULAR EMPHASIS ON THE CREDIT NEEDS OF LOW
INCOME AND MODERATE INCOME NEIGHBORHOODS. THE CONGRESS GAVE
US A TOUGH JOB TO DO. HOW DOES ONE DEFINE A "COMMUNITY"? AND
WHAT IS A "CREDIT NEED"? FOR A STATEWIDE BRANCH SYSTEM, IS ITS
"COMMUNITY" THE ENTIRE STATE OR IS IT THE SERVICE AREAS FOR
EACH OF ITS BRANCHES? IF A LARGE FRACTION OF DEPOSITS OF A
BANK ORIGINATES OUTSIDE THE STATE IN WHICH IT IS LOCATED, IS
ITS "COMMUNITY" INTERSTATE AS WELL? SHOULD WE RELY ON DEFINED
GEOGRAPHICAL BOUNDARIES SUCH AS COUNTIES OR STANDARD METROPOLITAN
STATISTICAL AREAS?




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LOAN DEMAND IS EASY ENOUGH TO IDENTIFY: IT IS A
CREDITWORTHY BORROWER STANDING AT A LOAN OFFICER'S DESK. BUT
HOW DOES ONE DETERMINE A LOAN NEED? IF A CREDIT NEED IS AN
UNVOICED DESIRE OF BORROWERS WHO ARE OTHERWISE CREDITWORTHY,
HOW DO WE AS REGULATORS SATISFY THE STATUTORY MANDATE THAT SUCH
NEEDS BE MET? ARE THE CREDIT NEEDS TO BE BROADLY CONSTRUED TO
REPRESENT ALL THE CREDIT NEEDS IN THE COMMUNITY FOR WHATEVER
PURPOSE: BUSINESS NEEDS, PERSONAL NEEDS, MORTGAGE NEEDS OR
NARROWLY CONSTRUED TO BE INNER-CITY MORTGAGE NEEDS? WHAT DOES
THE REGULATOR DO ABOUT A WHOLESALING INSTITUTION WHICH HAS
LITTLE DEVELOPED CAPACITY TO SERVICE THE PERSONAL AND MORTGAGE
LOAN MARKETS?
FINALLY, HOW DOES ONE DESIGNATE LOW TO MODERATE INCOME
NEIGHBORHOODS AND WHAT IMPLICATIONS DOES LENDING IN SUCH
NEIGHBORHOODS HAVE FOR THE SAFETY OF INSTITUTIONS? THAT
PERHAPS IS THE ISSUE WHICH IS OF MOST CONCERN TO BANKERS.
HOWEVER DIFFICULT IT MAY BE SIMPLY TO DESIGNATE LOW AND MODERATE
INCOME NEIGHBORHOODS, I ASSURE YOU THAT IT IS NOT THE INTENT OF




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THE LAW AND IT WILL NOT BE THE EFFECT OF THE REGULATIONS THAT
FINANCIAL INSTITUTIONS WILL BE INDUCED TO MAKE UNSOUND LOANS.
THAT DOES NOT MEAN THAT BANKS AND THRIFT INSTITUTIONS SHOULD
NOT REVIEW THEIR UNDERWRITING STANDARDS TO MAKE SURE THEY ARE
NOT OVERLOOKING SOUND CREDITS IN LESS PROSPEROUS COMMUNITIES.
INDEED, IT IS MY SURMISE THAT IF THERE ARE SOUND
CREDITS IN INNER-CITY NEIGHBORHOODS WHICH ARE NOT BEING FINANCED,
THE PROBLEM IS PRIMARILY ONE OF MARKETING. THE ECONOMIC DISTANCE
BETWEEN WILLING LENDERS AND ANXIOUS BORROWERS MUST BE BRIDGED
BY INTELLIGENT, COOPERATIVE, AND HARDHEADED INTERMEDIARIES WHO
UNDERSTAND THE NEEDS OF BORROWERS AND THE RESPONSIBILITIES OF
LENDERS. AND GOVERNMENTAL AUTHORITIES - STATE, LOCAL AND
FEDERAL - CANNOT STAND OUTSIDE OF THE PROCESS. THEY ARE
RESPONSIBLE IN PART FOR THE QUALITY OF LIFE IN THE COMMUNITY
WHICH MAKES IT AN ATTRACTIVE PLACE FOR PRIVATE INVESTMENT.

