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NEW S R ELEA SE

FEDERAI DEPOSIT INSURANCE CORPORATION

PR-35-77 (5-10-77)

FOR RELEASE UPON DELIVERY

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Address.by

George A. LeMaistre
Director

before the

Conference of State Bank Supervisors,
@Atlanta, Georgia-

May 10, 1977 }

/
FED ER A L DEPOSIT INSURANCE CORPORATION, 5 5 0 Seventeenth St. N.W., Washington, D.C. 20429



202-389-4221

A d d r e s s ByG e o rg e A . L e M a istr e
D ir e c to r
F e d e r a l D e p o sit In su r a n c e C o rp o ra tio n
at th e
C o n fe r e n c e o f S ta te Bank S u p e r v is o r s
A tla n ta , G eo rg ia
M ay 10, 1977

W hen I ta lk w ith b u s in e s s m e n , b a n k e r s, and c o n su m e r a d v o c a te s around
th e c o u n try , I h e a r on e p e r s is t e n t co m p la in t: profound d is s a tis fa c tio n
w ith th e p e r v a s iv e n e s s o f g o v e r n m e n ta l in te r v e n tio n in our d a y -to -d a y
a ff a ir s and w ith th e r e a m s and r e a m s o f p ap er th at a r e r e q u ir e d to e ffe c t
e v e n th e s im p le s t and le a s t c o n tr o v e r s ia l o f tr a n s a c tio n s . A r e c e n t
B ro o k in g s In stitu tio n stu d y p o in ts out th at 53 " E x e cu tiv e B ran ch a g e n c ie s
and u n i t s . . . .w e r e c r e a te d d u rin g th e f i r s t te r m o f P r e s id e n t N ixon ,
(m o r e ) than in any o th er p r e s id e n tia l t e r m in the n a tio n ’s h is to r y . A noth er
23 w e r e c r e a te d in 1973, the f i r s t y e a r o f th e sec o n d N ixon te r m . "
A lth ou gh I a m n ot o p t im is tic about th e p r o s p e c t o f r e v e r s in g th is tren d ,
th e r e is r e a s o n fo r h o p e. I n c r e a s in g ly , lib e r a ls and c o n s e r v a tiv e s a lik e
r e c o g n iz e th at w e h a v e a r e a l p r o b le m on our hands and th at fa ilu r e to d ea l
w ith it th r e a te n s to d is r u p t our e c o n o m y and s t if le our s o c ie ty . T his
e v o lv in g c o n c e n su s h a s le d to in t e r e s t in v a r io u s g o v e rn m e n ta l and r e g u la to r y
r e f o r m s t r a t e g ie s in clu d in g " S u n set L e g is la t io n ," z e r o -b a s e d b u d getin g,
r e g u la to r y r e o r g a n iz a tio n , and an in c r e a s e d r e lia n c e on e c o n o m ic in c e n tiv e s
to r e p la c e d e ta ile d r e g u la tio n s . A nd, o f c o u r s e , P r e s id e n t C a r te r 's stro n g
c o m m itm e n t to a c h ie v in g e ffic ie n t and e ffe c t iv e g o v e rn m e n t p r o v id e s a
str o n g le a d e r s h ip fo r c e .
T he i s s u e s in v o lv e d a r e n o t s im p le . M o st in fo r m e d p e o p le sh a r e th e r e c o g ­
n itio n th a t our e c o n o m y is too la r g e and c o m p le x to fu n ctio n p r o p e r ly w ith ou t
s o m e g o v e r n m e n ta l s u p e r v is io n o r r e g u la tio n . F o r e x a m p le , w h ile so m e
m ig h t d is a g r e e w ith th e d ir e c tio n o f m o n e ta r y p o lic y at a p a r tic u la r tim e ,
fe w w ou ld d en y th e n e e d fo r a m e c h a n is m to c o n tr o l th e q u an tity o f m o n ey
in th e s y s t e m . S im ila r ly , alth ou g h on e m a y d is a g r e e w ith th e s p e c if ic
p o lic ie s o f m a n y e n v ir o n m e n t a lis ts , th e a b s e n c e o f s o m e c o n tr o ls o v e r the
d is p o s a l o f c o m m e r c ia l w a s t e and o th e r p o llu ta n ts w o u ld le a d to d is a s tr o u s
c o n s e q u e n c e s in a h ig h ly in d u s tr ia liz e d s o c ie t y su ch a s o u r s . And fin a lly ,
by w a y o f illu s t r a t io n , th e r e i s , I b e lie v e , g e n e r a l a g r e e m e n t th at so m e
s u r v e illa n c e and s u p e r v is io n o f th e o p e r a tio n o f in d iv id u a l banks is r e q u ir e d
to a v o id an e x c e s s i v e n u m b er o f fa ilu r e s and th e r e s u ltin g e c o n o m ic
in s ta b ility .




