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Committee on Banking, Housing and Urban AffairSj
United -States Senate

May 24, 1977,

FE:DERAL DEPOSIT INSURANCE CORPORATION, 5 50Seventeenth St. N.W., Washington, D.C. 20429



Hr. Chairman, I appreciate this opportunity to appear on behalf of the
Federal Deposit Insurance Corporation to testify with respect to four bills
relating to the regulation of banking, S. 71, S. 73, S. 893 and S. 1433.

S. 71
S. 71, 95th Congress, a bill "To strengthen the supervisory authority of
the Federal banking agencies over financial institutions and their affiliates,
is basically the same as S. 2304, 94th Congress, which was jointly recommended
by tne FDIC, the Board of Governors of the Federal Reserve System and the
Comptroller of the Currency.
One major difference, however, between S. 71 and S. 2304, as recommended
by the banking agencies last year, is the addition of section 8 which would
subject expenditures of the FDIC, the Comptroller of the Currency and the
National Credit Union Administration to the appropriations process.


section was not a subject of hearings during the last Congress, and we had
no opportunity to present our opposition before Committee action added it to
the original S. 2304.

As soon as we discovered what action the Committee had

taken, we sent you tne attached letter dated April 30, 1976 arguing against
this addition to the bill.

Because existing congressional oversight procedures

have proved adequate, because the FDIC has taken the lead among the banking
agencies in expanding oversight procedures, and because proposed section 8
threatens to undermine the critical mission of the FDIC in maintaining public
confidence in the Nation's banking system, I urge the deletion of section 8.
As far as FDIC activities are concerned, we are presently subject to
periodic financial audits by the General Accounting Office pursuant to section
17 of the Federal Deposit Insurance Act (12 U.S.C. 1827).

While, as you are

aware, there has been a long-standing difference of opinion between the FDIC


and the Comptroller General as to whether this statute requires the FDIC to
permit the GAO general access to reports of examination of open banks, there
has never been any question but that the GAO has the authority to fully audit
our financial expenditures.

This authority has been fully exercised every year

for the past 32 years, and throughout that period the GAO has never had any
substantial criticism of our expenditures or budget process.

In fact, the GAO

has frequently stated that our internal records and controls are excellent.
As to our past disagreement with GAO over our examination reports, we have
recently granted GAO access to them on a trial basis.
January 26, 1977 letter to Comptroller Staats).

(See our attached

Moreover, in recent testimony

on a bill to authorize performance audits of the bank regulatory agencies (and
thus access to examination reports) by the GAO (H. R. 2176), the FDIC indicated
that, with certain amendments designed only to safeguard confidentiality, it
would have no problem with being subject to periodic performance reviews.


believe that such periodic GAO performance audits, coupled with continued GAO
financial audits and periodic oversight hearings by the responsible committees
and subcommittees of Congress, can achieve the congressional objective of holdingl
the FDIC accountable for the efficient performance of its statutory duties, withoj
the necessity of assuming the risks inherent in subjecting the FDIC to the
appropriations process.
Subjecting FDIC to the appropriations process is not, of course, a new pro­

In 1947 your Committee added an amendment to S. 1070 which, if passed,

would have accomplished such an end.

At the instance of Senator Vandenberg,

this amendment was rejected by the Senate.

About a month later a similar pro­

vision was deleted by the Senate from the Conference Report on another bill
(H. R. 3756) by a vote of 83 to 1.

A similar provision was also stricken from


an appropriations bill (H, R. 4177) in 1949.

During the debate on H. R. 3756,

Senator Vandenberg stated:

ir B


"The FDIC is on all fours with the Federal Reserve System
with respect to the fiscal structure on the American economy.
No one has yet had the temerity to propose that the Federal
Reserve System snould be robbed of its independence and sub­
ordinated to a political bureau of the Government.
Yet, here
is an institution which is even more sensitive with respect
to the necessities for its independence and we confront a
conference report which for the first time proposes to make
it possible for political controls to determine what happens.

e B

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"I am not so much afraid of wnat the political controls
would do, because I assume that they would have an adequate
respect for this institution. But I ain saying that the
fundamental importance and value of the Federal Deposit
Insurance Corporation is psychological; it is the faith
tnat for 15 years America has demonstrated it has in this
institution. At the moment when the FDIC is about completing
$1 billion of earnings of its own, so that it can eliminate
all Government capital, at this time when there is a billion
dollars of money available in the treasury of the FDIC, if
the American people read that, at long last, in Washington
something is going on which indicates that the political
powers are restless and will remain restless until they
can get tneir hands upon this great institution, the effect
will be most deplorable . . .
"I am confining myself to this fundamental conception,
because I submit, JMr. President, that the one thing in the
economic life of the United States which is basically
essential is tne maintenance of banking confidence, which
is dependent, fundamentally and primarily, upon the con­
tinuing independent sanctity of the Federal Deposit Insurance
(Congressional Record, Vol. 93, Pt. 8, p. 10123.)
What Senator Vandenberg said thirty years ago is no less true today,

We are, hope-

o- ■
fully, at the end of the most significant crisis in American banking since the Great

Tne eignt largest bank failures in the FDIC's history took place in the

39—month period from October 1973 to December 1976

banks whose assets aggregated

over 3-1/2 times the assets of all other insured banks closed during the history


of the FDIC.

In those cases, the FDIC stepped in and, if I must say so myself,

admirably performed its function to minimize the disruptive effects of the bank


- 4 -


As a result, confidence in our banking system was maintained to a

remarkable degree notwithstanding the stresses and shocks of this difficult period,
Consequently, this is, in my judgment, a singularly inappropriate time for the
Congress to take action which would suggest a lack of confidence,in the steward­
ship of the agency and which might thereby diminish the public confidence which
is so critical to the agency's mission.
Another reason, equally if not more true today than in 1950, for not sub­
jecting FDIC to the appropriations process was expressed in the 1950 Conference
Report on a bill that became the Budgeting and Accounting Procedures Act of
1950 (H. R. 9038).

That report stated that nothing in the bill was intended

to affect the FDIC or its funds because:
''The funds of tne Federal Deposit Insurance Corporation are
received from assessments on insured banks and are used
only for the purposes of deposit insurance. These funds have
never been under the Budget and Accounting Act for the reason
that they are not Government monies or appropriations and
there was no intention of including such funds in this
amendment." (H. Rept. No. 303, 81 Cong., p. 2, Congressional
Record, Vol. 96, Ft. 10, p, 13988).


Again in 1957 a bill drafted by the Bureau of the Budget that would have
subjected the FDIC to tne appropriations process (H. R. 8332) was the subject
of extensive hearings, but no action was taken thereon.

Further efforts of

this type were made in 1960 (H. R. 12092), in 1961 (H. R. 6810) and in 1965
(h. R. 10507), but none of these bills were even reported out of committee.
I believe that Congress was correct in rejecting legislative proposals
of this nature in the past and I do not believe that anything has changed
in recent years to justify any different result now.

