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1

:yic
cADDRESp
GEORGE A, LE MAISTRE, DIRECTOR
FEDERAL DEPOSI'M n SURANCE CORPORATION
'BEFORE TfiE
COMMERCIAL CREDIT CONFERENCE
ALABAMA BANKERS ASSOCIATION
CfeULF SHORES, ALABAMA
^SEPTEMBER 12, 19/4*<
CHANGES IN FDIC EXAMINATION OF STATE NONMEMBER BANKS

A

year a g o ,

BUSINESS WEEK

began

its

Se p t e m b e r

15

"Sp e c i a l Is s u e " e n t i t l e d "The N ew B a n k i n g " w i t h t h e s t a t e m e n t ;
il,',
Dr a m a t i c

c h a n g e ha s s w e p t t h e o n c e s t a i d w o r l d of b a n k i n g .

The

" s t o d g y " a n d "c o n s e r v a t i v e " can no l o n g e r b e s a i d to

words

describe the banking

AS

"You

industry

in t h e f a c e of c o m m e r c i a l s s u c h

CAN CALL ME IRVING," AND "We 'VE GOT AN ANSWER TO ALL

YOUR BORROWING NEEDS AND THAT ANSWER IS "YES".
Pa u l

McCracken,

in his p r e f a c e to a r e c e n t volumi

T he Ch a n g ing W o r l d of B a n k i n g , s t a t e d :

"The

A

banking

landscape

i s , in s h o r t , c h a n g i n g

g o o d s t a t e m e n t of t h e w a y

it l o o k e d

last year

w i l l not do for the years a h e a d .
I . r- r*
I * uv/ ô
* nK Or
r T -TnE
r n v CHANGE
riA M C r
r10
e v,Ar
f'A DT! !F ?m i
T U P itmunuLJui
T F Q M T MO! O P V
HE
FLA
-P>YV »nt

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■x,

jlQFT)

-

TO DESCRIBE SOME OF ITS FACETS.

2

-

ELECTRONIC FUNDS TRANSFER,

CREDIT CARDS, NOW ACCOUNTS, LIABILITY MANAGEMENT, EURODOLLAR,
FOREIGN EXCHANGE, AND MULTINATIONAL CONGLOMERATE ARE TERMS
SELDOM HEARD TWENTY YEARS AGO.

If

dynamic, exciting,

AND WHAT

I REGARD

as b a s i c a l l y

HEALTHY CHANGE HAS BEEN ONE DOMINANT THEME IN DISCUSSIONS OF
THE BANKING INDUSTRY, ANOTHER HAS CREPT INTO CONVERSATIONS
IN RECENT MONTHS —

THAT OF CONCERN.

BANKERS HAVE BEEN ACCUSED

OF BEING "TOO GREEDY" BY KENNETH RUSH AND WARNED AGAINST
"f i n a n c i a l a d v e n t u r i n g " b y A r t h u r B u r n s w h o e x p r e s s e d c o n c e r n
ABOUT "CARELESSNESS THAT HAS CREPT INTO OUR FINANCIAL SYSTEM."
Da v i d Ro c k e f e l l e r h a s b e e n q u o t e d a s s a y i n g , "...t h e s i t u a t i o n
IS u n c e r t a i n e n o u g h so t h a t o n e s h o u l d n 't d i s c a r d t h e p o s s i b i l i t y
of p a n i c ."

In

this clima te, the question

inevitably wi l l be

RAISED WHETHER BANK EXAMINATION AND SUPERVISION, WHOSE PURPOSE
IT IS TO ASSURE THE SOUNDNESS OF BOTH INDIVIDUAL BANKS AND THE
SYSTEM ITSELF, HAVE KEPT PACE WITH THE DYNAMIC "GO-GO" INDUSTRY




- 3 WHICH IT SEEKS TO REGULATE.

WHILE I SPEAK WITH FIRST-HAND

KNOWLEDGE ONLY FROM MY EXPERIENCE AT THE

Dr . Mc Cr a c k e n 's

statement

FDIC,

IN MY JUDGMENT,

is e q u a l l y a p p l i c a b l e to b a n k

EXAMINATION AND SUPERVISION.