-

2

-

A c c o r d in g ly , th e p r o b le m is n o t th at r e g u la tio n and s u p e r v is io n o f e co n o m ic
and c o m m e r c ia l a ff a ir s is in a p p r o p r ia te , but r a th e r that r e g u la tio n o ften
o u tliv e s th e p r o b le m it w a s in ten d ed to a d d r e s s ; that w e do not a lw a y s tak e
s u ffic ie n t c a r e to c h o o s e th e le a s t c o s t ly and d r a s tic m e a n s to a c h ie v e th e
d e s ir e d end; and th at o ften , r e g u la tio n r e s u lt s in u n a n tic ip a ted c o n s e q u e n c e s
w h ic h can b e m o r e s e v e r e than th e p r o b le m w h ic h r e g u la tio n sou gh t to rem ed y.
It i s n o t s u r p r is in g , h o w e v e r , th at th e s e p r o b le m s a r e so r a r e ly d e a lt w ith
e f f e c t iv e ly . A ll too o ften th o s e w ho a r e r e g u la te d , w h ile s c r e a m in g lo u d e s t
abou t th e s a n c tity o f an u n fe tte r e d f r e e e n te r p r is e s y s t e m , grow c o m fo r ta b le
in th e ir r e g u la te d e n v ir o n m e n t and r e s i s t m ig h tily w h en any s e r io u s e ffo r t is
m a d e to d e r e g u la te . S im ila r ly , r e g u la to r y b o d ie s a c q u ir e a v e s te d in t e r e s t
in th e ir ow n e x is t e n c e and th e "turf" w h ich th ey r e g u la te w h ic h p r e v e n ts
th e ir o b je c tiv e a s s e s s m e n t o f th e r e g u la to r y p o lic ie s w h ic h th ey p u r su e . A s
a r e s u lt , g o v e r n m e n t a g e n c ie s a r e o ften lo a th to en g a g e in c r it ic a l s e l f e x a m in a tio n . A nd, fin a lly , it m u s t b e a ck n o w led g ed th a t w h ile it is p o s s ib le
to d e a l w ith t h e s e i s s u e s w ith s o m e e a s e in th e a b s tr a c t, r e a l w o r ld so lu tio n s
a r e n ot e a s y to p r o d u c e . In p a r t, th is is a c o n se q u e n c e o f p r a c tic a l p o litic s
and th e fa c t th at any c h a n g e in th e fr a m e w o r k o f an in d u str y 's r e g u la tio n m ay
le a d to s ig n ific a n t s h o r t-r u n d is lo c a tio n s or a d ju stm e n ts c o s t s . A t le a s t a s
im p o r ta n t, h o w e v e r , is th e s im p le fa c t th a t a n s w e r s to m a n y o f th e s e p rob lem s
a r e e x tr e m e ly d iffic u lt to d is c o v e r .
T h e se fa c to r s p r o v id e a p a r tia l ex p la n a tio n o f w h y bank r e g u la to r y r e fo r m
e ffo r ts h a v e fa ile d to d ate and w h y th e gro w th o f g o v e r n m e n t and r e g u la to r y
a g e n c ie s is s e e m in g ly in e x o r a b le . N o tw ith sta n d in g th e d if fic u lt ie s , h o w e v e r ,
I b e lie v e th at it is im p o r ta n t--a n d p e r h a p s c r u c ia l- - t h a t b a n k ers and bank
r e g u la to r s d e v e lo p a s y s t e m a t ic and r e a s o n e d ap p ro a ch to r e g u la to r y r e fo r m .
In m y ju d g m en t, the fa ilu r e to d e v e lo p su ch a p o s itiv e a p p ro a ch w ill h a v e
s e v e r a l a d v e r s e c o n s e q u e n c e s . A g o ld e n op p o rtu n ity w ill be lo s t to d e a l in
a m e a n in g fu l w a y w ith th e p r o b le m s o f e x c e s s iv e and in e ffic ie n t r e g u la tio n
at both th e s ta te and fe d e r a l l e v e l s and to h ig h lig h t th e u n in ten d ed i l l e ffe c t s
and hid den c o s t s o f r e g u la tio n . S im ila r ly , an o p p ortu n ity w ill be lo s t to
r e m e d y c e r ta in d e m o n str a b le in a d e q u a c ie s in th e p r e s e n t s u p e r v is o r y
fr a m e w o r k .
T oday I do not in ten d to fo c u s on the s u b je c t o f bank r e g u la to r y r e fo r m g e n e r a l­
ly , but r a th e r a fa c e t o f th a t su b je c t w h ic h is o f s p e c ia l c o n c e r n to th is group
and w h ic h , in m y ju d g m e n t, r e c e iv e d fa r to o lit t le s e r io u s a tten tio n in C on gress
and th e a g e n c ie s d u rin g th e 94th C o n g r e s s - - t h a t i s , th e o v e r la p p in g and, at
t im e s , c o n flic tin g r e la tio n s h ip s b e tw e en s ta te and fe d e r a l bank r e g u la tio n and
s u p e r v is io n . It is c o n c e d e d by a ll th at e x te n s iv e o v e r la p o f la w and fu n ctio n s
e x i s t s . Indeed, you r c o u n s e l, J im B e ll, h a s b e e n m o s t happy to a r g u e th at the
FD IC is o n ly an in s u r a n c e c o m p a n y --a p o s itio n w ith w h ich w e , o f c o u r s e , take
e x c e p tio n . W hat is n ot w e ll know n is th e e x te n t o f th e c o s t s and p r o b le m s that




