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Telephone: 393-84G0
Br. 221




Address by

Washington, D. C.

before the

of the
Neil House
Columbus, Ohio

Wednesday, December 8,
8:00 P. M.



You may be assured that the invitation to address you tonight was
indeed welcome.

It affords an opportunity that I greatly appreciate to

meet with each and every one of you.

In the bank supervisory agencies we

know that our effectiveness is heavily dependent on the formal and informal
contacts made with the banking community in conferences such as this one.
These occasions give us a deeper and broader appreciation of the aspirations
and the problems of the financial institutions under our supervision and
thus provide us with the insight and the knowledge so essential to the
successful discharge of our responsibilities to foster a vital, dynamic
banking system serving the public interest.
Tonight I shall comment briefly on a characteristic of our
environment that is always with us--and that is change.

Change is an

immutable feature of our lives--although this may sound like a paradox.
It affects the family unit, the community, the nation, and the world.
it has always been a distinguishing feature of the banking scene.


But it

seems to me that changes— particularly in banking— have been occurring
recently more frequently and faster than in earlier years.

This is partly

the result of technical advances in transportation and communications.
which have permitted greater integration of markets serving the financial
ccmmunity as well as commodity traders--at home as well as abroad.




changes have also been brought about by political developments— -such as
closer ties among the free nations of the world and more general recognition
of the fundamental interdependence of nations— or by economic developments
affecting all nations.

These changes in turn have had their impact on the

banking industry and on the bank regulatory agencies.
Banks and bank supervisors alike have responded to these changes—
at times with a delay and at times promptly.

The effectiveness of this

response has, as a consequence, varied from time to time and from one
situation to the next.

But I think I can safely say that banks have proved

highly adaptable to the changing circumstances in which they have found
themselves— and have also been able on occasion to anticipate change and
prepare for it.

The members of your association can rightfully lay claim

to inclusion in this group.
In the next few moments, I shall review some of the major economic
changes since World War II that have had a significant influence on the
banking system and at the nature of the response that has been evoked from

Then I shall consider the effect of these changes on the bank

supervisory agencies and how their responses have been conditioned by new
A brief recital of just a few high points of the period since

191+5 will support my conclusion that this nation’s banks have chalked up
a commendable record in adapting to change.

Despite various problems this

year, for instance, banks have been able to accommodate sizable demands for

-3credit and are expected to report record net operating earnings.

The record,

of course, should not be cause for complacency-*-for the record is not perfect.
But it is a good one— and one that should provide the incentive for improve­
One of the major economic changes since the end of World War II of
current topical importance is the changed— and changing— role of the U.S.

At the end of World War II, the United States was the strongest

country in the world, both politically and economically— partly because it
had escaped physical damage.

The U. S. dollar, as a result, was the most

sought-after currency for settlement of international payments and as a
universally acceptable store of value.

This was the period of the dollar

shortage— and of massive U. S. foreign aid programs for reconstruction and

As the wartorn countries recovered from the destruction of

war, the U. S. dollar declined in relative importance, and the currencies of
other countries--such as Germany, France, and the United Kingdom— gained
wider circulation in international payments.
Owing to these developments, the U. S e payments position registered
sizable and persistent deficits from 1958 on, and foreign dollar holdings
began to increase faster than the need for dollars.

In this instance, the

response of both the United States and other nations to the emergence of
international payments imbalance was slow because the international adjust­
ment mechanism works much less smoothly than the internal adjustment process
and because institutional barriers further complicate balance of payments

Once the nature of the imbalance was understood, however,

-k -

remedial measures were taken by the United States and other countries.


progress has been slow since the factors immediately responsible for the
deficit have varied over the years and have called for different remedies.
Nevertheless, it can be said that the international payments system
is now in a stronger and more balanced condition than before when the dollar
was almost the sole international currency.

The international payments

system, moreover, is currently entering a new phase of its evolution which
will test its flexibility and adaptability.

The results will affect all of

us and necessitate further adaptation.
This nation’s response to its over-all payments imbalance consisted
of greater reliance on fiscal policy to stimulate domestic economic expansion
and on monetary policy to maintain interest rates at levels that would
discourage money flows abroad without hampering economic activity at home.
The resultant pattern of interest rates, as you all know from experience,
has had an important impact on bank operations.
On the domestic scene, the existence of substantial idle plant
capacity and relatively high unemployment at the beginning of the current
expansion combined with the payments deficit to present a situation unlike
any previously encountered.