AND, AS A RESULT, THE ANSWER

IS "YES," THE AGENCIES HAVE KEPT PACE WITH THEIR BANKS.
U l t i m a t e l y , of c o u r s e , "t h e p r o o f of t h e p u d d i n g
IS IN THE EATING."

In

THE MEANTIME,

I

SHALL OUTLINE BRIEFLY

SOME OF THE CHANGES WHICH HAVE OCCURRED, ARE OCCURRING, OR MAY
OCCUR IN THE

FDIC's

EXAMINATION OF STATE NONMEMBER BANKS, BOTH

IN RESPONSE TO DEVELOPMENTS IN THE INDUSTRY AND AS A RESULT OF
OUR EFFORTS TO EXAMINE AND SUPERVISE MORE EFFICIENTLY.
A g g r e s s i v e n e s s a n d c r e a t i v i t y on t h e p a r t of t h e
INDUSTRY, CURRENT ECONOMIC CONDITIONS, AND THE LESSONS OF
RECENT BANK FAILURE ARE ALL RESPONSIBLE FOR SIGNIFICANT CHANGES
in t h e

FDIC.

Fo r e x a m p l e , in r e c e n t y e a r s , s t a t e n o n m e m b e r

BANKS HAVE APPLIED THE CONCEPT OF LIABILITY MANAGEMENT.

WHEN

CAREFULLY AND SKILFULLY EXECUTED, THESE TECHNIQUES ARE
PROFITABLE AND EFFICIENT.




HOWEVER, WHEN EXPENSIVE AND SOMETIMES

-

n -

VOLATILE MONEY IS INVOLVED, THERE ARE SERIOUS PITFALLS,

THE

DANGERS ARE, OF COURSE, EXACERBATED WHERE BROKERED DEPOSITS
OR OTHERWISE PURCHASED FUNDS ARE USED IN LIEU OF A STABLE
DEPOSIT BASE TO FINANCE RAPID EXPANSION.

W e HAVE FOUND THAT

QUITE OFTEN SUCH PRACTICES GO HAND IN HAND WITH THE MAKING OF
HIGH-YIELD HIGH-RISK LOANS,

BANKS ABUSING THESE TECHNIQUES

ARE VULNERABLE IN A NUMBER OF OTHER RESPECTS.

"Ho t " FUNDS

ARE EASILY LOST IN AN ECONOMY IN WHICH THERE ARE MANY INSTITUTIONS
COMPETING FOR FUNDS, AND A SETBACK WHICH WOULD NOT OTHERWISE
BE DISASTROUS MAY LEAD TO A LOSS OF CONFIDENCE AND THE OUTFLOW
OF SUCH FUNDS.
As A RESULT, OUR EXAMINERS GIVE CAREFUL ATTENTION
TO LIQUIDITY AS REFLECTED ON THE LIABILITY AS WELL AS THE ASSET
SIDE OF THE BALANCE SHEET.

THIS MEANS, AMONG OTHER THINGS, A

FOCUS ON SOURCES OF FUNDS AND ON INTEREST AND MATURITY SCHEDULES.

In

a d d i t i o n , the ongoing

e a r n i n g s p o t e n t i a l of a s s e t s , in l i g h t

of d i f f e r e n t a s s u m p t i o n s a b o u t e c o n o m i c c o n d i t i o n s , m u s t b e
examined.




W h i l e t h e s e f a c t o r s h a v e a l w a y s e e e n t a k e n in to

-

5-

ACCOUNT BY EXAMINERS., THEY ARE RECEIVING SPECIAL ATTENTION
IN THE LIGHT OF PRESENT ECONOMIC CONDITIONS.

FDIC

In

ADDITION,

IS ACTIVELY CONSIDERING POLICIES AND EVALUATION PROCEDURES

WITH RESPECT TO LIQUIDITY.

It SHOULD BE EXPECTED THAT ANALYSIS

WILL BECOME MORE SOPHISTICATED AND STANDARDS MORE RIGOROUS.

In

his letter

i n v i t i n g m e to d i s c u s s c h a n g e s

FDIC

in

EXAMINATIONS WITH YOU. HOWARD MORRIS SUGGESTED THAT I MIGHT
GIVE SPECIAL ATTENTION TO LOAN EVALUATIONS,

If

I DO

NOT SEEM

TO BE FOLLOWING THAT SUGGESTION. THE REASON IS SIMPLE.

