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May 8 , 1958

Address Of
Jesse P. Wolcott, Chairman
Federal Deposit Insurance Corporation
Before The Annual Convention
Of The
Ohio Bankers Association
Toledo, Ohio
May 8 , 1958


I am very pleased to have been invited to address the members
and guests of this association.

Having for many years been a resident

of the State of Michigan, I feel very much at home in this region and I
always enjoy my visits here.

Only a few months ago I succeeded a well-

known resident of Ohio, H. Earl Cook, as Chairman of the Federal Deposit
Insurance Corporation.
for Earl Cook.

I am sure all of you know and share my respect

I am particularly grateful to him for his courtesy in

helping me over many of the rough spots which attended my initiation as
his successor.

I shall ever be thankful to him also for his helpful

cooperation while I was on the Banking and Currency Committee of the
House of Representatives.

I was privileged to look to him for guidance

on many of the problems which confronted us.
I note that just twenty years ago he was the president of this
association. From 19^3 to 19^7 he was the Superintendent of Banks for
the State of Ohio. He left that post to become a director of the Federal
Deposit Insurance Corporation and succeeded to the chairmanship in 1953*
Earl has indeed rendered distinguished service to banking,
I also am glad to find here my good friend and former col­
league, Senator John Bricker. John Bricker has been most cooperative
throughout the many years we have been thrown into such close contact,
especially in the solution of those vexatious problems which constantly
beset us as conferees in reconciling differences between the Senate and
the House. Whether he knows it or not, I have always considered John
Bricker as my mentor on banking and economic problems. He has been a kind,
a thoughtful and a considerate friend; considerate in that on so many oc­
casions he has tolerated my shortcomings and perhaps even my idiosyncrasies
For several months we have been aware that our economic system
has been operating at something less than its full capacity. Much has
been said regarding the causes and possible remedies for the reduced level
of economic activity. In view of the wide differences of opinion expressed




we may well feel uncertain as to how best to proceed and as to when the
upward swing will ccme. However, we may be confident that recovery will
not be hindered by the fear that a portion of the circulating medium will
be destroyed or made temporarily unavailable because of bank failures.
That fear vanished--let us hope forever--shortly after the establishment
of the Federal Deposit Insurance Corporation almost twenty-five years ago.
Those of you who were engaged in banking in 1933 will remember
how different were the circumstances which preceded the meeting of this
association in that year. In the years 1930-1932 more than 5>000 banks
had suspended. Only a few weeks previously a banking holiday had closed
the banks throughout the country, and at its termination thousands of
banks remained unlicensed. Many depositors had withdrawn cash from their
accounts and held it in places which they regarded as safer than banks.
Others found their deposits unavailable because of the bank suspensions.
The creation of the Federal Deposit Insurance Corporation was
part of a program designed to strengthen the tottering banking system,
restore the circulating medium, and promote recovery of the economy.
Public confidence in the banks was reestablished, hoarded money flowed
back to the banks, and bank credit could once more be extended freely to
agriculture and industry. Federal deposit insurance quickly became a
strong pillar of support for the Nation’s banking and economic system.
Today, Federal deposit insurance is firmly established in the
banking structure of our country. Almost 95 percent of all the banks
are now insured. Approximately 9Ô percent of the accounts in these banks
have balances of less than $10,000 and are therefore fully protected.
The stabilizing influence which deposit insurance exerts upon the financial
structure is of incalculable value.
At this point let me remind you what Federal deposit insurance
is— and what it is not. It is a mutual insurance system which is supported
by the insured banks themselves, and administered through a Government
controlled Corporation.
The Corporation is directed by a bipartisan Board, two of the
Directors are appointed by the President, and are subject to Senate con­
firmation. The Comptroller of the Currency, who is also appointed by the
President with the approval of the Senate, is the third member of the
The Corporation originally had a capital of $289 million, $150
million of which was subscribed by the Treasury Department, and $139
million by the twelve Federal Reserve Banks. The Corporation has repaid
all this capital with interest and operates entirely without the use of
appropriated funds. Federal deposit insurance is not, and was never in­
tended to be, a guarantee of bank deposits by the Government. The
Treasury of the United States is directed to lend to the Corporation not
in excess of $3 billion outstanding at any one time, if requested by the