- 3 -

m a y flo w fr o m th is d u p lica tio n , or the gaps that m a y e x is t in r e g u la tio n
by v ir tu e o f ta s k s s im p ly " fa llin g b etw een th e c r a c k s . " And, c o n v e r s e ly ,
w e do not h a v e a g r a sp o f th e b e n e fits th at m a y flow a s w e ll fr o m th is
red u n d an cy.
A s I h ave s u g g e s te d in th e p a s t, I b e lie v e that the r e la tio n s h ip b etw een the
s ta te and fe d e r a l bank r e g u la tio n c r ie s out for r a tio n a liz a tio n to a far
g r e a te r e x te n t than d o e s the fr a m e w o r k at th e fe d e r a l le v e l. B e c a u se I
cannot now p r o v e th is c a s e to m y own s a tis fa c tio n and b e c a u s e I am , q u ite
fr a n k ly , n ot c e r ta in a s to th e a p p ro p ria te so lu tio n to th e p r o b le m w h ich I
p e r c e iv e , I inten d to p r o p o se to th e FDIC B oard that w e sp o n so r a c o m p r e ­
h e n s iv e and d e ta ile d ex a m in a tio n o f th is su b jec t.
A t th is ju n c tu r e , I sh ou ld d ig r e s s fo r a m o m en t to m a k e c le a r that I do not
m e a n to a tta ck , e x p lic itly or im p lic itly , the dual s y s te m o f bank r e g u la tio n
and s u p e r v is io n and to ex p la in w hy I think it im p o rta n t to d e v e lo p new
s t r a t e g ie s a im e d at a s s u m in g th e co n tin u ed v ita lity o f that s y s te m . Indeed,
I am o p p o se d to c o n s o lid a tio n o f bank s u p e r v is io n and r e g u la tio n at the
fe d e r a l le v e l b e c a u s e I b e lie v e th at th e e x is t e n c e o f r e g u la to r y c h o ic e
im p lic it in our dual s y s t e m is on e o f the p r im a r y r e a s o n s that w e have a d iv e r s e ,
c o m p e titiv e and in n o v a tiv e banking s y s te m .
T h is is not to s a y th at th e r e is any m a g ic in th e notion o f a dual banking
s y s t e m p e r s e . M any c o u n tr ie s g e t alon g q u ite w e ll w ith a u n ita ry s y s te m o f
banking. Indeed, m a n y a r g u m e n ts on b e h a lf o f dual banking tend to g e t lo s t
in r h e to r ic and, a s a r e s u lt , fa il to m a k e m o s t e ffe c t iv e ly the c a s e in its
fa v o r . S im ila r ly , by our a tta ch m en t to th e r h e to r ic o f dual banking, w e m a y
ig n o r e th e n eed to ta k e th e s te p s n e c e s s a r y to e n s u r e its contin ued s ta b ility .
N or do I r e j e c t out o f hand th e a r g u m e n ts a d v a n ced by the prop on en ts of
c o n s o lid a tio n . Indeed, c o n s o lid a tio n at the fe d e r a l le v e l w ould r e s u lt in
c e r ta in e c o n o m ie s , and, if noth in g e l s e , w ou ld m a k e the s y s te m tid y and
m o r e c o m p r e h e n s ib le to th o s e u n fa m ilia r w ith its in t r ic a c ie s .
N e v e r t h e le s s , I s tr o n g ly fa v o r and w ill a r g u e v ig o r o u s ly for a bank r e g u la to r y
s y s t e m w h ic h m a in ta in s th e c o n c e p t o f r e g u la to r y c h o ic e a t th e s ta te and
f e d e r a l le v e l s fo r tw o r e a s o n s . F i r s t o f a ll, th e s y s te m is in p la c e and u n lik e
m a n y o th er r e g u la to r y s tr u c tu r e s in g o v e r n m e n t, it is fu n ction in g e ffe c t iv e ly
and h a s d e m o n str a te d th e c a p a c ity to c h a n g e -- to , in e ffe c t, r e fo r m it s e lf .
G iven th is fa c t, it s e e m s to m e th a t th o s e w ho a rg u e a g a in s t th e e ffic a c y o f
r e g u la to r y c h o ic e b e a r a str o n g burden o f p e r s u a s io n . S eco n d ly , and p erh a p s
m o r e im p o r ta n tly , banking h is to r y d e m o n s tr a te s that th e e x is t e n c e o f r e g u la to r y
a lte r n a tiv e s p r o v id e s , in p a r t a t le a s t , one o f the m e c h a n is m s w h ich th e
r e g u la to r y r e f o r m m o v e m e n t s e e k s - - a m e a n s o f s e lf-a d ju s tm e n t and s e l f r e fo r m . In e ffe c t, so m e th in g lik e a m a r k e t m e c h a n is m m a y be s e e n at w o r k