THE

ASSET SIDE OF A BANK'S BALANCE SHEET AND PARTICULARLY ITS LOAN
PORTFOLIO HAS LONG BEEN GRIST FOR THE EXAMINER'S MILL,
AN

FDIC

SPENT BY

In

1968.

ECONOMIST ESTIMATED THAT OVER TWO-THIRDS OF THE TIME

FDIC

EXAMINERS IS DEVOTED TO LOAN EVALUATIONS.

THE

BASIC PRINCIPLES OF CREDIT EXAMINATION ARE WELL KNOWN TO YOU
AND REALLY HAVE NOT CHANGED IN RECENT YEARS.
THESE PRINCIPLES IS REFLECTED IN

FDIC

STATISTICS WHICH INDICATE THAT OF THE
HAVE OCCURRED SINCE JANUARY




1. 1960.

THE SUCCESS OF

DIVISION OF LIQUIDATION

63 BANK
ONLY

FAILURES THAT

6 OR 9.5%

HAVE BEEN

-

6

-

THE RESULT OF MANAGERIAL WEAKNESS IN PORTFOLIO MANAGEMENT.
IN CONTRAST, IN 37 OR 58.81 OF THESE CASES, SELF-SERVING
TRANSACTIONS WERE A SIGNIFICANT FACTOR.

T he MOST DRAMATIC OF

THESE WAS, OF COURSE, THE FAILURE OF U.S. NATIONAL BANK IN SAN
D iego l a s t Oc t o b e r . T h e o p e r a t i o n t h e r e w a s c h a r a c t e r i z e d by
Co m p t r o l l e r of t h e C u r r e n c y J im Sm i t h a s a "...r i o t of s e l f ­
d e a l i n g ."

In
banks.

effect,

One, an

served the

U.S. Na t i o n a l B a n k w a s n o t o n e b u t t w o

ap p a r e n t l y sound and efficient

institution,

Sa n D iego p u b l i c . T he s e c o n d p r o v i d e d c r e d i t to

ENTERPRISES RELATED TO OR AFFILIATED WITH THE DOMINANT STOCK­
HOLDER, IGNORING BOTH SOUND BANKING PRACTICES AND REGULATORY
REQUIREMENTS.

INVOLVING 200-300 CORPORATE ENTITIES, THESE

TRANSACTIONS AMOUNTED TO BETWEEN $400 AND $450 MILLION OR 601
OF THE BANK'S LOAN PORTFOLIO.

THEY OFTEN WERE NOT HANDLED IN

THE ORDINARY COURSE OF THE BANK'S BUSINESS, BUT INSTEAD, WERE
PROCESSED BY CERTAIN INSIDERS.

THE RESULT WAS THE LARGEST

SINGLE BANK FAILURE IN THE HISTORY OF THE COUNTRY.




- 7 -

And

while

it r e p r e s e n t e d t h e m o s t e x t r e m e c a s e ,

WAS NOT AN ABERRATION AMONG LARGE BANK FAILURES.

USNB

On JANUARY 25,

1971, t h e S h a r p s t o w n S t a t e B a n k in Ho u s t o n , T e x a s , w i t h a s s e t s
AMOUNTING TO $81 MILLION WAS CLOSED.
LARGEST FAILURE IN FDIC HISTORY.

It

WAS THEN THE SECOND

T he PRIMARY CAUSE WAS THE

SELF-SERVING ACTIVITIES OF A DOMINANT STOCKHOLDER.

THREE WEEKS

LATER IT WAS DROPPED TO THIRD PLACE BY THE FAILURE OF BlRMINGHAMBLOOMFIELD, UNTIL
bank.

USNB

THE LARGEST FAILURE OF AN FDIC-INSURED

T h e r e s e l f -d e a l i n g w a s c o m b i n e d w i t h an u n s a f e a n d u n s o u n d

INVESTMENT POLICY DICTATED BY THE DOMINANT SHAREHOLDER.

