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FRIDAY, JUKE l8, I96 5 :


Washington, D. C.


of the

Rutgers-The State University
New Brunswick, New Jersey

Friday, June l8, 1965
7î00 P. M.

Telephone: 393-8400
Br. 221


If someone were to ask me about the hardest part of speaking assignments
nowadays, I think I ’d reply that it involves what not to talk about rather
than what to say.

In banking, as in nearly all the facets of current events,

a great many issues have special interest for all of us.

Each has its own

history and background, and some are of more interest than others.
The problem of selection is one of concluding what may be useful to a
particular audience while doing some justice to the occasion —
speaker’s responsibilities.

and to the

This, of course, is a sophisticated audience which

doesn’t require elementary discussion of current issues.

As to the occasion, it

is an important one which has its own tradition and history.

And for my part,

the Federal Deposit Insurance Corporation certainly has significant responsibili­
ties in the banking structure of the United States.
On the other side of the coin, my memory tells me you have not been here on
vacation and that you have just finished part of a period of rather intensive

Some little let-down seems reasonable.

Weighing all these facts, I ’ve decided to resist the temptation to make an

Instead, I ’m going to concentrate on just two or three points —

necessarily related —


which may sometime jog your memories usefully.

To the extent that they may underlie discussion of specific current issues,
these reminders may border on the elementary -- but therein lies the speaker’s
Perhaps I can start by saying —

as a banker having a rare opportunity to

work in the supervisory field -- that it seems to me I have an obligation to
share some of my experiences and observations with bankers generally.



As one such observation, I have the feeling that we sometimes overlook
where we have been in undertaking to extricate ourselves from where we may be«
I have no way of knowing precisely how you feel about the American
banking system, but I must assume you share my view that banking is a fascinating

In a purely personal sense, its relevance to our kind of economic

system, and its basic rewards and challenges, on ba3.ance, usually outweigh the
normal headaches which go with working for a living.
By the same token, the quality and the quantity of American banking &?e
unmatched in any other time and in any other nation.

We are a part of the

banking system which has helped to develop the world* s most productive economy.
In fact, the range and vitality of banking services have become so much a part
of our way of life that we and the country may take them pretty much for
This may indeed represent a deserved tribute to the banking industry.


think it does, but it also allows me to suggest the possible wisdom of viewing
banking problems in the broad context of our banking system’s


and history.
It won’t be news to you that diversity is one of the hallmarks of our


Through evolution, through trial and error and setbacks,

and through extemporaneous solution, we have developed a highly diverse banking
system which has worked amazingly well for us.

It is nevertheless a fact that

to some observers it may seem complex, disorganized, and a thing of bits and
What is sometimes overlooked is that it has evolved out of our entire
national experience —

and that it’s been fashioned out of the divergent needs

of our people, our industries, and our communities.

On that score, it has been

serviceable by any test —

and it has succeeded in providing a mechanism


support of national policies while reflecting a philosophy of local service
and local ownership.
The earliest attempts at bank organization in the colonies started this
evolutionary process.

As you know, it continued painfully through one crisis

after another to the time of Robert Morris and Alexander Hamilton —


thereafter through the formation and the liquidation of the first and second
Banks of the United States.
Then came the era of "free banking" and the gradual development of a more
diverse, diffused system —

which probably couldn’t have emerged if the country

had supported a centralized, unified banking structure.

In no other nation has

this concept of diversity developed, but it did so here because events, evolution,
and national choice combined to make it possible.
In the meantime, mutual savings banks and savings and loan associations
came on the scene and further complicated the structure.

The whole somewhat

disordered paraphernalia grew or failed, flourished or fell back.
Then once again an event required national response.

The Civil War made

it clear that a national currency and currency control had become national

So this era produced its particular evolutionary contribution

and, as time passed, we moved closer towards more order in the dual system which
the country seemed to prefer.
It wasn’t all this easy, as you'll recall, for many crises and strains
appeared along the way.

The initial impact of the National Bank Act on state

banks, the problems inherent in correspondent banking and intermittent panics

and politics made it a long and troublesome road*
At any rate, the whole highly-diverse structure did evolve and survive,
the Federal Reserve system did come into being, and the concept of Federal
deposit insurance eventually became a requisite after years of prior debate
and experimentation.
The point I want to make in dealing so casually with three hundred years
of history is simply that it’s sometimes possible to observe a tendency to
overlook this backdrop to our current problems.

I hasten to add, on the other

hand, that this is not the same as arguing that what we have evolved is now
Times and methods have changed and will change more -- national requirements
and needs are different and will not remain unaltered —

and banks and banking

services will not stand still.
Yet the fact remains that fundamental national attitudes and philosophies
have clearly influenced the evolution of our banking structure.
will and great vision have made indelible contributions.

Men of good

And men of questionable

intent have historically had their impact, sometimes unknowingly.
It is equally clear that crises and catastrophes have left their marks.
The banking record of the United States is full

of instances in which

vicissitude has helped to shape the evolutionary forces.
And so, while I can’t specify precisely how a sense of the historical
should influence us, I do want to suggest that bankers may have an obligation
to test current positions against our banking history.

I don’t propose it as

the only test but rather view it as one of the benchmarks to be noted in making
our contributions to the continuing process.



In recent years, the term "chain reaction" has appeared in our lexicon*
Perhaps I am saying that as we consider necessary solutions to current and
future banking problems we ought to make it more a habit to weigh the potential
"chain reactions."

In that sense, it seems relevant to me to suggest that all

bankers and bank supervisors might usefully assess extemporaneous positions
and solutions in terms of their basic impact on the kind of structure our
whole history has shaped.
Let me turn now to a few points about the Federal Deposit Insurance
Something over two thousand years ago, I think it was Aristotle who said
that "The use of money was devised as a necessity."