Senator Vandenberg's


concern that these proposals might undermine public confidence in the FDIC
and in the Nation's banking system is as valid today as it was in 1947.
For example, if the FDIC had been subject to the appropriations process
during the past several years, the public would have become aware of the FDIC's
conclusion that a number of bank failures were likely during the recent reces­
sion because of the increase in the FDIC's Liquidation Division of 100 new per­
sonnel versed in liquidating failed banks.
potentially dangerous circumstance:

It is difficult to imagine a more

National recognition before the fact that

the FDIC believed it needed to dramatically increase its liquidation staff.


is almost certain that erroneous speculation over the meaning of this conclu­
sion, which no amount of reasoned explanation could have corrected, would have
led already very nervous depositors to question the safety of their bank deposit
The Corporation's ability to debate and reach its conclusions about the
direction of the Nation's economy —

and to implement its contingency plans

free of the publicity inherent in the appropriations process —

is of signifi­

cant importance to the Nation's economic health.
It is important to remember that the system of Federal deposit insurance
was not established merely to protect individual bank depositors and to mitigate
the consequences of specific bank failures.

Rather the FDIC and its independent

trust fund were conceived by Congress at the depths of the Great Depression as a
means of restoring and maintaining confidence in the Nation's banking system.
Prior to the establishment of the FDIC, American economic history had been
characterized by recurring bank panics which would result in sharp and precipi­
tous contractions of the money supply, often leading to severe economic down­

However, through the insurance and closely related liquidation func­

tions of the FDIC, public faith and investor confidence have been preserved,
benefiting botn individual bank customers and the economic climate in general.


In fact, the American Banker headline of April 27, 1976 reported "Gallup Poll
finds Public Faith In Banks Higher Than Last May; 93% Feel Money Is Safe".
Significantly, the poll was conducted from February 27 to March 1 of 1976 —
close on the heels of sensational disclosures of problem bank lists and exami­
nation reports that many feared would rock public confidence in the banking

The Gallup Poll and the reaction of the public generally during this

period provide a dramatic indication of the stability of our banking system.
While the press, and even some bankers, members of Congress and bank regulators
have fretted publicly about the soundness of our bank system, the public —
represented by relatively small investors —

has responded with confidence, not

panic, even when faced with apparently imminent failure in particular cases.
This confidence —

so critical to the maintenance of economic stability —


flects, in my judgment, a deep-seated belief in the strength and resiliency of
the banking system and in the failsafe system of Federal deposit insurance
which buttresses i t .
This judgment is one which is shared by two noted and diverse economists
Professors Milton Friedman and John Kenneth Galbraith,

Professor Friedman has

stated "Federal insurance of bank deposits was the most important structural
change in the banking system to result from the 1933 panic and, indeed, in our
view, the structural change most conducive to monetary stability since state
bank note issues were taxed out of existence immediately after the Civil War".
A similar assessment was made by Professor Galbraith in his recent boox.
entitled Money!

Whence It Came, Where It Went,

Dr. Galbraith observed that

". . . the FDIC was what the Federal Reserve had not succeeded in being —
utterly reliable lender of last resort . . . ."

Noting that there had been only

about 1,700 bank failures during the 20 years prior to the establishment of



the Federal Reserve in 1913, and some 15,500 in the 20 years after its estab­
lishment, Dr, Galbraith pointed out:

"the anarchy of uncontrolled banking

(was) brought to an end not by the Federal Reserve System but the obscure,
unprestigious, unwanted Federal Deposit Insurance Corporation'".

He concluded:

"In all American monetary history no legislative action brought such a change
as this".
The public perception of the FDIC as a "non-political" agency has also con
tributed to the absence of bank panics during the past several years. In vir­
tually every instance where the FDIC makes a decision, such as in failing bank
situations or in acting on deposit insurance applications, there are winners
and there are losers.

These decisions have, so far, been made in a way that

both winners and losers generally have believed to be free from the taint of

This method of operation has strengthened public confidence in the

regulation of the banking system since it is perceived to be fair and impartial
and based on the merits of the case alone.
In congressional testimony, former FDIC Chairman Frank Wille stated
in this regard:
"It is no accident, in my judgment, that the three Federal
bank agencies have remained over the years relatively
untouched by political scandal or intimidation.
I fear,
however, that this track record could be substantially
altered if the . . . FDIC were to be placed on an
appropriated funds basis . . . .
". . . 1 think we must have accountability, but I truly
believe that with the thousands of very sensitive and
important decisions made by the bank agencies on which
many financial interests ride, that it would be a mistake
to go through the [appropriations] process . . . .
I believe
that this will lead to control over personnel and legislative
positions and possibly even regulatory decisions themselves.


"I also believe that the temptation may exist to try to
influence the actual decisions that the agency must make
on individual applications."
In light of the substantial risks involved in destroying the traditional
insulation of the Federal deposit insurance program from the political process,
such a proposal would be appropriate only if supported by facts demonstrating
its overwnelming need.

In fact, no such case has been made.

Rather, the facts

demonstrate quite clearly the wisdom of the existing relationship between the
FDIC on the one hand and Congress and the Executive on the other.
What must not be overlooked is that the existing structure has worked.
Since establishment of the FDIC, public confidence in the banking system has
remained exceptionally high (even in the face of recent economic trauma and
adverse publicity), bank failure has been neld to a minimum, and dislocation
minimized wnere bank failure has occurred.

Indeed, the FDIC has won almost

universal acclaim for its handling of recent failures.
Supervisory Powers
The remainder of S. 71 deals with a number of proposals to strengthen the
bank supervisory agencies' enforcement powers.

These changes were jointly pro­

posed in the last Congress by all three Federal banking agencies.

The bill was

designed to bolster the ability of the banking agencies to prevent certain
types of abuses that in the past have led some banks to fail and others to be­
come problem banks.

Subsequent to the forwarding of these proposals to the

last Congress, FDIC, as well as the other bank regulatory agencies, began to
more actively use the statutory enforcement powers already in existence.


for example, in the past 17 months 64 cease and desist actions against
banks were recommended to force the correction of many unsafe and unsound prac­
tices, including abusive insider transactions, and to force the correction of


violations of many banking and consumer laws.

While it may still be too early

to assess whether this form of achieving compliance with safe and sound banking
practices and applicable laws is truly more advantageous than the jawboning
techniques, our preliminary indications are that our actions have produced
a remarkably high rate of compliance.

In only one of the cases brought during

this period, for example, have we been forced to seek court enforcement of a
cease-and-desist order because of the bank's noncompliance with it.
Our experience with our cease and desist authority over the past year and
a half has not changed substantially our views as to the necessity for the
statutory changes we previously requested.