UNDER

THE EFFECTIVE CONTROL OF THE SAME INDIVIDUAL, DETROIT'S BANK OF
the

Co m m o n w e a l t h , w i t h c o m b i n e d d e p o s i t s of j u s t o v e r $1 b i l l i o n

AND TOTAL ASSETS OF $1.26 BILLION, WOULD HAVE FAILED IN 1972 FOR
THE SAME REASONS, HAD THE

FDIC

NOT PROVIDED ASSISTANCE IN THE

FORM OF A $35.5 MILLION INFUSION OF CAPITAL UNDER A PROVISION
OF THE ACT WHEREBY THE
Bo a r d f i n d i n g t h a t

FDIC

CAN ASSIST A TROUBLED BANK UPON A

t h e c o n t i n u e d o p e r a t i o n of s u c h b a n k is

ESSENTIAL TO PROVIDE ADEQUATE BANKING SERVICE TO THE COMMUNITY.



-

8-

N e e d l e s s to s a y , t h e l e s s o n of t h e s e f a i l u r e s has
NOT BEEN LOST ON EXAMINER PERSONNEL.

THE PORTION OF A LOAN

PORTFOLIO WHICH INVOLVES EXTENSION OF CREDIT TO INSIDERS OR
THEIR INTERESTS, DIRECT OR INDIRECT, WILL RECEIVE ESPECIALLY
RIGOROUS EVALUATION TO ASCERTAIN WHETHER THE TERMS AND CONDITIONS
OF THE TRANSACTION ARE AT LEAST AS FAVORABLE TO THE BANK AS THEY
WOULD HAVE BEEN HAD THE DEAL BEEN NEGOTIATED WITH A NON-INSIDER.
Mo r e o v e r , f o r m a l r e g u l a t o r y r e q u i r e m e n t s a r e l i k e l y to be f o r t h ­
coming

IN THIS AREA.

THE COMPTROLLER'S OFFICE HAS ISSUED FOR

COMMENT A PROPOSED REGULATION WHICH WOULD REQUIRE ALL NATIONAL
BANK DIRECTORS AND PRINCIPAL OFFICERS TO KEEP ON FILE AT THE
BANK A WRITTEN STATEMENT OF THEIR OUTSIDE BUSINESS INTERESTS
AND OF ANY EXTENSION OF CREDIT OR OTHER TRANSACTION BETWEEN
THOSE INTERESTS AND THE BANK.

At

THE

FDIC

WE ARE ACTIVELY

CONSIDERING THIS MATTER AND I HAVE, IN OTHER FORUMS, SUGGESTED
THE OUTLINES OF THE SORT OF REGULATION WHICH I WOULD SUPPORT.
P e r h a p s t h e m o s t s i g n i f i c a n t s o u r c e of i n n o v a t i o n in
THE BANKING INDUSTRY AND THUS, CAUSE FOR CHANGE IN OUR EXAMINATION




9

-

-

PRACTICES, HAS BEEN TECHNOLOGICAL ADVANCE IN ELECTRONIC DATA
PROCESSING,

T he COMPUTER HAS TRANSFORMED THE BUSINESS OF

BANKING, FACILITATING, FOR EXAMPLE, A REVOLUTION IN CONSUMER
LENDING THROUGH THE CREDIT CARD.

WlTH THE ADVENT OF ELECTRONIC

FUNDS TRANSFER IN ITS VARIOUS PERMUTATIONS AS WELL AS OTHER
DEVELOPMENTS, THE IMPACT SHOULD STILL MOVE DRAMATICALLY IN THE
DECADE TO COME.
B e s i d e s a l t e r i n g t h e f o r m of m u c h i n f o r m a t i o n an
EXAMINER RECEIVES AND EXPANDING THE SERVICES A BANK CAN OFFER,
AND, THEREFORE, WHAT AN EXAMINER MUST SCRUTINIZE, COMPUTERIZATION
DIRECTLY RAISES ITS OWN SAFETY AND SOUNDNESS PROBLEMS,

FOR

EXAMPLE, WHILE THE BANKING INDUSTRY HAS NOT HAD ITS OWN EQUITY
Fu n d i n g s c a n d a l , t h e c o m p u t e r r a i s e s s p e c i a l o p p o r t u n i t i e s f o r
NOVEL BUT SERIOUS BANK FRAUD.