In its own time in this

country, the concept of Federal deposit insurance became a necessity.
it is an inherent part of our banking structure —


so much so, in fact, that

a whole generation takes it for granted and knows relatively little of its
history or operations.
The Federal Deposit Insurance Corporation has now completed thirty-one
years of operation.

It was created

crisis in our history.

at the depth of the most severe banking,

Its immediate contribution was the restoration of

public confidence in banks, and over the years it has clearly helped to
strengthen our banking system.
In today's environment, it’s hard to recall that in 1933 a President of
the United States had to address the following words to the country:


then, happened during the last few days of February and the first few days of

Because of undermined confidence on the part of the public, there was a

general rush by a large portion of our population to turn bank deposits into


currency or gold —


a rush so great that the soundest banks could not get

enough ..currency to meet the demand,... By the afternoon of March 3rd scarcely
a bank in the country was open to do business.

Proclamations temporarily

closing them in whole or in part had been issued by the Governors in almost
all the States.”
Whatever the causes -- and they are still controversial —
the facts.

these were

And here is a classic example of a cataclysmic event shaping the

evolution of our banking and regulatory structure.

Deposit insurance was not

a novel idea; nor was protection of the small depositor its only purpose.


monetary function in restoring the circulating medium destroyed through bank
failures was believed by many to be even more important.
In any case, the times required action and the test of time has supported
the validity of the concept.

Its stabilizing influence on our economy has been

Today, the Corporation insures deposits in all but k6l of the l4,28l
banks which make up our system.

In its lifetime,

disbursements by the Corporation.

banks have required

Perhaps more important, the Corporation and

banks working together have contributed heavily to the consistent and general
elevation of sound banking practices.
There is no need for me to gild the lily here insofar as the Corporations
functions and operations are concerned.

The impact of deposit insurance in

restoring and sustaining public confidence in the banking system may have
slipped from public view in recent years -- but I doubt that it has slipped
from the awareness of many bankers.
In passing, I note only that the Corporation’s supervisory role is always

- 7 -

in a process of self-evaluation.

Time and events have had and will have their

impact upon examination techniques -- just as experience has pointed the way
towards faster and more efficient liquidation procedures when they can't be
Perhaps more to the point here, I want merely to remind you that the
Federal Deposit Insurance Corporation does not operate by virtue of far-reaching

It does not have the power to charter banks.

power to close banks.

It does not have the

In fact, it has the power to pass upon only about half

the new banks admitted for insurance.
Its real strength lies in the effectiveness of deposit insurance as an
essential component in the kind of society and financial structure we have
evolved through the years.

Its administration has been successful because Its

experience and resources have been directed to working with bankers in a
common objective -- the maintenance of sound banking practices in a strong
and healthy system.
As you return to banking, I hope you'll occasionally have an opportunity
to reflect these reminders when you are drawn into day-to-day discussion.


a complex way of life, it isn’t at all difficult to regard our regulators as
adversaries -- or for regulators to proliferate their powers.
We are not only determined to avoid that relationship, but I want to
re-affirm that the Corporation is moving comprehensively to improve its services
to the banking community.

Whether it may involve the development of useful

banking data from the application of computer techniques - - o r assistance to
smaller banks in audit procedures -- or more effective examination processes
-- or simply improved communication with bankers and State supervisors

- we




intend to broaden the Corporation’s effective support of a thriving banking
Perhaps you'll have a chance to help us as evolution proceeds.
Finally, I want to comment briefly on only one other point.
Every speaker, like every listener, is bound to hold firm views about
some aspect of his field.

I am no exception.

In my case, what I regard as the pressing need for positive bank management
represents a deep-seated conviction.

Let me deal with it very briefly as a

point of view rather than a blueprint.
A few minutes ago I -emphasized the diverse nature of our banking system in
its historical context.

As opposed to the situation in most other countries,

this diversity has produced great numbers., of banks in our country

even though

entry has been regulated and not entirely fre*.
This means to me that the individual bank manager^ s responsibility
involves much more than the careful custody of deposits once he has received
his charter.
Without question he has a responsibility to be a technically- sound banker
-- and to produce a profit for his stockholders.

But even more, he has a

responsibility to drive for positive management -- in the interests of his
depositors, his borrowers, his community or his region.
ITo platitude is involved here.

As a banker and a bank supervisor, I have

seen managements which do not meet this test.

And I know you have.

Clearly, positive management will do everything in its power to fulfill
the credit needs of its community.

And of equal importance, it will give its




community the financial and economic leadership it requires.

The banker’s role

and positive management simply force him to become a part of the financial
core of his community.
Beyond this, diversity also breeds intense competition.

The plain fact

is that the banker who likes his job, respects his responsibilities, and cares
for his community, has no choice.

The envireonment in which most banks are

operating places the highest premium on positive management.
I also said earlier that the Federal Deposit Insurance Corporation in
fact has limited powers.

None of us wants to see the supervisory authorities

assume any of the duties or powers of bank management.

The day-to-day

operation of a sound bank, and the commitment to financial leadership and
positive management within a community, are not proper Federal or State

These are increasingly the essential roles of bank managers,

and the banking industry.
I hope you’ll agree

with me that those who pursue this course will be

rendering real service to the. banking industry.
In using this occasion to discuss these few reminders, you can now see
that I ’ve foregone the temptation t o ’.display erudition at some length I My solace
will have to lie in something Thomas Jefferson wrote about the vices of

As I recall, he observed that "Speeches measured by the hour

die by the hour."