In some cases, however, our success

with the existing powers indicafes that the necessity tor the changes may not
be as great as we once thought.

In other cases, we have attempted, under exist­

ing authority, to accomplish certain goals which we previously believed we could
only accomplish with new authority.

While our use of existing authority in these

areas has not yet been challenged or rejected by a court, we nonetheless feel
statutory changes to clarify the authority would be most helpful.

In other

areas, our experience over the past year and a half has led us to suggest cer­
tain amendments to the previous submission.
within our comments below.

We have included these suggestions

I will briefly summarize for the Committee the pro­

posals which we previously made and the new suggestions we have for changing
Civil Penalities
In a number of areas of bank regulation there is no totally effective
deterrent to violation of various limitations and restrictions imposed by


Federal statute.

Although such violations can severely affect a bank's

safety and soundness, the only sanction a bank faces in some cases is the
possible issuance of a cease and desist order requiring it to reverse a
particular transaction or to refrain from committing similar future viola­

One example is section 23A of the Federal Reserve Act which (in

conjunction with section 18(j) of the Federal Deposit Insurance Act)
imposes stringent limitations on loans and other dealings between insured
banks and their affiliates.

However, since there are no specific penalties

for violations, a bank holding company or other person experiencing
financial pressure may cause a subsidiary bank to violate such restrictions
knowing that if the violations are discovered the most severe sanction would
be the issuance of a cease and desist order designed to rectify the violation
and prevent further transgressions.
While the cease and desist order is quite useful for some purposes, it is
not as significant a deterrent to violations of restrictions on interaffiliate
or insider lending as a daily money penalty would be.

Accordingly, sections 1

and 7 of the bill would authorize the Federal Reserve and the FDIC to impose up
to $1,000 per day civil penalties for violations of section 23A of the Federal
Reserve Act relating to interaffiliate dealings or section 22 of the Federal
Reserve Act covering bank loans to their own executive officers.
In addition, section 6(e) of the bill would authorize the imposition of a
civil penalty against any bank or any officer, director, employee, agent or
other person participating in the bank's affairs for violation of a cease and
desist order or consent agreement which has become final under section 8(b) or
(c) of the Federal Deposit Insurance Act.

Section 6(e) would provide for a

civil penalty of up to $10,000 for each day after the order becomes ’'final"


that the offending bank or individual willfully refuses to obey the order.
The authority to impose such a fine for violating a final cease and desist
order would serve to emphasize the gravity of such an order and would be in
addition to the present authority to seek court enforcement of such orders.
Under section 8(k) of the FDI Act, a cease and desist order does not
become "final" unless entered into by consent or until the time has run for
filing a petition for review with the appropriate U. S. Court of Appeals
and no petition has been filed or perfected, or the petition so filed is
not subject to further review by the Supreme Court.

In either event, the

party must have exhausted the administrative and judicial remedies afforded
to him under the Act before the fine would begin to run.

If the party then

continues to disobey an order, the appropriate agency can apply to the proper
U. S. District Court to secure its enforcement.

However, the threat of a court

enforcement and possible contempt proceedings should not be the only deterrent
at this point.

The party has been given every opportunity to have his day in

He should not be allowed to further impede the effect of the order simply

to secure another delay and should be subject to a substantial monetary penalty
for each day that he does so, as provided in the bill.
In imposing civil money penalties under the bill's provisions, the
appropriate bank regulatory agency would be required to take into account
the financial resources and the good faith of the bank or person charged
with the violation, as well as the history of previous violations.


the utility of such penalties would be primarily in their deterrent effect,
and the actual imposition of fines could be used sparingly.


Insider Loans
Our experience has indicated the need for more vigorous supervision
by bank boards of directors and bank supervisory agencies of transactions
between an insured nonmember bank and "insiders" of the bank.


self-dealing has been a significant contributing factor in more than half
of all bank failures since 1960, including the failure of 30 nonmember
insured banks.
$175 million.

Losses as a result of these failures are likely to exceed
A review of existing and past problem bank cases also reveals

abusive self-dealing as a significant source of difficulty.

Even where the

immediate result is not the bank's failure or its designation as a bank
requiring close supervision, an insider transaction that is not effected on
an "arm's length" basis may lead to a diminution of the bank's earnings and
an erosion of its capital —

thereby increasing the risk of loss to depositors

and minority snareholders and ultimately perhaps, to the deposit insurance

Also, insider transactions whose terms and conditions cannot be justified

constitute a diversion to insiders of resources that properly belong to all
shareholders on a pro rata basis, as well as a misallocation of a community's
deposited funds.
For these reasons the FDIC on February 25, 1976 adopted a new regulation
dealing with insider transactions.

The regulation seeks to minimize abusive

self-dealing through the establishment of procedures which insure that bank
boards of directors supervise such transactions effectively and which better
enable FDIC examiners to identify and analyze such transactions.

The board

of directors of each insured nonmember bank is required to review and approve
each insider transaction involving assets or services having a fair market


value greater than $20,000 for a bank having assets under $100 million,
$50,000 for a bank between $100 and $500 million in assets, or $100,000 for
a bank with assets over $500 million.

In addition, certain recordkeeping

requirements, including a record of dissenting votes cast by members of
bank boards of directors, are imposed in order to foster effective internal
controls over such transactions by the bank itself and to facilitate
examiner review.
In addition to these new regulatory requirements, it is our opinion
that more explicit statutory lending limitations on the amount of a bank's
loans to its insiders would be helpful in preventing banks from incurring
undue risks by lending excessive amounts to insiders and their related
business enterprises.

Such limits are necessitated by the fact that a bank

may be less subject to the restraints imposed by prudence and sound judgment
when making loans to its insiders and their related interests than it would
be in making loans to unrelated individuals or business enterprises.
Accordingly, we believe further substantive restrictions should be
placed on transactions between banks and insiders.

Specifically, it would

be desirable to amend section 22 of the Federal Reserve Act to impose addi­
tional restrictions on loans by a bank to its own officers and directors
and to major stockholders and corporations affiliated with such individuals.
Accordingly, sections 3 and 7 of the bill would provide that the existing
limits under applicable Federal or State law on loans to one borrower would
apply with respect to loans by any member or nonmember insured bank to any
one of its officers and directors and to any other individual holding more
than five percent of its voting securities, including loans to companies
controlled by such officer, director, or five percent shareholder.



provisions would require that loans or extensions of credit to any one of
its officers, directors or five percent shareholders and to all companies
controlled hy such person be aggregated and that the aggregate of such
credit not exceed applicable Federal or State one-borrower limits.
Administrative Enforcement
While the provisions of tne bill discussed above are designed in large
part to prevent problem bank situations from developing, the bill also
contains several provisions intended to assist in dealing with problem
bank situations once they arise.