As

A RESULT, EXAMINATION MUST

REVEAL ADEQUATE CONTROLS AND SEPARATION OF DUTIES TO MINIMIZE
THE LIKELIHOOD OF SUCH CRIME.

FURTHERMORE, THE ACCURACY AND

ADEQUACY OF PROGRAMS MUST BE CHECKED, THE BANK'S OWN

EDP

AUDIT

FUNCTION EXAMINED, AND QUALITY CONTROL AND MAINTENANCE CAPACITY



-

10

WITH RESPECT TO HARDWARE ASSURED,

-

WHERE COMPUTER SERVICES

ARE PROVIDED BY A CORRESPONDENT OR A NON-BANKING SERVICE
COMPANY, THESE SYSTEMS MUST BE EXAMINED AS WELL.

In

SHORT,

TO THE EXTENT THAT A BANK MAKES USE OF COMPUTERS, A SEPARATE

EDP

EXAM IS REQUIRED.

SELECTED EXAMINER PERSONNEL ARE GIVEN

EXTENSIVE TRAINING TO ENABLE THEM TO PERFORM SUCH EXAMINATIONS.

At

p r e s e n t , examination by our

EDP

personnel must

RELY TO A CERTAIN EXTENT ON THE BANK'S SYSTEM, RAISING THE
POSSIBILITY THAT SOME ERROR OR DECEPTION WILL NOT BE DISCOVERED.

To

ELIMINATE THIS, THE CORPORATION IS DEVELOPING PROGRAM

PACKAGES WHICH AN

EDP

EXAMINER CAN RUN AGAINST THE BANK'S FILES.

A CONSUMER INSTALLMENT LOAN PACKAGE HAS BEEN DEVELOPED AND IS
BEING IMPLEMENTED.

In

ADDITION TO ALLOWING THE

EDP

EXAMINER

TO PROVE THE BANK'S FIGURES, THE PROGRAM WILL GENERATE EIGHT
OR MORE SEPARATE REPORTS THAT ARE USEFUL IN EVALUATING A BANK'S
INSTALLMENT LOANS.

WORK IS IN PROGRESS ON COMPARABLE PROGRAMS

FOR DEPOSIT AND SECURITIES ACCOUNTS.




Wh i l e w e c a n o n l y s p e c u l a t e a t p r e s e n t r e g a r d i n g t h e

-11
SHAPE OF FUTURE

EFTS

-

SYSTEMS, IT IS CERTAIN THAT THEY WILL ALSO

PRESENT DISTINCT SAFETY AND SOUNDNESS PROBLEMS, REQUIRING
COMPLEX EXAMINATION PROCEDURES AND FURTHER SPECIALIZATION
ON THE PART OF EXAMINER PERSONNEL.
T h e r e i s , of c o u r s e , a n o t h e r s i d e of t h e c o i n . W h i l e
MAKING EXAMINERS' TASKS MORE COMPLICATED IN THESE RESPECTS,
THE COMPUTER HAS GREATLY ENHANCED THE CORPORATION'S ABILITY
TO COLLECT, STORE, RETRIEVE AND ANALYZE VAST AMOUNTS OF DATA.
Pe r s o n n e l a t t h e Co r p o r a t i o n a r e e n g a g e d in a p r o j e c t w h o s e
OBJECTIVE IS THE EARLY IDENTIFICATION OF TRENDS IN BANK
PERFORMANCE.
Id e a l l y , s u c h a p r o g r a m w o u l d s e r v e as a n

early

w a r n i n g s y s t e m " for t h e a g e n c i e s a n d t h e b a n k s t h e m s e l v e s .

In

its p r e s e n t s t a g e of d e v e l o p m e n t , t h i s p r o g r a m , w h i c h

called

is

F i n a n c i a l Trend An a l y s i s , u t i l i z e s d a t a r o u t i n e l y

REPORTED TO THE CORPORATION, SUCH AS REPORTS OF CONDITION AND
INCOME.

