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For release 3:30 p.m.
Eastern Standard Time
February 19, 1971

Remarks of J. L. Robertson
Vice Chairman of the Board of Governors
of the
Federal Reserve System
before the
University of Miami
Savings Institutions Forum
Dorai Hotel and Country Club
Miami, Florida
February 19, 1971

An Idea and Its Hour

Thanks to my recent book, "What Generation Gap???",
I have become associated in the minds of some people with
the widespread concern about the unconventional aspira­
tions of our young people. The youth frequently tend to
be quite critical of the imperfections in our society. But
this is not limited to the younger generation. Most of us
believe that we can make things better, and we work hard
to do so, but we realize that we cannot really expect to
attain perfection. Of course, there are always a few who
want perfection and will settle for nothing less.
One such person came charging into Charlie Black's
shoe store back in my home town, Broken Bow, Nebraska. She
shoved a pair of snakeskin shoes under Charlie's nose and
said, "I just bought these shoes here yesterday. When I
took them home I noticed that they had little scratches all
over them." Charlie looked at the shoes, and sure enough
the tiny marks were there. He went back and got another
pair, but when the lady looked at them she discovered that
they, too, had little marks on them. Charlie patiently took
but another pair, and still another, but they were no dif­
ferent. Finally, he threw up his hands and said, "Well,
lady. I'm not perfect, and you're not perfect. How in
heaven's name can we expect a snake to be perfect?"
While most of us do not expect perfection, one of
the characteristics of a vital, dynamic people is their in­
terest in improving themselves, their institutions, and their
environment. As I look over our entire system of financial
institutions and the regulatory superstructure that has de­
veloped over the years, I can see a great deal of room for
improvement.
Consequently, I want to take my text today from a
sentence in Victor Hugo's "Story of a Crime", which has
been variously translated but whose most felicitous English
rendition is perhaps "Greater than the tread of mighty armies
is an idea whose hour has come." I would like to use this
text to focus on some recent happenings, seemingly discon­
nected, but which in fact may constitute a cluster of essen­
tially interdependent consequences, produced by the same un­
derlying causes, addressed ultimately to the same solution,




- 2 -

and marking the hour of arrival of an idea which I have
advocated in one form or another for many years. The
current thrust of that idea may be summed up in two dis­
tinct but related propositions.
First, that all mutual savings banks and savings
and loan associations be allowed - at their own choice to evolve into broad-gauged lenders and borrowers along
the lines of commercial banks via an appropriate transi­
tional process which will eventually subject them to the
full array of reserve requirements, tax liabilities, super­
visory limitations, and other responsibilities of banking
institutions.
Second, that the supervisory and chartering re­
sponsibility now fragmented among the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, the
Federal Home Loan Bank Board, and the Federal Reserve be
unified in one independent agency administering a common
set of ground rules for all bank-type institutions under
federal supervision.

I have pleaded the case for this idea for some time.
Since 1962 I have advocated placing all federal banking
supervision in a single agency. Since 1966 I have proposed
parity for bank-type institutions subject to federal law.
Why does the hour of this idea seem to have come - or be
fast approaching - in 1971? For two reasons, I think:
First, it is because the trillion-dollar economy has now
arrived, and, paradoxically, one thing that the trilliondollar economy simply cannot afford in terms of the vital
financial resource of our depositary institutions is the
doctrine of separate and unequal. Second, there is grow­
ing apprehension, perhaps below the level of full conscious­
ness and possibly addressed to parts of the problem rather
than the whole, that there are matters which public policy
has already declared to be of highest priority - indeed of
highest urgency - but where the declaration of purpose has
been increasingly impeded and checkmated by elements of
mechanism and technique. These two circumstances have
combined to set in motion a strong tide which is already
sweeping toward its logical conclusion - a leveling of