Presently under § 8(e) of the Federal

Deposit Insurance Act the appropriate Federal bank regulatory agency is
authorized to remove a bank director or officer who has engaged in a
violation of a law, rule or regulation, participated in an unsafe or
unsound practice, violated a final cease and desist order, or breached
his fiduciary duty —

but only if such violation involves personal dis-

nonesty and where substantial financial loss to the bank or other damage to
its depositors can be demonstrated.

Because of the difficulty of proving

circumstances amounting to personal dishonesty, presently we have no power
under the law to effectively remove individuals even if they have repeatedly
demonstrated gross negligence in the operation or management of the bank
or disregard for its safety and soundness.
We realize that tne original congressional objective underlying the
''personal dishonesty" requirement was to protect bank officers and directors
from arbitrary or capricious administrative action.

In light of our experience,

however, we believe that this protection can be provided in another way while
eliminating the necessity of proving personal dishonesty or personal gain.
Thus, where the persons disregard of sound banking practices dictates removal,


it is necessary to balance the interests of the individual bank officer or
director against those of the bank's depositors and shareholders, and ultimately
against the public interest in maintaining the integrity of the banking system.
To strike this balance, we strongly recommend enacting the provisions of
section 6(d) of the bill, which add to the standard of personal dishonesty
an alternative standard which would recognize the need to remove those officers
and directors whose gross negligence in the operation or management of a bank or
whose disregard of its safety and soundness threatens the financial safety of the

We believe that the present hearing and judicial review requirements

are sufficient to shield bank officers and directors from arbitrary or capricious
administrative action.
Recent experience also indicates that a bank may be harmed not only by the
misconduct of its own officers and directors but also by the misconduct of others
who are in a position to influence its affairs.

While we believe we have the power

to reach such persons through removal proceedings or through cease and desist
action brought against the bank itself, we support the amendments contained in
section 6(a) and (c) of the bill, which would clarify our authority in this regard
by amending paragraphs (b) and (c) of section 8 of the Federal Deposit Insurance
Act to provide expressly that the appropriate regulatory agency may bring cease
and desist proceedings against directors, officers, employees, agents and other
persons participating in the conduct of the affairs of a bank, as well as against
the bank itself as permitted under present law.

We believe that clarifying our

ability to reach such officers, directors and other persons participating in a
bank's affairs through cease and desist orders would result in a greater ability
to correct situations which might otherwise result in serious detriment to the


Recommended Amendments —

In addition to the deletion of section 8

of S. 71, we would also like to recommend several amendments to the original
provisions of this bill for the reasons indcated below.


Because of the difficulty of proving willfulness, we think
that "willful disregard" in the bill's amendments to section 8(e)
of our Act should be amended to read "continuing disregard."


We would also urge that the requirement for a finding of
"substantial financial loss" to the bank in connection with
section 8(e) removal proceedings be deleted from the statute
on the ground that such removal proceedings should not be
frustrated merely because an officer's or director's violations
of law or dishonesty or mismanagement have, either for some
fortuitous reason or by design, harmed only bank customers or
others dealing with the bank and not the bank itself.

In fact,

it is very possible that potentially dangerous violations of
banking laws or regulations may not, at a given point in time,
have caused any loss whatever to the bank or even to its deposi­
tors or customers.

Two examples would be insider loans

or loans in excess of lending limits, neither of which
have at a given point in time been classified by examiners.

We also recommend that section 8(e) of our Act be
amended to make clear that the resignation of an officer
or director in the face of impending removal proceedings
does not necessitate termination of such proceedings, as
apparently required under present law.

The purpose here

is to prevent such an officer or director from thwarting


the removal proceedings by resigning and then returning to
the bank at a later date after such proceedings have been

In light of the recent case of Feinberg v. Federal Deposit
Ins. Corp., 420 F. Supp. 109 (D.D.C. 1976), holding
section 8(g) of our Act unconstitutional because no hearing
is provided for therein, we recommend amending section 8(g)
to require the agencies to provide hearings immediately
after suspending any officer, director or other person under
that subsection.

The Solicitor General has advised that the

Feinberg decision will not be appealed.

S. 73
Presently, section 8 of the Clayton Act (15 U.S.C. 19) prohibits director
and employment interlocks between any Federal Reserve member bank and any other
competing bank (other than a mutual savings bank) located in the same or a
contiguous community and not under common control therewith, except that the
Board of Governors of the Federal Reserve System may permit a member bank one
such interlock by regulation.
S. 73 would repeal this prohibition in the Clayton Act and replace it
with a broader prohibition applicable to interlocks between any commercial
bank, savings bank, trust company, savings and loan association, credit
union, bank holding company or savings and loan holding company and any
other such institution not affiliated therewith if each such institution
has an office in the same standard metropolitan statistical area or within
50 miles of the other.

In addition, the bill would ban interlocks between


any such institution with assets over $1 billion and any other such nonaffiliated institution with assets over $500 million, regardless of the
location of either.

The new interlock prohibitions would be narrowed in

one sense, however, to apply only to interlocks at the directorate and
management levels.

The S. 73 provisions would be enforced by the five

financial regulatory agencies with respect to institutions within their
primary jurisdictions and by the Justice Department with respect to other
(i.e., noninsured depositary; institutions.

Also, the Board of Governors

of the Federal Reserve System would be given authority to grant regulatory
exemptions from the bill's provisions.

The bill would take effect five

years after enactment.
In 1971 the FDIC proposed legislation regarding employment interlocks
between financial institutions.

Essentially, our earlier proposal would

have expanded section 8 of the Clayton Act to cover interlocks involving
an insured bank and any other bank or savings and loan association (or
any holding company of either), except that the appropriate Federal bank
regulatory agency could permit such interlocks where it found that the
existence of such interlocking relationship was the result of common
control through stock ownership or the result of a scarcity of experienced
management talent.

Our proposal would also have authorized the appropriate

Federal bank regulatory agency to prohibit by regulation interlocks involving
a bank subject to its jurisdiction, regardless of geographic area, where
the agency found such interlock tended to lessen competition or where either
institution had total assets over $500 million.

A copy of our 1971 draft bill

in this area is attached for your Committee's consideration.


If your Committee should prefer to follow the S. 73 approach, we
would recommend amending S. 73 to provide specifically that one basis
for granting exemptions would be where interlocks are necessitated by
the scarcity of management talent in smaller communities.

S. 893
S. 893 is the FDIC's so-called “Housekeeping" bill containing a number of
legislative recommendations which we believe to be essentially noncontroversial
in character.

I will mention only the highlights of the bill, suggest one clarify­

ing amendment to the bill, and request the addition of one provision to the bill.
Perhaps the most significant part of the bill is section 1 which would
require FDIC consent in connection with the establishment of foreign branches
or the acquisition of foreign bank stock by nonmember insured banks.


member banks of the Federal Reserve System are presently required to obtain
Federal Reserve Board consent under section 25 of tne Federal Reserve Act to
branch abroad or to acquire foreign bank stock, no Federal approval is necessary
for such actions by nonmeraber insured banks.