- 4 w ith good r e g u la tio n d r iv in g out bad o v e r th e lo n g hau l.
R e c e n t banking h is t o r y is r e p le t e w ith e x a m p le s o f th is p h en om en on . A l ­
though m a n y d is a g r e e d w ith th e s p e c if ic s o f h is d e c is io n s , it is c le a r , in
r e t r o s p e c t , that J im Saxon s e r v e d th e banking in d u str y and th e p u b lic w e ll
by a llo w in g N a tio n a l banks to do th in g s rep u gn an t to h is c o lle a g u e s at the
FD IC and th e F e d e r a l R e s e r v e B o a rd . In e ffe c t, he h e lp e d tak e banking
out o f th e c o n s e r v a t is m th at w a s a h o ld o v er fr o m th e D e p r e s s io n . S im i­
la r ly , in r e c e n t m o n th s, w h ile C o n g r e ss h a s found i t s e l f u n a b le to a c t,
s ta te le g is la t u r e s and s ta te r e g u la to r s h a v e tak en th e le a d in p u rsu in g a l ­
te r n a tiv e s t r a t e g ie s o f d e a lin g w ith fin a n c ia l r e fo r m and e le c tr o n ic funds
tr a n s fe r s y s t e m s . A s a r e s u lt , w e h a v e n u m e r o u s la b o r a to r ie s w h o se
e x p e r im e n ts w ill p r o v id e in s ig h ts a s to th e m o s t n e a r ly o p tim a l a p p ro a ch .
A ls o , I fin d it h ig h ly doubtful th at a s in g le banking a g e n c y w ould h a v e fe lt
th e n eed to im p le m e n t s ig n ific a n t r e fo r m in its ex a m in a tio n and s u p e r v iso r y
p r o c e d u r e s a s did th e C o m p tr o lle r o f the C u r r e n c y 's O ffice and, a t le a s t
a t th is ju n c tu r e , I th in k it is b e n e fic ia l n ot h a r m fu l that th e FD IC and the
C o m p tr o lle r 's O ffice h ave d iffe r e n t s t r a t e g ie s fo r d e a lin g w ith th e p r o b le m
o f in s id e r a b u se .
B e c a u s e o f m y v ie w s th at r e g u la to r y c h o ic e i s , on b a la n c e , b e n e fic ia l, m y
p u r p o se to d a y in fo c u s in g upon th e o v e r la p b e tw e en s ta te and fe d e r a l s u p e r ­
v is io n and r e g u la tio n i s n o t to s u g g e s t th at e ith e r th e s ta te or th e fe d e r a l
g o v e r n m e n t sh ou ld r e t ir e fr o m the f ie ld , but r a th e r th at w e sh ou ld b e g in a
s y s t e m a t ic e x a m in a tio n o f th is r e la tio n s h ip a im e d at e n su r in g it s contin ued
v ita lity . T h is is e s p e c ia lly im p o rta n t, fr o m th e p oin t o f v ie w o f s ta te banking,
g iv e n s o m e o f th e f o r c e s a t w o r k in banking to d a y . We a r e a ll a w a r e , for
e x a m p le , o f th e F e d e r a l R e s e r v e S y s te m 's c o n c e r n w ith con tin u ed a ttritio n
fr o m th e S y s te m . B e c a u s e o f th is c o n c e r n , th e F e d is c e r ta in to c o m e f o r ­
w a r d w ith a p r o p o s a l a im e d at m in im iz in g a ttr itio n th rou gh th e p a y m en t o f
in t e r e s t on r e s e r v e s p ro b a b ly co u p led w ith a p r o p o s a l fo r n a tio n -w id e NOW
a c c o u n ts . A t l e a s t one o b s e r v e r - - C a r t e r G o le m b e --h a s p o in ted out th a t if
th e F e d i s s u c c e s s f u l in m in im iz in g c o s t s o f m e m b e r s h ip , th en a p o w erfu l
in c e n tiv e w ill be c r e a te d fo r banks to s e e k a n a tio n a l c h a r te r in o r d e r to
a v o id d e a lin g w ith tw o r e g u la to r s .
In m y ju d g m en t, th e b e s t in s u r a n c e w e can h a v e fo r the h e a lth o f s ta te banking
i s n o t a d e fe n s iv e or n e g a tiv e p o s tu r e but r a th e r an o b je c tiv e and c r e a tiv e , if
at tim e s p a in fu l, e ffo r t to r e v it a liz e th e s y s t e m . A lth ou gh o v e r la p b etw een
s ta te and fe d e r a l s u p e r v is io n h a s n ot b e e n a fo c u s o f a tten tio n du rin g th e past
th r e e y e a r s , th e p r o b le m h a s lo n g b een r e c o g n iz e d . Indeed, tr a d itio n a lly ,
you r own o r g a n iz a tio n h as b e e n v ig o r o u s in c a llin g fo r an end to o v e r la p througlj
th e m a x im u m w ith d r a w a l o f th e FD IC and th e F ed fr o m th e fie ld o f su p erv isio n
and r e g u la tio n . In 1971, th e CSBS r e p o r t "T ow ard A M o re R e s p o n s iv e
R e g u la to r y Stru ctu re," w h ic h w a s su b m itte d to th e Hunt C o m m iss io n recom m ei