- 3 -

existing disparities and a resultant restructuring of
both financial infrastructure and its supervisory over­
lay.
As evidence of this tide, I invite your attention
to the following seemingly unconnected but actually very
closely linked developments of the recent past:
First - the unprecedented resort of S & L's to
money raised through the securities market via the Fed­
eral Home Loan Banks. During the credit pinch of 1969,
for example, S & Ls' source of investment capital broad­
ened to the point where more funds were raised indirectly
through the securities market by borrowing from the Home
Loan Banks than were obtained directly from savers.
Second - the announcement by the Chairman of the
House Banking and Currency Committee late last year that
he would offer a bill in the 92nd Congress granting Sav­
ings and Loans authority to offer complete checking account
services, accept deposits of Treasury tax funds, have full
access to the Federal Reserve Banks' discount window, and
make more consumer loans, particularly for household items.
Third - the record number (though still small) of
mergers or conversions of S & L 1s into savings banks dur­
ing 1970.
Fourth - the regulations issued by the Home Loan
Bank Board in 1970 governing third party payments by fed­
eral savings and loan associations; and
Fifth - the enactment last year of the so-called
One-Bank Holding Company Act, sweeping under Federal Re­
serve jurisdiction some 1,100 one-bank holding companies
controlling a substantial part of total commercial bank
assets.
Let me briefly develop some implications of these
events. Most obvious is the overall pattern of change in
which financial intermediaries are growing both more com­
plex and more alike. The universal trend has been par­
ticularly evident in the savings and loan industry. Thus,




- 4 -

S & L's within recent years have been authorized to ac­
cept savings "deposits" as well as savings "shares".
Associations can now offer virtually the same line of
savings instruments as banks, including, to some extent,
certificates in denominations of $100,000 and over. By
heavy borrowing from the Home Loan Banks, to which I re­
ferred earlier, these once specialized intermediaries are
becoming, more than ever before, a kind of diversified
intermediated intermediary.
Now, I think that we should applaud appropriate
efforts to enlarge the channels through which funds can
be raised for relending by these intermediaries, either
generally or - to anticipate a point I will develop in
a moment - for housing or other pressing social needs.
Particularly at times of general monetary stringency,
higher-cost funds obtained through the securities mar­
ket may serve as an efficient supplement to lower-cost
funds supplied through savings deposits.
I see no reason, however, why the privilege of
raising funds in this manner should be restricted to a
relatively few eligible institutions that happen to choose
to join the Federal Home Loan Bank System. If it is set­
tled public policy to support selected sectors of the econ­
omy, the help of as many types of financial institutions
as possible should be enlisted. That is the way to make
the most of private expertise, private funds, and private
initiative, and it is an obvious avenue of parity between
all major depositary institutions.
Again, I applaud the S & L merger and conversion
effort to expand the scope of lending and investment pow­
ers, including more liberal branching privileges. But I
submit that even greater latitude should be provided for
institutional initiative by permitting all S & L's and mu­
tual savings banks, at their option, to become broad-scale
lenders insofar as federal law is concerned, with common
rights and common responsibilities.
During the past few years alone, several S & L 1s
or savings banks have converted to, or merged with,




- 5 commercial banks. My proposal would help to speed this
transition, whether for stock or for mutual institutions.
But particularly illustrative of both the vices
of the present system and the unfolding pattern of change
into a future one has been the third-party payment system
authorized for federal savings and loan associations. As
you know, this was the subject of widespread interest controversy is really the better word - within both the
savings and loan industry and commercial banking. The gen­
eral subject has also been a matter of concern to the Fed­
eral Reserve Board, particularly because a number of im­
portant economic issues are involved, with implications
for the regulation of the banking system, the operation
of the payments mechanism, and the conduct of monetary
policy.
This episode serves as a dramatic, if unfortunate,
example of what can happen under a fractionated regime of
depositary intermediaries with divided supervisory author­
ity, at a time when diversification rather than speciali­
zation is the order of the day. This kind of competitive
brouhaha - a waste of time, effort, and expense - would
obviously be eliminated if we had uniform federal charter­
ing and supervision of all major depositary institutions all capable of accepting demand, time, and savings deposits.
And, finally, the opposite side of the same coin was
presented by the recent amendments to the Bank Holding Com­
pany Act. Happily, the supervision muddle was not extended
to new fields. Rather, the tremendously expanded super­
visory powers and functions were placed in the Federal Re­
serve. The obvious result is that an enormous amount of
supervisory unification - more than is generally realized has already been achieved by something akin to osmosis. The
price, however, has been a high one. Anyone who is cogni­
zant of the amount of time now being devoted by the Federal
Reserve to a smothering load of supervisory and regulatory
problems must wonder how we find time to perform our prin­
cipal function.
This is a matter that concerns me, too. As I have
said many times before, the myriad problems involved in