I

WOULD HOPE THAT THE ACT WOULD STIMULATE THE ACTIVE COOPERATION
OF BANKERS AND COMMUNITY GROUPS AND GOVERNMENT. THAT APPROACH
HOLDS THE PROMISE OF BENEFITS TO DECLINING NEIGHBORHOODS MUCH




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BEYOND THOSE WHICH WOULD FLOW FROM A GRUDGING ACQUIESCENCE TO
THE REQUIREMENTS OF THE LAW.
WE LISTENED TO A GREAT DEAL OF TESTIMONY. MUCH OF IT
WAS UNCONSTRUCTIVE.

MANY BANKERS AND STATE COMMISSIONERS,

RANKLING UNDER THE PROSPECT OF MORE REGULATION, OFTEN SHOOK
THEIR FISTS AT THE LAW INSTEAD OF OFFERING A HAND IN THE WAY OF
POSITIVE SUGGESTIONS WHICH MIGHT HELP US DO THE JOB TO WHICH
THE STATUTE BINDS US.

INDEED, ONE OF THE WAYS YOU AS BANKERS

CAN DO SOMETHING CONSTRUCTIVE ABOUT BURDENSOME REGULATION IS
TO SEND US THOUGHTFUL COMMENT ON PROPOSED REGULATIONS. WE
READ THEM. AND THE FILES ARE FULL OF UNISSUED REGULATIONS AND
THE BINDERS ARE FULL OF REVISED REGULATIONS WHICH ATTEST TO
THE EFFECTIVENESS OF BANKERS' COMMENTS IN THE PAST.
THE AGENCIES ARE LOOKING TOWARD PROPOSING REGULATIONS
IMPLEMENTING THE ACT BY JULY 1. THE AGENCY STAFFS ARE CURRENTLY
WORKING DILIGENTLY CONSIDERING HOW WE MIGHT BEST EFFECT THE
INTENTION OF CONGRESS, BUT IT IS TOO EARLY TO TELL THE FORM OF
FINAL REGULATIONS.




AT ONE END THERE ARE THOSE WHO WOULD LIKE

- 13 TO BITE THE BILLET AND PROVIDE SUBSTANTIVE ANSWERS TO THOSE
DIFFICULT QUESTIONS ABOUT "CREDIT NEEDS" AND "COMMUNITY." AT
THE OTHER END, THERE ARE THOSE WHO WOULD PREFER TO HAVE EACH
BANK ANSWER THESE QUESTIONS IN A WAY WHICH IT BELIEVES MAKES
SENSE FOR ITS OWN MARKETS WITHIN THE FRAMEWORK OF AN AFFIRMATIVE
MARKETING PROGRAM.

EACH BANK WOULD SUBMIT ITS PLAN TO ITS

REGULATOR FOR REVIEW AND WOULD ALSO DISCLOSE IT TO THE PUBLIC.
EXAMINATIONS WOULD THEN MONITOR THE APPROVED PLAN FOR COMPLIANCE
AND THE BANK'S RECORD WOULD BE TAKEN INTO ACCOUNT IN CONNECTION
WITH APPLICATIONS TO BRANCH, TO MERGE WITH ANOTHER INSTITUTION
AND TO EXPAND IN OTHER WAYS NAMED IN THE ACT.
AS FOR MY OWN POSITION, I AM PHILOSOPHICALLY INCLINED
MORE TOWARD THE LATTER APPROACH THAN THE FORMER. DURING THE
CONGRESSIONAL DELIBERATIONS IT WAS STATED THAT BANKS WOULD BE
ABLE TO COMPLY WITH THE LAW WITHOUT ANY ADDITIONAL RECORDKEEPING.
WHILE THAT STATEMENT MAY HAVE BEEN EXCESSIVELY SANQUINE, I WOULD
LIKE TO SEE US MAKE IT AS CLOSE TO REALITY AS POSSIBLE.