Since the foreign activities of

nonmember insured banks can clearly affect their safety and soundness and,
therefore, have a direct impact on the FDIC's insurance risk, we strongly recommend
that this gap in Federal law be closed by giving the FDIC authority over such
banks comparable to that which the Federal Reserve has over member banks.
Another significant provision in S. 895 is section 5(b) which would change
the definition of "affiliate" in section 10 of the Federal Deposit Insurance
Act to conform to the definition of that term presently in section 23A of the
Federal Reserve A c t .

Under the present scope of this term as used in our

section 10, the FDIC has authority to examine a bank holding company owning

more than 50 percent of the stock of any insured bank, as well as any
subsidiary of such holding company.

S. 895 would merely expand the definition

of "affiliate" for this purpose to also include any bank holding company
or subsidiary thereof as defined in the Bank Holding Company Act —


in effect reducing tne stock ownership threshold from 50 percent to 25
percent (or to such lower percentage as the Federal Reserve Board may
determine to be effective control).

Essentially, therefore, the bill

only substitutes the Bank Holding Company Act definition of control for
that contained in tne Banking Act of 1933 as a measure of the scope of
the FDIC's existing authority to examine "affiliates" under section 10
of our Act.

Thus, this provision does not create any new type of authority

in the FDIC to examine "affiliates," but merely makes a limited and logical
extension of already existing authority in this area.
We have one clarifying amendment to suggest to S. 895,

Concern has

arisen that § 4 of the bill, authorizing the FDIC to issue regulations to
carry out any law it administers or enforces, would permit FDIC to issue
regulations conflicting with those of other agencies with specific authority
to issue substantive rules in the same area (such as that of the Federal
Reserve in the truth in lending area).

In order to make clear that this

could not happen, we suggest adding the following parenthetical at the end
of § 4:

"(except to the extent that authority to issue such rules and regu­

lations has been expressly and exclusively granted to another regulatory
we would also recommend adding a section to S. 395 which would amend
the enforcement provisions of the Home Mortgage Disclosure Act of 1975 to


transfer enforcement jurisdiction as to noninsured savings and loan associa­
tions from the FDIC to the Federal Home Loan Bank Board and to give both
tne FDIC and the FHLBB express authority to conduct investigations (including
on-site examinations) and require reports from noninsured institutions subject
to their respective enforcement jurisdiction under that Act.


§ 305(b) of that Act confers enforcement jurisdiction on the FDIC with respect
to both noninsured banks and noninsured savings and loan associations.
Authority over the latter would more appropriately reside with the FHLBB.
These suggested amendments could be effected by (1) amending § 305(b)(1)(C)
to substitute "any other commercial or savings bank" for "any other depository
institution"; (2) revising § 305(b)(2) to include reference to "any other
savings and loan, building and loan or homestead association (or cooperative
bank)" and (3) adding at the end of the second sentence of § 305(c)


any such agency may, for such purpose, conduct investigations (including
on-site examinations) of and require reports and other data from any institu­
tion over which it has enforcement jurisdiction under subsection (b)."

S. 1433
m i s bill would expand the present conflict-of-interest provisions in
the Federal Deposit Insurance Act and the Federal Reserve Act to prevent
FDIC Directors (including the Comptroller of the Currency) and Federal
Reserve Governors from becoming employed by a bank holding company or an
affiliate thereof for a period of two years after they leave office.
Present law applies only to employment with insured banks in the case of
FDIC Directors and with member banks in the case of Federal Reserve
Governors, and then only if such Director or Governor does not complete


tne full term of office for which he was appointed.

S. 1433 would also

apply similar prohibitions for the first time to Federal Home Loan Bank
Board members and to tne Administrator of the National Credit Union

The bill's prohibitions would also cover the voluntary

acquisition of any interest or the exercise of any voting rights in any
regulated institution or affiliate thereof.

I do not oppose S, 1433, but

suggest that it be considered in the context of Government-wide regulation
of conflicts of interest.
As you know, Senator Ribicoff has recently introduced an Administration
bill (S. 1446) to be known as the "Ethics in Government Act of 1977,"
which, among other things, would strengthen existing prohibitions against
appearances by former Government officials before an agency with which
they were previously employed on matters that were under such person's
official responsibility for a period of two years after termination of
Government service (instead of one year as under present law


18 U.S.C.

207) and Dy prohibiting informal as well as formal contacts with such

Also, the bill would impose a new and broader ban on formal

or informal contact on other matters for a period of one year after the
end of Government service.

These provisions are designed to prevent

the misuse of influence acquired through public service.

Moreover, the

prohibitions are Government-wide in their applicability and are not limited
to the financial regulatory agencies.

We believe that logic dictates

dealing with these conflict-of-interest questions in the broader,
Government-wide context, rather than singling out the financial regulatory


agencies for special legislation of this nature,

To the extent that they

exist, these problems are certainly not limited to the regulators of financial

Accordingly, we support the approach of the Administration's

recently introduced bill in this area, and suggest that S. 1433 be considered
in the context of that bill.

FDIC Expenditures
Mr. Chairman, at your request we have attached to this statement a
schedule showing income and expenses of the Corporation for the ten years
ended December 31, 1976, a period which saw the size and complexity of the
Corporation grow dramatically.

These changes are reflected most graphically

in the increase in administrative and operating expenses, from $24.4 million
for the year 1967 to $74.8 million for the year 1976.

Over two-thirds of the

administrative and operating expenses is payroll, which, without regard to
increases in personnel, has risen substantially as the result of 11 pay
increases during the 10-year period.
The number of persons employed by the Corporation has increased from
1,869 at December 31, 1967 to 3,335 at December 31, 1976.

Tne largest part

of the increase in the number of employees is directly related to the increase
in tne number and size of banks supervised and to the number and size of
liquidations we are administering.

In addition, a number of employees have

been added to deal witn relatively new responsibilities given the Corporation
during the past few years.

For example, while it is difficult to estimate

precisely, we believe that the Corporation is spending roughly 230,000
man-hours each year enforcing consumer laws.
The Corporation now supervises 8,980 commercial and mutual savings
banks, an increase of 1,200 during the ten—year period.

These banks had

- 24 -

total deposits of $355.2 billion at year-end 1976, an increase of $246.7
billion during the ten-year period.

The Corporation now supervises three

times as many banks with deposits over $100 million as the Federal Reserve
System, and is approaching the number of banks of this size supervised by
the Comptroller of the Currency.

More banks with deposits over $1 billion

are supervised by the FDIC than by the Federal Reserve System.
At year-end 1976, the FDIC's Division of Liquidation was administering
over 72,000 assets with an aggregate book value of approximately $2.6 billion,
over $900 million of which was real estate related.