- 6 -

formulating and implementing a monetary policy adequate
to cope with things like inflation and unemployment at
home, let alone those problems involved in the everexpanding international activities of American banks,
inflows and outflows of Euro-dollars, and the deficits
in our balance of payments, already represent more than
a full-time job - even in less troublesome times than
these. And I can also assure you, on the basis of per­
sonal experience, that the task of supervising and regu­
lating financial institutions is likewise a full-time
job. That is why I would prefer to see the unification
of bank supervision and regulation take place in a dif­
ferent way.
Yet do not misunderstand my criticisms, for I
would ask you to see in these five events an essentially
organic and interconnected response to the unparalleled
demands on our resources at home and abroad, and the re­
sulting necessity of tapping the full potentials of our
economy. However piecemeal and a ! hoc the episodes may
t
have been, they are essentially steps in the right direc­
tion toward a smoothly operating system of depositary in­
stitutions gathering savings and allocating credit in
open, integrated, and competitive markets.
But, certainly, we are still far removed from
this ideal today. Burdened with all too many different
statutes and regulations affecting different types of
banks, and various types of depositary institutions, we
see competitive inequality in the marketplace, unequal
treatment among savers and borrowers, and different regu­
latory and tax treatment of essentially similar functions.
And, serving as both cause and effect of this fraction­
alized system of intermediaries and their balkanized fi­
nancial markets is a divided set of supervisory authori­
ties .
Overall, this jackstraw heap has inevitably meant
increased social costs stemming from the predictable in­
ternecine warfare. Typical have been the reactions to
the second of my two proposals. Back in 1966, judging
from my correspondence, the banks were irate, the S & L's




- 7 -

elated. Now positions seem to be reversed. Reportedly,
the ABA is favorable and may even propose legislation for
this session of Congress to give S & L's the opportunity
to convert to commercial banks, but the Savings and Loan
League is hostile. I suspect neither the original con­
clusion nor the subsequent change of position of either
part was prompted by the merit of the suggestions but
rather the short-term self-interest of the commentators.
But let us not blame the supervised too strongly.
The supervisors, too, have their internecine wars. It is
a melancholy but undeniable fact that division of power
and authority inevitably brings with it the likelihood of
needless duplication of effort and of time-consuming, and
sometimes fruitless, efforts to harmonize different views
of various federal supervisory agencies.
Contrast then the self-evident merit of a uniform
system of depositary intermediaries at the federal level,
operating under a common set of rules and regulations per­
mitting the widest appropriate range of financial innova­
tion, affording evenhanded and equitable treatment of all
depositary institutions, and strengthening the position of
the public in formulating and implementing stabilization
policies that could be more uniformly applicable.
There would be still more. Hand in hand with the
broadest possible latitude to innovate would go freedom to
compete on even terms, and yet individual institutions
would be free to serve particular segments of local, re­
gional, or national markets where demands for credit prove
to be strongest. Benefits of scale in operations as well
as other economies of specialization could be realized by
any lender as long as particular credit needs seemed most
pressing. But the risks associated with undue concentra­
tion of assets or liabilities could be minimized, because
specialization would not be required. It would not have
to persist beyond the time when other credit demands or
other means of attracting savings assumed greater impor­
tance.
But, as I have already indicated, there is a second
circumstance at work in the rising sentiment for unification