The mix of fiscal policy and monetary policy

that was devised to deal with the payments deficit was therefore most

Its effectiveness has been demonstrated by the durability,

strength, and balanced nature of the current economic expansion, which is
now entering its

58th month.

Payments balance is also being gradually

restored, despite occasional setbacks.


But, as the domestic economic expansion continues and as plant
capacity and manpower resources become more fully utilized, it is clear
that the margin of maneuverability has narrowed.

The increased demands

occasioned by our commitments in Vietnam, moreover, must be taken into

Thus, the situation has changed again.

Current policies must

be tailored to meet these changes— and the tailoring may have to be finer
and the impact of various measures more carefully evaluated than was
necessary in the early stages of the present expansion.

This is the

challenge facing us today.
The banking industry has met similar challenges in the past.
is fully equal to the task today.


I might cite a few examples here where

banks have shown imagination in adjusting to changes in the environment in
which they operate.

Banks, for example, expanded their activities in the

postwar period into mortgage financing and into consumer instalment credit
to meet the needs of their customers for housing and for consumer durable

More recently, they have made more efficient use of reserve balances

through development of the market in Federal funds.

With a competitive

interest rate structure, they have been able to vie effectively with other
financial institutions for the large volume of savings generated by an
expanding economy— through time certificates of deposit, savings bonds and
certificates, unsecured notes, and debentures.

Against the economic back­

ground created by the requirements of our international payments position
and our domestic economy, they have invested more heavily in higher yielding
municipal securities and other assets.

To meet the growing credit demands



of the economy, they have expanded their loan portfolios.

Relatively heavy

investments in loans in turn have been counterbalanced to some extent by
greater use of amortized credits and by improved portfolio management

This list illustrating bank management adaptability to change

could go on and on.
I should like to mention now some of the responses that the
Federal Deposit Insurance Corporation is making to changes in the economy at
large and in the banking industry in particular.

As you remember, the FDIC

was organized during the Depression for the primary purpose of restoring
public confidence in the banking system.

The early history of the Corporation

is replete with accounts of the rescue of failing banks, the pay-off of
depositors of failed banks, and the strengthening of faltering banks.
beginning of World War II, however, this mission was largely completed.

By the

banking system served the nation well in wartime and since.
Maintenance of public confidence in our banks continues to be a
major concern of the Federal Deposit Insurance Corporation.
has shifted— to helping good banks be better banks.
that our challenge lies today.

But the emphasis

It is in this direction

We in the Corporation feel that this emphasis

will produce the strongest and most effective banking system operating in the
public interest.
To help make good banks better, we are currently engaged in
developing the capabilities of the Corporation.

We are looking ahead and

trying to anticipate our needs and our problems in the months and years



We are undertaking various pioneering studies in banking markets

and bank structure to assist us in carrying out our responsibilities.


results are as yet preliminary, but the studies show promise.
As an outgrowth of these various programs, we hope to be able to
provide your banks with some helpful management tools.

Early next year we

sire expecting delivery of a computer which will permit us to undertake more
sophisticated banking studies using current banking data.

We hope to be

able to provide data in a form that can be used in studies of market con­
centration and market penetration, for cost analyses, for comparative
studies of financial institutions or particular groups of banks— whether
by size, type, location, or other classification.

The list can be easily

expanded to encompass as yet unexplored fields of investigation.


puterization of banking data— as distinguished from automation of operationswill provide a most valuable tool for bank managers as well as bank super­
visors .
Finally, I might mention some programs we are initiating in the
area of bank audits.
for us and for you.

This again is a program that will provide benefits
And we pledge our full cooperation in your efforts to

develop improved audit techniques and a more uniform system of accounting
and reporting.

At the present time, we are experimenting with the use of

auditor teams in the field along with the regular examining teams in
our 12 districts.


Before very long, we hope to have resident auditors in

each district who will be concerned with the problem of strengthening




sys terns of internal control in banks.

These, then, are but a few of the

ways in which the Corporation is adapting to change— ways which will them­
selves be modified as circumstances change.
Change is thus a fact of life— and I am sure we are all fully
aware of this.

Adapting to change is a continuing responsibility— a re­

sponsibility that can be difficult when changes occur frequently and the
tolerances for error small.

This appears to be such a time.

Our alternatives

may be fewer in number and their impact stronger than heretofore.

So, it is

essential that we examine all aspects of our current situation closely so
that we shall fully understnad the implications of action— or inaction.
have adapted to change before— and we can do it again.