IN ANY

CASE, FINAL DECISIONS AWAIT FURTHER WORK BY THE STAFFS OF THE




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M

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AGENCIES AND POLICY LEVEL CONSIDERATION BY THE AGENCY HEADS.
THE CORPORATION IS ALSO ENGAGED IN A STUDY OF STATE
AND FEDERAL REGULATION OF COMMERCIAL BANKING. THE STUDY'S
PRIMARY FOCUS IS THE OVERLAP OF THE TWO SYSTEMS OF REGULATION
AND ONE OF ITS IMPORTANT PURPOSES IS TO DEVELOP POLICY OPTIONS
FOR ELIMINATING DUPLICATION, THUS REDUCING REGULATORY COSTS
TO THE AGENCIES AND TO REGULATED INSTITUTIONS. WHILE THE STUDY
DOES NOT SPECIFICALLY ADDRESS THE REGULATION OF SAVINGS BANKS,
ITS FINDINGS, I AM SURE, WILL BE RELEVANT TO SAVINGS BANKS.
EACH STATE CHARTERED BANK, SAVINGS AS WELL AS COMMERCIAL,
HAS TWO BANK REGULATORS, ITS STATE AUTHORITY AND EITHER THE
FEDERAL RESERVE OR THE FDIC. EVERY APPLICATION FOR A NEW
A MERGER, A CHANGE OF CAPITAL AND FOR MANY OTHER CORPORATE
ACTIONS MUST TYPICALLY BE PASSED ON BY TWO AUTHORITIES, OFTEN
WITH DELAY, INCONVENIENCE AND HIGH COST. EVERY SUCH BANK IS
ALSO SUBJECT TO DUAL EXAMINATION. THE STUDY WILL ADDRESS THESE
ISSUES AND OTHERS WITH THE HOPE OF MAKING REGUALTION MORE COST
EFFECTIVE AND LESS BURDENSOME TO BANKS.




- 15 INDEED, THE FDIC HAS

BEEN WORKING FOR SOME YEARS

IN IMPROVING THE EFFICIENCY AND EFFECTIVENESS OF EXAMINATIONS.
BECAUSE OF THE INCREASED RESPONSIBILITIES FOR CONSUMER PROTEC­
TION AND THE INCREASED COMPLEXITY AND RISKINESS OF THE BANKING
ENVIRONMENT, THE DEMANDS ON EXAMINATION HAVE INCREASED SUBSTAN­
TIALLY DURING THE PAST DECADE. BUT, WE HAVE ECONOMIZED BY
RE-THINKING OUR MISSION AND OUR METHODS. WE HAVE, FOR EXAMPLE,
SHIFTED EXAMINATION TIME AND RESOURCES AWAY FROM THE WELL-RUN
BANK IN FAVOR OF EXPENDING GREATER EFFORTS ON THE BANK IN LESS
SATISFACTORY CONDITION^.
THE FDIC HAS ALSO BEEN EXPERIMENTING WITH ALTERNATIVE
METHODS OF PERFORMING THE EXAMINATION FUNCTION IN ORDER TO
REDUCE THE AMOUNT OF TIME SUPERVISORY PERSONNEL ARE ACTUALLY
IN THE BANK.

FOR MANY YEARS, THE FDIC AND STATE AUTHORITIES

IN MANY STATES HAVE CONDUCTED EXAMINATIONS JOINTLY OR CONCURRENTLY.
IN THE JOINT EXAMINATION THE TWO AGENCIES ISSUE ONLY A SINGLE
REPORT; IN THE CONCURRENT EXAMINATION, THE WORK OF THE EXAMINATION
IS SHARED. BUT TWO REPORTS ARE ISSUED. EITHER ARRANGEMENT SAVES