- 3 Corporation. This provision was placed in the law to provide additional
funds to the Corporation in case of a serious emergency in the economy of
the country. The Government is not otherwise obligated to come to the
aid of the Corporation.
My own connection with the Corporation began only a few months
ago, so I cannot be accused of boasting when I say that the Corporation
has established an outstanding record in its adoini strati on of the de­
posit insurance program. We owe a debt of gratitude to those members of
the Congress who have insisted that Federal deposit insurance must be free
of political influence and the operations of the Corporation unencumbered
by unnecessary restrictions which would limit its ability to perform its
functions adequately and promptly. Hie directors and officials of the
Corporation who guided it over its formative period were men of foresight
and wisdom. The public has learned that the Corporation will meet all
calls upon it without delay, impartially, and unaffected by changes in the
operations of Government bureaus.
When Federal deposit insurance was established, Congress wisely
provided for its administration through a corporate instrumentality for
the express purpose of providing independence and flexibility in operation*
The Federal Deposit Insurance Corporation must maintain its independent
status in order to perform properly its functions as a monetary agency*
By a monetary agency is meant an agency performing a function or functions
having a direct effect on the amount of circulating medium. More than
nine-tenths of the business in this country is conducted through the use
of checks. Bank deposits, therefore, constitute the major part of the
circulating medium. The Corporation is responsible for restoring a por­
tion of the circulating medium which has been destroyed or has become
temporarily unavailable because of a bank failure. It is also responsible
for helping to maintain a sound banking system, thus preventing contraction
of the circulating medium because of bank failures or fear-fed hoarding.
The Federal Deposit Insurance Act requires that "Whenever an
insured bank shall have been closed on account of inability to meet the
demands of its depositors, payment of the insured deposits in such bank
shall be made by the Corporation as soon as possible..." Immediate pay­
ment is required even if it is clearly apparent on the date of the failure
that depositors, in the absence of insurance, would receive full recovery
at some future date upon final liquidation of the bank’s assets.
It is the duty of the Corporation to make available at once the
full amount of each insured deposit, rather than reimbursing depositors
the difference, if any, between the amount of their insured deposits and
their dividends from the receiver. If deposit insurance were purely for
the protection of insured depositors against loss, payments from insurance
authorities might be delayed months or years after the failure of the bank
while its assets were liquidated. There can be, of course, only one reason
for the procedure adopted: deposits are restored to their holders in full,
up to the insurance maximum, so as to immediately replace circulating medium
lost through a bank failure.




There are two agencies of the Federal Government which have
direct responsibility in regard to the volume of the Nation’s money
supply. These are the Federal Reserve System, with its power over bank
reserves and therefore over the creation of the largest portion of the
circulating medium, and the Federal Deposit Insurance Corporation, with
responsibility for maintaining a sound banking system and of restoring
circulating medium which has been destroyed as a result of bank failures.
The principle of independence within Government for those
agencies which deal with the Nation’s money supply has been well established
by history. It has long been recognized that Government faces an almost
insurmountable problem when it attempts to establish an agency which will
deal directly with the Nation’s money supply. Such an agency must be with­
in the Government--in order that it not be responsive to private pressures
--and within the Government it must be sufficiently independent so that it
will be equally free from political pressures. Hie financial history of
this country is marked with the great debates and controversies which have
raged over this very problem— from the chartering of the Bank of the United
States in 1791 to the present day.
It is doubtful if there is today any serious disagreement with
the proposition that a monetary agency should be free from political in­
fluence. There is no question that it is within the authority of the Con­
gress to establish principles for the conduct of such agencies and to
alter them whenever It so desires. However, within the framework of these
principles, monetary agencies must be permitted to operate with a mn.yjl-mm)
degree of independence. Hie need for such independence was apparent to
Congress both in 1913> when it established the Federal Reserve System, and
in 1933 when it created the Federal Deposit Insurance Corporation.
I am sure you will all agree that, as far as bank failures are
concerned "an ounce of prevention is worth a pound of cure". This was
recognized by Congress, and the Corporation has been given certain powers
which are useful in preventing the closing of insured banks. When an in­
sured bank is in danger of closing, the Board of Directors of the Corpora­
tion may determine that continued operation of the bank is essential to
provide adequate banking service in the community, in such circumstances,
the Corporation is authorized to make loans to or purchase the assets of,
or make deposits in the bank. It should be noted that such action is to
be taken in order to maintain banking services which are essential to the
well-being of the community, thus preventing a reduction in the circulating
The supervision of insured banks is another method by which the
Corporation seeks to prevent the closing of banks. It is true that one of
the reasons for which the Corporation is given supervisory powers is the
very natural one of providing an insurer the right to examine the risk it
undertakes to insure. However, a more important purpose, with which there
has never been disagreement, is that through the exercise of such super­
visory powers the Corporation can contribute substantially to strengthening