- 5 -

e x te n s iv e w ith d r a w a l o f th e fe d e r a l p r e s e n c e . The c a s e w a s sta te d m o s t
e lo q u e n tly , o f c o u r s e , by your g e n e r a l c o u n s e l, w ho a rg u ed at your
W illia m sb u r g c o n fe r e n c e in 1974 that:
"We m u st not o n ly h a lt th e grow th o f, but in itia te a r o ll-b a c k
o f fe d e r a l r e g u la tio n o v e r s ta te b a n k s. Our p h ilo so p h ic a l
p o s itio n is th at th e r e a r e two r e g u la to r s , the C o m p tro ller o f
the C u r r en cy and th e s ta te s u p e r v is o r s . "
And fu rth er:
"T he F e d e r a l R e s e r v e B o a r d ’s c h a r g e is to d ir e c t m o n eta ry
p o lic y . T he F e d e r a l D e p o sit In su r a n c e C o rp o ra tio n is
p r e c is e ly t h a t--a n in s u r a n c e com p an y. "
O th ers h ave a d d r e s s e d th is q u e s tio n a s w e ll. Speaking b e fo r e the Utah
B a n k ers C on ven tion e a r ly la s t s u m m e r , I argu ed :
"In m y ju d g m en t, q u e s tio n s p e r ta in in g to the s tr u c tu r e o f sta te
banking b e lo n g to th e s ta te s in a s y s te m o f ’dual banking. ’ F or
e x a m p le , I w ou ld fa v o r an e lim in a tio n o f the sta tu to ry r e q u ir e ­
m e n t th at th e FDIC a p p ro v e b ra n ch a p p lic a tio n s . R a th e r , I w ould
s im p ly r e q u ir e th a t th e FD IC be g iv e n r e a s o n a b le n o tic e w ith the
e x p e c ta tio n th at th e FD IC w ou ld p r o c e e d under its S ectio n 8(b) if
th e p r o p o se d b ra n ch w e r e im p ru d en t and co n stitu te d an u n sa fe or
un sou n d banking p r a c tic e . O ther a r e a s w h e r e the s ta te s m ig h t
a p p r o p r ia te ly a s s e r t s u p r e m a c y a r e th e a r e a s o f E F T S and c o n ­
s u m e r a f f a ir s . R e c e n t e ffo r ts by s ta te banking d ep a rtm en ts in
both o f th e s e a r e a s d e m o n str a te th e a b ility o f sta te banking
to a s s e r t p o s itio n s o f le a d e r s h ip . N e e d le s s to s a y , the c a s e
fo r th is s o r t o f f e d e r a l d e fe r e n c e to s ta te r e g u la tio n in any
o f th e s e a r e a s m u s t b e m a d e to th e C o n g r e ss and in m y ju d gm en t
sh ou ld be m a d e a s a g g r e s s iv e ly a s p o s s ib le . "
A t th e s a m e t im e , I m a d e a p a r a lle l a rg u m en t w h en I sta te d a s to th e su b jec t
o f bank ex a m in a tio n :
"Q uite fr a n k ly , I sh ou ld a c k n o w le d g e to you th at w h ile I su p p ort
th e w ith d r a w a l p r o g r a m and a m g u a rd ed ly o p tim is tic w ith r e s p e c t
to it s r e s u lt s , it is m y v ie w th at o th er a r e a s o f r e g u la tio n and
s u p e r v is io n a r e fa r m o r e lik e ly ca n d id a te s fo r th e w ith d ra w a l of
f e d e r a l p r e s e n c e and th e a s s e r t io n o f s ta te a u th o r ity . C o n g r e ss
h as m a d e q u ite p la in to the banking a g e n c ie s and e s p e c ia lly to th e
F D IC , b e c a u s e of its p e c u lia r r e s p o n s ib ility to d e p o s ito r s , that
th e y a r e to be h eld p r im a r ily a c co u n ta b le fo r th e s a fe ty and so u n d -