The banks which have

closed in recent years are considerably larger and more difficult to liquidate
than those in earlier liquidations.

For example, during the four years from

January 1, 1973 through December 31, 1976, 39 insured banks closed with $6.6
billion in assets, compared with the six-year period from January 1, 1967
through December 31, 1972, when 30 insured banks closed with $361 million
in assets .



April 30, 1976

Honorable William Proxmire
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D. C. 20515
Dear Mr. Chairman:
I have learned that the Banking Committee voted yesterday to make
the FDIC subject to the appropriations process. That action is
profoundly troubling to the Corporation and its Board of Directors,
and while I believe you know the general position of the Corporation
on that proposition, I feel I should present it more thoroughly so that
you and the other Committee Members will understand our view of
the full implications of that action.
We are unaware of any major dissatisfaction of the Committee with
the Corporation. In many areas, such as disclosure, insider trans­
actions, variable rate deposit instruments, examiner training and
development, problem bank prediction, responsiveness to Congres­
sional suggestions and inquiries, e t c ., we have been the leader among
the bank regulatory agencies. We have not resisted your efforts to
have GAO audit our performance; on the contrary, we have welcomed
With respect to our performance in assisting banks that are failing
or in danger of failing, or our general performance as guardians of
the deposit insurance fund and administrators of the deposit insurance
program, most objective observers will give us very high marks. We
understand, for example, that a recent Gallup poll showed that 93 p er­
cent of Americans with bank accounts feel their money is safe there.
Frankly, even though this poll was apparently funded by the American
Bankers Association for that Association’ s own purposes, we feel the
results are a tribute to the FDIC and are a direct result of the Corpo­
ration’ s efforts over the years. No other efforts in the financial or
monetary arena have received or could receive such a vote of confidenc
and approval.

Honorable William Proxmire
April 30, 1976
Page Two

If including the FDIC under the appropriations process was not
designed to correct serious abuses or poor performance in our office,
then it must be designed to provide better oversight of our activities.
We feel we have always been open and candid with the Banking Com­
mittee, but nevertheless we can appreciate your interest in more
Because of our interest in providing you that information, we willingly
have agreed to a GAO performance audit of the FDIC. This audit,
which tracks most of the suggestions generated by your staff and sent
to the FDIC by you on January 27, 1976, should provide you the infor­
mation which will permit you a more thorough oversight of our activities.
(A copy of that agreement is attached. )
As you know, the financial statements of the Corporation have been
audited by the General Accounting Office on an annual basis for over
thirty years. With the exception caused by the disagreement between
GAO and the Corporation over the desirability of predicting bank
failures and possible losses to the deposit insurance fund, and the
concomitant reluctance of the Corporation to permit a review of our
examination reports for that purpose, GAO has always found the Cor­
poration helpful in assisting it in its annual audit. There have been no
instances to my knowledge of GAO raising any questions of irregularity
or irresponsibility in the financial dealings or budget expenditures of
the FDIC.
Although our budget is not reviewed by OMB or Congressional Com­
mittees, our budget decisions are made only after careful analysis
within the FDIC. Our budget process begins with the Division Chiefs'
preparation of budget recommendations to our Budget Office. That is
followed by a review by that Office and our Personnel Office of those
recommendations, hearings conducted by a Budget Review Committee
internal to the Corporation, detailed recommendations by that Review
Committee to the Board of Directors, and finally review and approval
by the Board of Directors itself. We have a Controller's Office within
the Corporation to which are delegated certain limited responsibilities
and authorities with respect to administering the budget adopted by our
Board of Directors, and the FDIC Auditor and his audit staff audit both
the Corporation's expenditures and each and every liquidation in which
the Corporation is participating. During the middle of each fiscal year,
a limited budget review and update is held.

Honorable William Proxmire
April 30, 1976
Page Three

Several benefits flow from this procedure. We have no need to pad
our budget estimates to allow for cutting by OMB or the Congressional
Appropriations or Budget Committees. We have no need to spend
unused funds near the end of the fiscal year in order to avoid budget
cuts the following year. Our decisions on applications for branches,
deposit insurance, m erger approvals, e tc ., and our judgments on
hiring, firing, promotions, contracts, e tc ., can be made on the basis
of our professional objective judgment rather than on their possible
impact on our ability to gain approval for future budgets. We are able
to budget and plan on a long-range basis for programs with long-range
benefits. For example, we have developed over a period of many
years a training program for bank examiners of which we are very
proud. Such a program does not necessarily provide a payoff in the
very beginning, but the present need for more and better trained
examiners underscores the correctness of the judgment which initiated
this program before the need was obvious. We are able immediately to
increase our expenditures over budget estimates if an emergency involv­
ing a large bank failure occurs. We do not have to wait for a special
supplementary appropriation nor do we have to build an unpredictable
and probably misleading contingency fund into our budget estimates.
Finally, if we decide, for example, that we should hire one hundred
more liquidators to administer closed bank receiverships that we see
might be developing (as we did about two years ago), we can do that
without publicity. As Senator Vandenberg said on the floor of the
Senate in leading a bipartisan effort to prevent requiring the FDIC to
submit a budget annually to the Bureau of the Budget (the same principle
as here):
. . . If the FDIC is doubtful about the year to come
and has to build up a large budget in anticipation of
its doubts, I know of no surer way to precipitate a
crisis in the United States than to have the budget
of the FDIC necessarily increased in anticipation
of bank failures made public to the world on New
Y ear’ s each year. (93 Cong. Rec. 10121 (1947)).
Because of the crucial and unique role of the banking system in providing
the credit base for our entire economic system, certain related proposi­
tions seem clear to the FDIC. First, it is essential that Congress and
the public are assured that the financial affairs of the FDIC are managed
in a prudent and efficient manner. Second, it is essential that bank

Honorable William Proxmire
April 30, 1976
Page Four

depositors remain confident that the FDIC has the financial and mana­
gerial ability to meet its responsibilities to deal effectively and promptly
with failing banks. Third, it is essential that the general public remain
confident that the Federal deposit insurance fund, built up over forty
years, will continue to be dedicated to protecting the safety and sound­
ness of the banking industry. Finally, it is essential that the public be
confident that the decisions of the FDIC on broad policy issues or on
individual bank cases that come before it be decided on a professional,
impartial and nonpolitical basis.
I believe that under our existing administrative, financial and budgetary
arrangements and procedures, particularly as amended by the addition
of a GAO performance audit, these propositions can be supported
a ffirm a tively. F ir s t, the existing GAO audit and the pe rio d ic reports
and financial statements published by the FDIC constantly assure the
public that the financial affairs of the FDIC are in order. Second, our
performance has proved that the Corporation can deal effectively with
closed banks. Third, the confidence of the public in FDIC is shown by
the total absence of lines outside the doors of Franklin National Bank,
U. S. National Bank or Hamilton National Bank when those banks closed.
Before the FDIC was created, "ru n s" on banks were commonplace; now'
they are practically nonexistent. We believe the Gallup poll I referred
to earlier accurately represents the confidence the public has in the
FDIC. Finally, the public knows that decisions at the FDIC are not
wrongly influenced by the political process since it is an independent
agency, not supported by tax funds and not subject to the appropriations
process. Change is unnecessary, unwarranted, and may, in fact, weaken
the confidence the public now has in FDIC. Again, referring to comments
of Senator Vandenberg in the debate referred to before:

. . .N o one has yet had the temerity to propose that
the Federal Reserve System should be robbed of its
independence and subordinated to a political bureau
of the Government. Yet, here is an institution
which is even more sensitive with respect to the
necessities for its independence. . . .
I am not so much afraid of what the political
controls would do, because I assume that they
would have an adequate respect for this institution.
But I am saying that the fundamental importance
and value of the Federal Deposit Insurance Corpora­
tion is psychological; it is the faith that for 15 years

Honorable William Proxmire
April 30, 1976
Page Five

America bas demonstrated it has in this institu­
tion. At the moment when the FDIC is about
completing $ 1 ,0 0 0 ,0 0 0 ,0 0 0 of earnings of its own,
so that it can eliminate all Government capital at
this time when there is a billion dollars of money
available in the Treasury of the FDIC, if the
American people read that, at long last, in
Washington something is going on which indicates
that the political powers are restless and will
remain restless until they can get their hands
upon this great institution, the effect will be most
deplorable, (emphasis added)
Federal deposit insurance has worked. That the American public has
confidence in its banking system and knows that its deposits are safe
in the nation’ s banks is due in large measure to the existence of Federal
deposit insurance. The integrity of the fund out of which those deposits
will be paid in the event of a bank closing is unquestioned; each succeed­
ing Board of Directors of the Corporation since its beginning has proved
to be excellent guardians of the fund. Any change in the financial opera­
tions of the Corporation or the methods by which the Corporation receives
its money to conduct its business may well erode the public’ s confidence
in the fund. We might note in this regard the recent concern being
voiced about the soundness and solvency of the Social Security fund.
Whether justified or not, similar concern about the integrity of the
deposit insurance fund could prove to be unsettling. Without some
overwhelming need, carefully and completely delineated, it seems
reckless to expose the public's confidence in the banking system to the
danger of such erosion of confidence. In a statement by former Chair­
man Leo T. Crowley (1934-1945) before the Senate Appropriations
Committee which was at that time considering placing the FDIC under
the appropriations process, this was stated eloquently:
In the brief span of 14 years, the Federal
Deposit Insurance Corporation has banished the
fear of bank failures from the minds of the public.
It has blazed the trail from hoarded currency
hidden in mattresses and tobacco cans to the
present time when no one doubts that his bank
deposit will be repaid, if not by his bank, then
by the Deposit Insurance Corporation. No longer
do broken people gather before the closed, cold


Honorable William Proxmire
April 30, 1976
Page Six

doors of a failed bank and ponder their plight
while reading the fatal notice announcing the
appointment of a receiver. Instead, when a
bank closes, the depositors calmly await the
arrival of the claim agents of the Federal Deposit
Insurance Corporation who, in a brief period of
days, pay off their claims in cash. From the
outset, the Corporation has operated successfully
and, as a banker, a former Government official,
and a businessman, I have always believed that
an organization which is operating successfully
should not be disturbed or upset by forcing it to
change its method of transacting bu siness. To
unnecessarily deprive the Federal Deposit Insur­
ance Corporation of its independence and flexibility
which its corporate structure was designed to
furnish, as is proposed in the pending measure,
would, in my opinion, be a very grave mistake.
Former Chairman Wille made much the same statement testifying before
tile Subcommittee on Financial Institutions Supervision, Regulation and
Insurance on his final day as Chairman of the FDIC:

It is no accident, in my judgment, that the
three Federal bank agencies have remained over
the years relatively untouched by political scandal
or intimidation. I fear, however, that this track
record could be substantially altered if the proposed
Federal Banking Commission and the FDIC were to
be placed on an appropriated funds basis, subject
in the first stage of the process to the tender
m ercies of the White House and the Office of
Management and Eudget and in the second stage
to the varied interests of individual Congressmen.
The practical effect of the appropriation process
would be to give the political operatives of the
White House and the Congress substantial control
over the personnel, the day-to-day operations,

Honorable William Proxmire
April 30, 1976
Page Seven

and the legislative positions* taken by the Comm is­
sion and the FDIC, and I need not remind you how
sensitive many of these agency decisions can be.
a s s

My own suggestion for change is, as I say,
legislative oversight and post-audit by the GAO
under specified conditions of confidentiality. I
think we must have accountability, but I truly
believe that with the thousands of very sensitive
and important decisions made by the bank agencies
on which many financial interests ride, that it would
be a m istake to go through the political p r o c e s s of
appropriations reviewed by the White House and then
by the Congressional committees. I believe that this
will lead to control over personnel and legislative
positions and possibly even regulatory decisions them­



It was no secret that during the years of this
past Administration and the affairs of Watergate
significant efforts were made on the part of the
White House to place particular personnel in some
of the agencies of government, who were loyal above
all things to the incumbent President.
I think it is clear that the Office of Management
and Budget has used its power to recommend budget
levels in an effort to control the policy direction of
*g encies. And, in many cases, I think this is appro­
priate. When you have a regulatory agency, I have
severe question that that is appropriate.

♦In this respect, insofar as OMB is concerned, the
Imposition of the appropriations procedure on the
FDIC could have the practical effect of nullifying
recent legislation which expressly exempted the
FDIC from obtaining OMB clearance before sub­
mitting its positions on legislative matters to the

Honorable William Proxmire
April 30, 1976
Page Eight

I also believe that the temptation may exist
to try to influence the actual decisions that the
agency must make on individual applications.
To summarize, therefore, our opposition to including the FDIC under
the appropriations process is based on (1) a deep concern for the integ­
rity of the deposit insurance program and the independent dedicated
fund which supports that program, (2) a fear that public confidence in
deposit insurance might erode if the finances of the Corporation become
politically controlled, (3) a strong desire to continue the present ability
of the FDIC to make its decisions, many of which are extremely sensitive,
on an o b je ctiv e , nonpolitical basis, and (4) a need to maintain flexibility
in our finances to cover expenditures'"which may be predictable or
unpredictable. The C orporation fe e ls that the recent agreem ent reached
with the General Accounting Office permitting operational audits by GAO
provides thorough oversight ability to Congress without the ancillary
dangers associated with subjecting the FDIC to the appropriations
1 am taking the liberty of sending copies of our views as expressed in
this letter to the other Members of the Committee. I hope they are
helpful to you and the other Members.
Very truly yours,