the Nation’s banking system and to the maintenance of a high level of
public confidence in insured banks.
Preventive action has not eliminated all bank failures, al­
though only a small number have occurred in recent years. When the
Federal Deposit Insurance Corporation acts to avert impairment of cir­
culating medium as a result of a bank failure it may take one of a number
of courses. If the bank is placed in receivership by the appropriate
chartering authority, the Corporation may pay the depositors of that bank
the amount of their insured deposits, or it may determine that its in­
terests, as well as the interests of the depositors, are best served by
reopening the bank or by facilitating an assumption of the liabilities
of the closed bank by another insured bank. If the bank has not yet been
placed in receivership and the Corporation finds that it can reduce its
own loss and at the same time facilitate a merger it may provide funds
for that purpose. If it finds that continued operation of the bank is
essential to the community the Corporation may, as I mentioned a moment
ago, make a loan to, purchase assets from, or place a subordinated deposit
in the distressed bank.
It is essential that the Corporation be free to choose a pro­
cedure based upon an appraisal of the effects which the closing of the
individual bank may have upon other banks in the community or the Nation
as well as upon its decision as to the need for banking service in the
community affected. There is a provision in the law requiring the Corpo­
ration, when acting as receiver of a failed bank, to liquidate the assets
with "...due regard to the condition of credit in the locality..." Thus,
the Corporation endeavors to avert financial distress in affected com­
munities through the orderly liquidation of the assets acquired from
closed banks.
In a period of economic crisis, when great numbers of banks both
large and small may be in difficulty, decisions by the Corporation may have
important and far-reaching consequences. At such times the pressures to
which the Corporation will be subject from individuals, from banks, from
Government authorities, and many other sources will undoubtedly be intense*
It is during such times that it is of crucial importance that the Federal
Deposit Insurance Corporation be in a position in which its decisions can
be made solely with a view to carrying out its monetary function.
It is essential that the Corporation be able to carry out its
supervisory duties in an impartial and objective manner. These duties in­
clude, besides the examination of banks, passing upon applications for ad­
mission to insurance and certain mergers, as well as upon recommendations
that insurance be withdrawn from banks operated in an unsafe or unsound
manner. In making decisions and in carrying out its functions the Corpo­
ration must be able to resist the pressures of those seeking only their
selfish ends as well as those who seek action which appears to be popular
but which in the long run would prove destructive. I should like to call to
your attention a statement by the Honorable Leo T, Crowley, who was Chairman