- 6 n e s s o f our n a tio n 's n e a r ly 15, 000 b a n k s. T he im p o rta n c e o f th is
r e s p o n s ib ilit y and th e e x p e c ta tio n o f C o n g r e ss th at th e a g e n c ie s
w ill c a r r y it out h a s b een u n d e r s c o r e d in r e c e n t m o n th s by c o n cern
fo r fin a n c ia l m a r k e ts and fo r fin a n c ia l in s titu tio n s g e n e r a lly .
In th e p r e s e n t a tm o s p h e r e and in th e f o r e s e e a b le fu tu r e , I v ie w it
a s e x tr e m e ly u n lik e ly th at C o n g r e ss w ou ld lo o k fa v o r a b ly upon FDIC
d e fe r e n c e to th e s ta te in th e a r e a o f bank ex a m in a tio n and s u p e r ­
v is io n fo r s a fe ty and so u n d n e ss p u r p o s e s . M o r e o v e r , it s e e m s to
m e th a t in th e a r e a o f s a fe ty and s o u n d n e ss , g iv en the fe d e r a l in ­
v e s tm e n t in th is a r e a a lr e a d y in p la c e and lik e ly to c o n tin u e , sta te
g o v e r n m e n ts w ou ld b e w is e r to m in im iz e th e ir in v e s tm e n t in
e x a m in a tio n s and a u d its w h ich d u p lic a te th e ir e ffo r ts in a r e a s in
w h ic h th e s ta te g o v e r n m e n ts h a v e a c o m p a r a tiv e ad v a n ta g e and
w h e r e d iv e r s it y and e x p e r im e n ta tio n a r e m o r e d e s ir a b le . "
In a d d itio n , fo r m e r FD IC C h airm an F r a n k W ille , c u r r e n t FD IC C hairm an
Bob B a rn ett and fo r m e r S ta te Bank S u p erin ten d en t, John H eim an n , h a v e ad ­
d r e s s e d th e q u e s tio n o f s t a t e - f e d e r a l d u p lic a tio n and h a v e c o m e fo r w a rd with
p r o p o s a ls . F r a n k W ille d is c u s s e d th e m a tte r in th e c o n te x t o f h is plan for
f e d e r a l a g e n c y r e o r g a n iz a tio n . U nder W ille* s p la n , a p r o p o se d F e d e r a l Bank­
in g B oard w ou ld h a v e a u th o r ity to d e fr a y th e e x p e n s e s o f s ta te banking d e ­
p a r tm e n ts w h ic h ta k e o v e r b y c o n tr a c t any o f th e ex a m in a tio n o f s u p e r v iso r y
fu n c tio n s o f a fe d e r a l s u p e r v is o r o f s ta te b a n k s. A nd, o f c o u r s e , fo r m e r
C h airm an W ille and c u r r e n t C h airm an Bob B a rn ett w e r e in s tr u m e n ta l in the
d e v e lo p m e n t and im p le m e n ta tio n o f th e FD IC e x a m in a tio n w ith d r a w a l program
co n d u cted in Iow a, G e o r g ia , and W ash in gton .
In te s tim o n y b e fo r e th e S e n a te B anking C o m m itte e on S en ator P r o x m ir e 's r e ­
o r g a n iz a tio n p a c k a g e , th en S u p erin ten d en t H eim an n u r g e d fe d e r a l funding
o f s ta te s u p e r v is o r y e ffo r ts a s a m e a n s o f e n su r in g q u a lity e x a m in a tio n . The
H eim an n p r o p o s a l w a s m o r e d e ta ile d , p r o v id in g fo r FD IC c e r tif ic a t io n o f
th e c o m p e te n c e o f s ta te banking d e p a r tm e n ts p u rsu a n t to fe d e r a l sta tu to r y
sta n d a r d s. O nce c e r t if ie d , th e banking d e p a r tm en t w o u ld fu n ctio n a s the
e x a m in in g and s u p e r v is o r y a u th o r ity fo r a ll s t a t e - c h a r t e r e d banking institutions
in th e s ta te . A p p ro v a l o f a c h a r te r a p p lic a tio n by a c e r t if ie d banking d e p a r t­
m e n t w ou ld r e s u lt in a u to m a tic in s u r a n c e by th e FD IC .
A c o n c r e te e ffo r t to e lim in a te o r m in im iz e th e o v e r la p h a s r e c e n tly b een
c o m p le te d a t th e F D IC . A s you m a y know , on F e b r u a r y 1, 1974, the FDIC,
in c o o p e r a tio n w ith CSBS and th e s ta te s o f Iow a, W ash in gton , and G e o rg ia ,
em b a r k e d upon a th ir te e n m o n th p r o g r a m w h e r e b y it w ou ld w ith d ra w fr o m the
e x a m in a tio n a c e r ta in p e r c e n ta g e o f s ta te n o n m em b er banks in e a ch o f th o se
s t a t e s . The e x p e r im e n t w a s d e s ig n e d to stu d y th e im p lic a tio n s o f r e ly in g
s o le l y on s ta te banking d e p a r tm en t e x a m in a tio n s . A t th e b eg in n in g o f 1975,
th e C o rp o ra tio n d e te r m in e d th at fa ir and m o r e c o m p r e h e n s iv e e v a lu a tio n of
th e e x p e r im e n t co u ld b e m a d e i f tw o c o n s e c u tiv e e x a m in a tio n s w e r e u n d e r ­
ta k en by e a ch s ta te banking d e p a r tm e n t. A c c o r d in g ly , the e x p e r im e n t w a s
ex ten d ed . In 1976, th e FD IC co n d u cted an e x a m in a tio n o f e a ch o f th e banks