It

c a l c u l a t e s and stores some twenty ratios and

WHICH HAVE BEEN DETERMINED BY EXAMINATION PERSONNEL TO Bl



items

-

12

-

POTENTIALLY USEFUL IN SPOTTING SIGNIFICANT TRENDS.

WHEN AN

EXAMINER WISHES TO COMPARE A BALANCE SHEET ITEM IN A GIVEN
BANK WITH THE SAME ITEM IN OTHER BANKS OF A GIVEN DESCRIPTION
HE IS ABLE TO DO SO.

Or HE MIGHT WISH TO KNOW THE NAMES OF

ALL BANKS WITH CAPITAL RATIOS BELOW A SPECIFIED CUT-OFF POINT
SUCH AS 5%.
W e FEEL THAT THIS SYSTEM HAS THE POTENTIAL OF SERVING
AS A VERY USEFUL TOOL IN SCHEDULING AND ALLOCATING SCARCE
EXAMINER RESOURCES AND, AS I HAVE NOTED, WILL ALLOW US TO
DETECT SOME DETERIORATING SITUATIONS MORE RAPIDLY.
Fu r t h e r c h a n g e in

FDIC

e x a m i n a t i o n has b e e n c a u s e d

BY THE CHANGE IN NUMBER, AVERAGE SIZE, AND OTHEk CHARACTERISTICS
OF STATE NONMEMBER BANKS IN RECENT YEARS.

SINCE 1960, THE

NUMBER OF BANKS AND BRANCHES EXAMINED BY THE
by

FDIC

50%, g r o w i n g f r o m 10,088 to 16,268 in 1972.

HAS INCREASED

Du r i n g t h e

SAME PERIOD, THE TOTAL ASSETS OF THOSE BANKS HAVE INCREASED
FROM APPROXIMATELY $75 MILLION TO $134 MILLION.
LARGEST STATE NONMEMBER




BANK HAD ASSETS OF

In 1950, THE

NEARLY $1 BILLION.
billion,

IN 1972, THAT FIGURE WAS MORE THAN $3.5

Mo r e o v e r , s t a t e n o n m e m b e r b a n k s a r e i n c r e a s i n g l y

DIVERSE, RANGING FROM THE SMALL UNIT BANK CATERING TO A FARM
POPULATION TO THE SUBSIDIARY OF A MULTI-BILLION FOREIGN BANK
CONDUCTING SUBSTANTIAL INTERNATIONAL BUSINESS.
S u c h g r o w t h , a n d t h e c h a n g i n g n a t u r e of b a n k i n g , h a v e
MADE THE

FDIC

A BUSIER AND MORE EXCITING CORPORATION.

It

HAS

REQUIRED, HOWEVER, THAT WE MAKE MORE EFFICIENT USE OF SUPERVISORY
RESOURCES POSSIBLE,

ÍWO TRENDS, SPECIALIZATION IN THE EXAMINER

RANKS AND THE INCREASED USE OF SAMPLING, RESULT FROM THESE
EFFORTS.

I

HAVE ALREADY NOTED SPECIALIZATION THAT IS AND WILL

BE IMPLEMENTED IN THE COMPLIANCE AREA AND IN THE

EDP

IS LIKELY TO BE REQUIRED BY EXTENSIVE DEVELOPMENT OF

IN

FIELD AND THAT

EFTS

SYSTEMS,

ADDITION, EACH REGION IS ASSIGNED EXAMINERS WHO HAVE SPECIAL

EXPERTISE IN THE EXAMINATION OF TRUST DEPARTMENTS AND THE
Co r p o r a t i o n is p r e s e n t l y c o n t e m p l a t i n g a p i l o t p r o g r a m a i m e d
AT GENERATING COMPARABLE COMPETENCE IN THE EXAMINATION OF
INTERNATIONAL



OPERATIONS.

Ex a m i n e r s , a s y o u k n o w , h a v e lo n g u s e d s a m p l i n g
TECHNIQUES.

In

ADDITION TO THE USUAL RULES OF THUMB, MORE

COMPLICATED AND FORMAL MODELS ARE BEING USED IN SAMPLING THE
PORTFOLIO OF A LARGE BANK WITH AN EXTENSIVE BRANCH NETWORK
AND VARIED ASSET MIX.