- 16 EACH AGENCY MANPOWER AND ELIMINATES THE BURDEN ON THE BANK OF
A SECOND VISIT.
AN EXPERIMENT TO ELIMINATE STATE AND FEDERAL OVERLAP
IN THE EXAMINATION FUNCTION WAS STARTED IN FEBRUARY 197A WITH
THE IMPLEMENTATION OF THE WITHDRAWAL PROGRAM. UNDER THIS
ARRANGEMENT, THE FDIC WITHDREW FROM THE EXAMINATION OF HALF OR
MORE OF THE STATE NONMEMBER BANKS IN THE STATES OF IOWA,
GEORGIA AND WASHINGTON AND ACCEPTED REPORTS OF EXAMINATION
COMPLETED BY STATE EXAMINATION PERSONNEL. THIS PROGRAM WAS
DESIGNED TO STUDY THE SUCCESS OF RELYING SOLELY ON STATE BANKING
DEPARTMENTS FOR THE PERFORMANCE OF THE SAFETY AND SOUNDNESS
EXAMINATION.
THE EXPERIMENT EVOLVED INTO A THIRD ARRANGEMENT, KNOWN
AS THE DIVIDED EXAMINATION.

UNDER THIS PROGRAM THE STATE AND

FEDERAL REGULATORS ALTERNATE THE CONDUCT OF THE EXAMINATION AND
EXCHANGE REPORTS.

FOR WELL RUN BANKS THIS ARRANGEMENT WILL

MEAN FEWER TOTAL VISITS. THUS FAR, THREE STATES HAVE BEEN
ENLISTED IN THE PROGRAM: GEORGIA, NEW JERSEY AND MISSOURI.




- 17 THE DIVIDED EXAMINATION PROGRAM IS BEING MONITORED TO DETERMINE
HOW EXTENSIVELY IT CAN BE APPLIED.
THE STUDY IS IN THE FACT-GATHERING STAGE SO I HAVE NO
FINDINGS OR CONCLUSIONS TO REPORT, BUT PRELIMINARY INVESTIGATIONS
SUGGEST RICH POSSIBILITIES FOR THE MORE EFFECTIVE DOVETAILING
OF STATE AND FEDERAL EFFORTS.

IT IS MY VIEW THAT THE DUAL

SYSTEM HAS BEEN AN EFFECTIVE ONE, BUT IT HAS BEEN BURDENED BY
A LAYERING OF STATE AND FEDERAL SUPERVISION WHICH HAS MADE IT
MORE COSTLY THAN IT SHOULD BE.

I AM HOPEFUL THAT THE STUDY

MAY LAY OUT APPROACHES FOR STREAMLINING THE SYSTEM WHILE
PRESERVING ITS STRENGTHS AND PERHAPS SET A STANDARD FOR CREATIVE
STATE AND FEDERAL COOPERATION THAT MAY SERVE AS A MODEL FOR
OTHERS.
DEREGULATION WILL NOT COME EASILY. EACH LAW, REGULATION
AND SUPERVISORY PRACTICE HAD A RATIONALE AT ITS INCEPTION AND
VERY OFTEN EACH HAS DEVELOPED A CONSTITUENCY WHICH RESISTS ITS
REPEAL OR AMENDMENT.

IF WE ARE TO MAKE PROGRESS, ALL OF US MUST

TAKE A FRESH VIEW AND BE WILLING TO COMPROMISE. BANKERS MUST
BE WILLING TO RELY MORE ON MARKETS - EVEN WHEN IT MAY HURT; THEY




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18

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MUST BE WILLING TO PARTICIPATE IN EFFECTING PUBLIC POLICY
GOALS - WHATEVER THOSE GOALS MAY BE AND WHETHER OR NOT THEY
FAVOR THE GOALS SOUGHT.

BUT, BE ASSURED THERE IS A WAY, AND

THERE IS A BETTER WAY, TO IMPLEMENT GOALS. YOUR CONSTRUCTIVE
PARTICIPATION IN THE PROCESS CAN ONLY HELP US FIND THE BETTER
WAY.

HOLDING YOURSELF ALOOF FROM THE PROCESS SIMPLY LEAVES

THE FIELD TO OTHERS.




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