w h ich had b e e n e x a m in e d by th e s ta te s du rin g th e p r e c e e d in g tw o y e a r s , w ith
th e s t a te s e x a m in in g th o s e banks th e y had n o t ex a m in ed in 1974 and 1975. The
o b je c tiv e s o f th e 1976 FD IC e x a m in a tio n s w e r e to p r o v id e a b a s is fo r e v a lu ­
atin g th e e x p e r im e n t a s w e ll a s a s s e s s i n g th e co n d itio n o f the ex a m in ed b an ks.
E a r ly th is y e a r an a n a ly s is w a s m a d e o f ea ch ex a m in a tio n by th e FDIC D iv i­
s io n o f Bank S u p e r v is io n and an a p p r a is a l m a d e o f th e e x p e r im e n t a s a w h o le .
B a se d upon th e r e c o m m e n d a tio n s o f its D iv is io n o f Bank S u p e r v isio n , the
C o rp o ra tio n d e te r m in e d not to expand th e w ith d r a w a l p r o g r a m on the b a s is
th at w a s p u r su e d in th e e x p e r im e n t. R a th e r , an a ttem p t w ill be m a d e to
im p le m e n t a " d ivid ed e x a m in a tio n p ro g ra m " w h e r e b y e x a m in a tio n and s u p e r ­
v is o r y r e s p o n s ib ilit ie s con tin u e to b e sh a r e d but m a n p o w er is u s e d m o r e
e ffic ie n tly . A n a g r e e m e n t to p r o c e e d in th is fa sh io n h a s b een co n clu d ed in
G e o r g ia and it is a n tic ip a te d th at su ch a g r e e m e n ts w ill be r e a c h e d in oth er
sta te s.
A lth ou gh su c h e ffo r ts a s th is and th e s u g g e s tio n s o f F ran k W ille , John H eim ann
and m y s e lf a r e s te p s in th e r ig h t d ir e c tio n , th ey do not b e g in to a d d r e s s in a
c o m p r e h e n s iv e m a n n e r th e p o s s ib le p r o b le m s p o se d by the r e la tio n s h ip b e ­
tw e e n s ta te and fe d e r a l bank r e g u la tio n . M o r e o v e r , w h ile I h a v e throughout
th is d is c u s s io n r e f e r r e d to th e p r o b le m s r e s u ltin g fr o m d u p lica tio n and c o n ­
f l i c t in h e r e n t in th is r e la tio n s h ip , I h a v e n ot y e t m a d e a s y s te m a tic c a s e for
th e p r o p o s itio n th at th e o v e r la p in v o lv e d c r e a t e s s e r io u s p r o b le m s .
It is p o s s ib le , h o w e v e r , to id e n tify s o m e o f th e s o u r c e s o f s e r io u s c o n c er n .
F i r s t o f a ll, it is c le a r to m e th a t th e r e is no n e e d fo r two co m p eten t a g e n c ie s
to e x a m in e and s u p e r v is e s a fe ty and so u n d n e ss o f a s in g le fin a n c ia l in stitu tio n .
A c c o r d in g ly , e ith e r th e s ta te or fe d e r a l g o v e rn m e n t is in th is c a s e b ea rin g
u n n e c e s s a r y c o s t and w a s tin g s c a r c e r e s o u r c e s w h ic h m ig h t be m o r e e ffic ie n t­
ly u s e d e ls e w h e r e . F o r e x a m p le , both c o n s u m e r s and th e fin a n c ia l co m m u n ity
m ig h t p r o fit i f th e s e s c a r c e r e s o u r c e s w e r e c o n c e n tr a te d on p r o b le m s w h ich
a r e n ot a d d r e s s e d e f f e c t iv e ly at th e fe d e r a l le v e l. A nd, c o n v e r s e ly , by d e ­
fe r r in g to th e s ta te s in a r e a s w h e r e th ey h a v e a c o m p a r a tiv e a d van tage, fe d e r a l
r e s o u r c e s can m o r e e f f e c t iv e ly b e b ro u g h t to b e a r on s e r io u s p r o b le m s . S econ d ,
it a ls o s e e m s c le a r to m e th a t, a s C a rter G o lem b e s u g g e s te d , it is u s u a lly
m o r e c o s t ly and b u r d e n so m e fo r a bank to d e a l w ith tw o r e g u la to r s than o n e.
A nd, th ir d , in c a s e s w h en p r o b le m s a r i s e , th e n e e d fo r tw o r e g u la to r s to
c o o r d in a te th e ir a c tio n s s o m e tim e s m e a n s that a p r o b le m or v io la tio n is d e a lt
w ith l e s s v ig o r o u s ly and e x p e d itio u s ly than it m ig h t o th e r w is e h a v e b een han dled.
We h a v e found th at th e p r o b le m o f c o o rd in a tio n is e s p e c ia lly s e v e r e in bank
fa ilu r e c a s e s .
A lth ou gh it is p o s s ib le to o u tlin e th e s e p r o b le m s and p o s s ib le s o u r c e s o f u n ­
n e c e s s a r y c o s t , I m u s t a d m it th a t I do n o t h a v e a p r e c is e han dle on th e ex ten t
and c o s t s in v o lv e d . N or a m I c e r ta in th a t I h ave id e n tifie d a ll the p r o b le m s or
g iv e n th e m p r o p e r w e ig h t. M o r e o v e r , w h ile F r a n k W ille , John H eim an n and I