OTHER FORMS OF SAMPLING, NOT RELATED

TO LOAN EVALUATION, ARE UTILIZED NOW OR MIGHT BE APPLIED IN
THE FUTURE.

In

SOME CASES, SELECTED PORTIONS OF A BRANCH

SYSTEM MIGHT NOT BE EXAMINED.

It

HAS OFTEN BEEN SUGGESTED

THAT IT IS UNNECESSARY TO EXAMINE CERTAIN BANKS ANNUALLY.
D e p e n d i n g on f u r t h e r e x p e r i e n c e w i t h o u r F i n a n c i a l T r e n d
An a l y s i s a n d o t h e r e f f o r t s a t d i s c e r n i n g p r o b l e m b a n k s , o r ,
CONVERSELY, IN SELECTING THOSE BANKS WHICH ARE PERFECTLY
HEALTHY, THE CORPORATION MIGHT CONCLUDE THAT ANNUAL EXAMINATION
OF ALL STATE NONMEMBER BANKS IS NOT A NECESSARY OBJECTIVE.
A l t e r n a t i v e l y , on t h e s a m e b a s i s , a n n u a l e x a m i n a t i o n s m i g h t
BE CONTINUED BUT VARIED IN INTENSITY.




If 15 j|
At

FDIC

this juncture,

I SHOULD n o t e a n o t h e r c h a n g e in

EXAMINATION THAT THOSE OF YOU REPRESENTING STATE NONMEMBER

BANKS MAY HAVE NOTICED AND I HOPE HAVE WELCOMED.

THE CORPORATION
/

IS IN THE PROCESS, SOMETIMES KICKING AND SCREAMING, OF HAVING
ITS CONSCIOUSNESS RAISED.
WOMAN EXAMINER.

As

IN 1964

THE

FDIC

28, 1974, 92

OF FEBRUARY

HIRED ITS FIRST
WERE EMPLOYED.

W h i l e w e h a v e n o t d o n e q u i t e so w e l l as o n e m i g h t h o p e ,
COUNT THIS SIGNIFICANT PROGRESS.

I

do

AND, SINCE THE CORPORATION

IS PLEDGED TO SUBSTANTIAL FURTHER PROGRESS, THIS IS ANOTHER
TREND THAT WILL CONTINUE AND, HOPEFULLY, ACCELERATE.
Finally,
CHANGED AT THE

I

FDIC:

h a s t e n to e m p h a s i z e t h a t o n e t h i n g

has not

THAT IS, OUR BELIEF IN THE VALUE OF THE

INDIVIDUAL EXAMINER IN THE BANK EXERCISING HIS INDEPENDENT
JUDGMENT ABOUT ITS CONDITION.

INQUISITIVE, SKEPTICAL AND

CONSERVATIVE IN HIS ASSESSMENTS, YES, SOMETIMES EVEN WRONG,
THE GOOD EXAMINER EXERCISES A SUBSTANTIAL DISCIPLINING FORCE
IN THE BANK WHICH HE EXAMINES.

As

A FORMER BANKER,

I

CAN

TESTIFY TO THE FACT THAT HIS PROBING AND CHALLENGING CAN TELL



-

16

-

THE EXECUTIVE OFFICER OR A BOARD OF EVEN THE MOST WELL-RUN
BANK MUCH THAT THEY DO NOT ALREADY KNOW ABOUT THEIR BANK.

ÎHUS,

IN THE FINAL ANALYSIS, HOWEVER SOPHISTICATED WE BECOME IN OUR
SAMPLING TECHNIQUES OR ANALYTICAL MODELS AND HOWEVER SPECIALIZED
HE MUST BECOME, THE EXAMINER IN THE FIELD IS THE KEY TO OUR
SYSTEM OF EXAMINATION AND SUPERVISION.

His

t r a d i t i o n of c a u t i o n

—

which sometimes seemed

EXCESSIVE WHEN I WAS ON YOUR SIDE OF THE DESK —
INTEGRITY HAS NOT CHANGED.

AND ABSOLUTE

AND, IN MY JUDGMENT, IT IS ONE

VERY SUBSTANTIAL REASON THAT CONFIDENCE IN OUR BANKING SYSTEM
IS WELL WARRANGED.