Robert E. Barnett









January 26, 1977

Honorable Elmer B. Staats
Comptroller General of the United States
Washington, D. C. 20548
Dear Mr. Staats:
On April 22, 1976, you and I executed a Memorandum of A gree­
ment between our organizations w hich provided operating guidelines for
your conduct of a review and evaluation of our supervisory operations
relating to banks under the jurisdiction of this Corporation. For purposes
of that performance audit, the Memorandum of Agreement reversed a
position long held by the Corporation on the question of GAO's access to
bank examination reports and related records involving operating banks.
More recently, some of your people involved in the audit of our
financial transactions have reopened this question with Mr. John J. Early,
Director of our Division of Bank Supervision. It is my understanding that
these GAO representatives are interested in the Corporation's current and
future reaction to a request for continuing access to open bank examination
material in the course of your financial audits. As I further understand
it, this access in conjunction with your audits of the Corporation's financial
transactions might underlie what could be considered as periodic operational
audits of our bank examination and related supervisory processes. Such
access would make unnecessary your recent qualifications of your audits
of the FDIC.
We were not happy that your first draft report on the performance
audit was "leaked" but we have no reason to assume your people were the
ones who leaked the document. Likewise, we assume you will continue to
take all reasonable precautions to avoid future leaks while your reports
are in the preparation and editing stages. Certainly your record in this
regard with respect to previous audits of our financial condition has been

Honorable Elmer B. Staats
January 26, 1977
Page Two

As you can tell from my comments to you regarding your draft
report on the performance audit, and particularly from the comments of
our Division of Bank Supervision, we believe that GAO overlooked what
we consider to be some significant actions which the Corporation had taken
in bank examination during the past year or two. I attribute this oversight
not to any reason other than the speed with which your agency was required
to perform a very large and very difficult job.
I am inclined, therefore, to permit GAO to have access to the
examination reports of open and operating banks during its annual finan­
cial audit of the F D I C provided that the h.asic terms under which those
examination reports are r e v i e w e d are consistent with the t e r m s in our

Memorandum of Agreement of April 22, 1976. So that both your agency
and ours can have a period of time to see whether this new approach
is helpful, I would suggest that such access be available for the next
three financial audits. In effect, we would be holding in abeyance our
traditional arguments during this three-year period during which we
judge whether this additional access is helpful to our two agencies.

Very truly yours,
(•Ignei) * * •-t


Robert E. Barnett

To amend the Federal Deposit Insurance Act to prohibit certain interlocking relationships between insured banks and other financial
institutions, and for other purposes.

Be it enacted by the Senate and House of Representatives of the


United States of America in Congress assembled. That the" Federal De-


posit Insurance Act is amended (l) by redesignating sections 22 and




following new section immediately after section 21:


as sections


"SEC. 22.


and 2 h i respectively, and (2) by inserting the


No director, officer, or employee of any insured


bank shall be at the same time a director, officer, or employee of


any other financial institution, except that the appropriate Federal


banking agency may permit such service as a director, officer, or erri­

lo ployee of any other such financial institution where it finds that the

existence of such an interlocking relationship is the result of common


control through stock ownership or the result of a scarcity of ex-


perienced financial talent.




The foregoing prohibition shall not apply in the case of

any one or more oì* the following:

Any financial institution more than

90 per



of the stock of which is owned directly or indirectly by the


United States or by any corporation of which the United States


directly or indirectly owns more than



90 per

centum of the stock.

Any financial institution which has been placed





formally in liquidation or which is in the hands of a receiver,


conservator, or other official exercising similar functions.



A corporation principally engaged in international

or foreign banking or banking in a dependency or insular posses5

| sion of the United States which has entered into an agreement


with the Board of Governors of the Federal Reserve System pursuant!


to section 25 of the Federal Reserve Act.



Any financial institution which is a bank holding

company or a subsidiary thereof if such insured bank is a subsidiary of the same bank holding coirgpany.


Any insured bank which does not have its main office

12 |

or any branch located in the same city, town,

or village as that


in which the main office or any branch of such other financial


institution is located, or in any city, town, or village contig-


uous or adjacent thereto:


prohibition shall apply to any insured bank which is authorized

Provided, however, that the foregoing


' to establish any branch or other office in any area in which such l


_ other financial institution is authorized to establish any branch I


or other office.



_ ......

The appropriate Federal banking agency may apply the fore-


going prohibition to any interlocking relationship, regardless of the


geographic area in which such insured bank and other financial insti-


tution is located, wrhere the agency finds that the existence of such


interlocking relationship may tend to lessen competition substantially


[or where the insured bank or other financial institution has total


assets in excess of $ 500,000,000].



The appropriate Federal banking agency is authorized and


directed to enforce compliance with this section and to prescribe


suc\i rules and regulations as it deems necessary for that purpose.




As used in tfiis section:

The term ’financial institution' means any bank


(including a mutual savings bank) or savings and loan association


organized under Federal or State law and any bank holding company


or savings and loan holding company or subsidiary thereof.


I "(2)

The term 'bank holding company or subsidiary thereof


means any bank holding company or subsidiary thereof as defined


in the Bank Holding Company Act of 1956, as amended.



The term 'savings and loan holding company or sub­


sidiary thereof' means any savings and loan holding company or


subsidiary thereof as defined in section *408 of the National


Housing Act."


SEC. 2.

Section 8 of the. Clayton Act is amended by repealing the


first three paragraphs thereof which deal with restrictions on inter­


locking relationships involving member banks and powers of the Board


of Governors of the Federal Reserve-System in conjunction therewith.

^Schedule I

( $ 000)



























' 97,459


Net Income









Deposit Insurance Fund

,485,486 3,794,221 4,.051,108 4,379,570 4,739,859 5,158,715 5,,615,336 6,124,190 6.716.039 7,268,625

Income of FDIC:
Net Deposit Insurance Assessments
Investment in U.S. Government Securities
Other Income
Total Income
Expenses of FDIC:
Administrative & Operating Expenses
Provision for Insurance Losses
Non-Recoverable Insurance Expenses
Total Expenses & Losses

301 ,887


Schedule II

Insured Non-Member State Banks and Insured Mutual Savings Banks

United States - All Offices:
Mutual Savings
Mutual Savings
Total Deposits: ($000)
Mutual Savings





















1 _













60,244,035 68,075,372 77,529,317 84,701,283 95,565,790 111,857,975 132,942,297 152,826,715 168,452,521 187,031,396
48,255,636 52,912,962 56,861,324 58,867,848 62,683,783 71,500,831 80,571,993 84,890,128 86,814,415 98,126,107


Total Insured Bank Closings
Deposits ($000)
Assets ($000)












Total Number of Examinations