h a v e s u g g e s te d in a rou gh fo r m s o m e so lu tio n s to th e p r o b le m , if t h e r e is
o n e , t h e s e s t r a t e g ie s o b v io u sly n e e d to b e s p e lle d out in g r e a te r d e ta il than
th e y h a v e b e e n to d a te.
F o r th e s e r e a s o n s , X in ten d , a s I s u g g e s te d e a r lie r , to p r o p o se to th e FDIC
B oard a c o m p r e h e n s iv e stu d y w h ic h w ill a ttem p t to a d d r e s s in an o b je c tiv e
and s y s te m a t ic fa s h io n th e q u e s tio n s I h a v e r a is e d . Such a stu d y w ou ld f ir s t
o f a ll a ttem p t to d e s c r ib e in d e ta il th e r e la tio n s h ip b e tw e en s ta te and fe d e r a l
bank s u p e r v is io n and r e g u la tio n in o r d e r to p in p oin t p r e c is e ly th e n a tu r e and
e x te n t o f d u p lic a tio n and c o n flic t th a t a c tu a lly d o e s e x is t in th e s y s t e m . Such
a stu d y w ou ld fo c u s on th e c o s t s and b u rd en s th at flo w fr o m su ch red und ancy
a s w e ll a s b e n e fits th at flo w fr o m th e p r e s e n t s y s t e m . A d d itio n a lly , the
stu d y w ou ld s e e k to id e n tify s p e c ia l p r o b le m s th at a r i s e a s a r e s u lt o f th is
u n iq u e p a r tn e r s h ip b e tw e en th e s ta te and fe d e r a l r e g u la to r s . T he g o a l o f
su c h a stud y w ou ld n o t be a d ev elo p m en t o f one m a s te r p lan a s to how to ra tio n ­
a liz e th is s y s t e m but r a th e r a s e r i e s o f o p tio n s w h ic h m ig h t be p u rsu e d
a d m in is tr a tiv e ly , a t th e s ta te o r fe d e r a l le v e l , in the C o n g r e ss on in sta te
le g is la t u r e s . It is m y v ie w th at w e sh o u ld go fo r w a rd w ith su c h a p r o je c t
b e c a u s e I b e lie v e th a t th e s e is s u e s a r e s e r io u s and b e c a u s e I b e lie v e q u ite
s in c e r e ly th at it is im p o rta n t to u n d e rsta n d and to a ttem p t to e n s u r e the
v it a lit y o f our dual s y s t e m o f bank r e g u la tio n and s u p e r v is io n .