of the Federal Deposit Insurance Corporation from 193^ until the fall of
19^5* Mr. Crowley said, "Based upon my experience in banking and bank
supervision, I believe that one of the greatest deterrents to sound bank
supervision in this country in the past has been the political control to
which it has been subjected."
Of the 13,k00 banks now insured by the Federal Deposit Insurance
Corporation, 7>000 are State banks which are not members of the Federal
Reserve System. Proper operation of Federal deposit insurance necessitates
(and the law requires) that there be no discrimination against these banks
by the Corporation. How well could this be accomplished in practice if the
Corporation were made subordinate, as has sometimes been proposed, either
to the Treasury, which department is responsible for the chartering and
supervision of national banks, or to the Federal Reserve System? Decisions
relating to withdrawal of insurance from a bank because of its unsafe or
unsound operation must be taken solely with regard to the merits of the
case in terms of the Corporation’s duty to help maintain a sound banking
system. How well could this be accomplished if the Corporation were
placed in a relationship to another government agency which may be in­
clined to give weight to the pressures which inevitably arise in such
In 1933 the Congress rejected proposals to subordinate the Corpo­
ration to the Federal Reserve System or to the Treasury. Since that date
the Congress has repeatedly reaffirmed its original decision and has re­
jected every attempt or proposal to subordinate the Corporation to any other
There is, however, a different threat to the independence of the
Corporation. On several prior occasions and again in the present session
of the Congress proposals have been made which would subject the Corporation
to annual budget review, limitation and control by the Bureau of the Budget
and by the Congress. I sincerely believe that it would be most unwise to
restrict the operations of the Corporation in this way. Advocates of this
proposal attempt to justify it because, as I mentioned earlier, the Corpo­
ration is authorized, should the need arise, to borrow Government funds.
The weakness of this argument is at once apparent since it is not proposed
that the same controls be extended to all corporations which have access
to public funds or for whose obligations the Treasury has a liability.
No need for budget control of the Corporation has been or can be
shown. Those who support this proposal bring no charge of extravagant or
improper use of funds by the Corporation. The continued efficient opera­
tion of the Corporation is adequately assured by the interest of insured
banks in their assessment costs and assessment credits resulting from such
operations, as well as by the fact that the Corporation is regularly
audited by the General Accounting Office. Insured banks are furnished the
Corporation’s annual report to Congress, which includes the audit report,
and also a midyear report on operations.

- 7 Proponents of Budget control pointed to one or more departments
or agencies of Government that have some remote resemblance to the Corpo­
ration and conclude that, because such department or agency is subject to
Budget control, therefore the same treatment should be given to the Corpo­
ration. The fallacy of this argument is that such departments and agencies
have only secondary, if any, resemblances to the Corporation. Only the
Federal Reserve System, which is not subject to Budget control, has any
major responsibility in the maintenance of the monetary system of the
Nation. Thus, the comparisons are not appropriate.
There are a number of reasons for believing that irreparable
damage would result if the Corporation were placed under Budget control.
It is impossible to predict a year in advance how many banks will fail and
how great the disbursements of the Corporation must be. Yet, if insuf­
ficient allowance for this had been approved in the budget, the Corporation
might be unable to promptly make payments to insured depositors. On the
other hand, if unusually large amounts were included in the budget in any
year, the resulting publicity would undermine confidence in banks.
Because of these difficulties it has been proposed that only the
administrative expenses of the Corporation be placed under Budget control.
However, that is also unworkable since the Corporation’s administrative
expenses are inseparably tied to its insurance expenses. If banks begin
to experience financial difficulties the administrative expenses of the
Corporation must rise. Furthermore, the Corporation’s budget, like other
budgets, would be subject to curtailment as determined by the current
policy of the Government. Bank supervision cannot operate soundly if it
is not allowed to operate evenly and without the year-to-year changes which
would inevitably result from placing the Corporation under those controls
to which Government operations in general are subject.
It appears to me therefore, after reviewing all the potentialities
of Budget control, that the independence of the Corporation is of crucial
importance. Otherwise there can be no assurance that the Corporation can
function to effectuate the purposes for which it was created.
The Federal deposit insurance program can succeed only so long
as it has the confidence of the depositing public. Time and again the
Corporation has demonstrated its ability to act quickly and effectively
to protect the interests of the depositors. This flexibility and ability
to meet demands promptly is due to the fact that the Corporation was
created and has remained an independent agency, largely free from typical
Government controls. It would indeed be a tragedy if the independence of
the Corporation were reduced and its priceless asset, the confidence of
the depositing public, were impaired.

Agencies excluded (under H.R. 8332) from budget control,
but which are authorized to borrow from the U. S. Treasury:
Federal Home Loan Banks
Federal Land Banks

Agencies which (together with the FDIC) it is proposed
to include under budget control.

Unlike the FDIC, each

of the others is a direct lending agency:
Central Bank for Cooperatives
Twelve regional banks for cooperatives
Twelve Federal intermediate credit banks

Preamble to the Banking Act of 1933 > setting forth its purposes

An Act to provide for the safe and more
effective use of the assets of banks, to
regulate interbank control, to prevent un­
due diversion of funds into speculative
operations, and for other purposes.