- 8 -

and standardization in both financial institutions and
their supervisory superstructure. This is the increas­
ing concern that we must have a financial framework
within which public policies could exercise the widest
possible influence in directing credit flows toward
branches of the economy judged to be of the highest so­
cial priority. To the extent that housing was deemed
to be such a sector, for example, appropriate incentives
could be offered to encourage all major types of deposi­
tary institutions to invest more heavily in residential
mortgages. Such a policy would allow maximum response,
not from a few specialized institutions holding a limited
amount of resources but from all types of lenders draw­
ing savings from the public in deposit form. Indeed,
whatever public support was made available for housing
in this fashion might be applied against residential
mortgage investment by all lender groups rather than,
as at present, against certain types of depositary lend­
ers but not against others, whether depositary or not.
Moreover, the extent of direct or indirect public
subsidy could be more readily ascertained and weighed
openly against competing needs in other sectors of the
economy.
Recourse to specialized lending institutions for
housing or other special-interest borrowers inevitably
produces demands for special protection as well. Once
granted - whether in the form of preferential tax treat­
ment, preferential deposit-rate ceilings, or indirect
access to the securities market - these measures are
likely to fragment the operations of our financial sys­
tem even further. By limiting certain privileges to a
few, many other institutions are overlooked that might
use them at least as advantageously to serve the public
interest.
Now, these changes I am advocating are far-sweep­
ing. This is evident from the fact that they could ul­
timately affect all commercial banks and more than 6,000
S & L's and savings banks now operating 5,000 branches
and holding assets of over $250 billion - a sum equal




- 9 -

to nearly half of the total assets of the commercial bank­
ing industry. The successful effectuation of the changes
will be dependent upon the development of new expertise.
Extensive legislation will be required by the Congress.
Drastic reorganization will be necessary to consolidate
all federal supervisory responsibility where it should
be - in one agency. (Parenthetically, if that single
agency were a Federal Banking Commission, such as I have
advocated in the past, its members could be readily se­
lected from among the very able men who presently direct
the activities of the other three agencies.)
Accordingly, achievement of these goals will take
time, even under ideal circumstances. This means that
action is called for now.
Bear in mind that this is an age of innovation and
boldness. President Nixon has recognized this with his
proposal for a sweeping reorganization of the federal gov­
ernment. In addition, his prestigious Advisory Council
on Executive Organization, headed by Roy L. Ash, has just
issued a report calling for consolidating overlapping fed­
eral regulatory agencies in the field of transportation.
It is high time that we in the banking field demonstrated
that we, too, can shake off the cobwebs and do our part to
move our institutions a little closer to the goal of per­
fection. There are many excuses for inaction, ranging
from narrow self-interest to simple inertia. We have a
very irrational system of bank supervision and a none too
rational banking structure. Even though the case for re­
form is obvious, we have so far lacked the will to accom­
plish it. When our young people see this kind of situa­
tion they begin to question our ability to conduct our
affairs in a rational manner under the present rules.
Consequently, we should begin now to move in a pro­
grammed and purposeful plan of advance. As the events of
1970 have demonstrated and as the developments of this new
year already show, there is now an almost hydraulic thrust
for standardization and streamlining of our organic bank­
ing mechanism. The only real issue is how and when this
inexorable end-result will come about. It can come about
in a long drawn out, piecemeal, random, and agonizing




- 10 -

process which reflects the faults of the environment in
which it operates and exacerbates those very faults in
the short run; or it can do so in a systematic and com­
prehensive manner with its means chosen and tailored to
its ends. And it is to speak for the latter course that
today I seek your support and your involvement - so that
the idea whose hour has arrived will come to pass in a
manner whereby we remain the masters and not the ser­
vants of events.