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Statement of
Chairman K. A. Randall
Federal Deposit Insurance Corporation
before the
Subcommittee on Financial Institutions
of the
Senate Committee on Banking and Currency
Friday, October 4, 1968

I am pleased to appear today before the Senate Subcommittee
on Financial Institutions and to participate in these deliberations
concerning the role that financial institutions might play in
alleviating the problems of our cities.
Since the hearings today are not directed toward any specific
legislation, I would like to offer a few general observations on the
role of banks as corporate citizens.

Banks have become increasingly

conscious of their broad social responsibilities in a rapidly chang­
ing economic environment.

As financial intermediaries they are

strategically placed to exercise responsible leadership.
The Federal Deposit Insurance Corporation’s basic responsibilities
relate to the Federal deposit insurance system and to the supervision
of banks in connection with these responsibilities.

As a consequence,

the Corporation is primarily concerned with the protection of bank
depositors, and accordingly the solvency and safety of banks.


FDIC does not charter banks, although the granting of state charters
sometimes is contingent upon approval for Federal deposit insurance.
State banks are chartered pursuant to the laws of the individual states
and Federal law provides for the chartering of national banks by
the Comptroller of the Currency.
In processing applications for deposit insurance by state banks
not members of the Federal Reserve System, the Corporation considers



the financial history and condition of the bank, the adequacy of
its capital structure, its future earnings prospects, the general
character of its management, the convenience and needs of the
community to be served by the bank, and the consistency of the
bank s corporate powers with the purposes of the Federal Deposit
Insurance Act.

(National banks and state-chartered banks that are

members of the Federal Reserve System acquire insured status without
application to the FDIC but with the certification of the Comptroller
of the Currency for national banks and of the Federal Reserve for
state member banks.)

If these factors are resolved in favor of the

applicant bank, the Corporation is assured of a viable institution
well able to discharge its responsibilities efficiently and effectively
and to serve its community.
Comments that bank examiners are partly responsible for the
conservative lending policies of banks -- focused for the purpose of
this discussion on ghetto communities in the central cities -reflect a misunderstanding of the nature of bank examination and the
supervisory responsibilities of an insuring agency.

The role of bank

supervisors is to promote the public's confidence in banking and
finance generally by taking the steps necessary to maintain a sound
banking system.

Periodic examinations of banks and their management

are an important feature of this process.

The field examiners ascertain

the amount and character of a bank's liabilities, the nature and extent
of its assets, and the amount of net sound capital.

Unsafe and unsound

banking practices, assets lacking in quality, or an excess of volatile
deposits, for example, would all constitute appropriate instances for


criticism by bank examiners.

Failure of banks to maintain high

banking standards would be self-defeating; they would not be
satisfactorily discharging their responsibilities.
Conforming fully with the standards prescribed by Federal
law for deposit insurance, a small number of banks have been
established in or adjacent to predominately black ghetto areas
since 1964.

The initiative in establishment of these banks has

been mostly local, with ownership and control likewise tending to
remain in the community being served.

In addition, there have been

a few more other newly organized banks with racially mixed boards
of directors.
Developments along these lines indicate that our system of
banking can adapt to economic and social changes.

Up to now,

admittedly, progress in solving the problems of the ghetto-haver
been slow but given time the residents of these disadvantaged
communities will be able through their own efforts and the
assistance of others to strengthen the economic base of their
communities and improve their economic and social well-being.
Time will be needed, however, to gain the long-run benefits of
educational and training efforts.

The nub of the problem of

concern to your committee today -- and the test for proposed
solutions —


Will the proposed solution accelerate the


process of increasing \£h& economic valueS-^E the ghetto and
enhance the well-being of the individuals residing there?
To illustrate one facet of the basic problem and an effort
by the FDIC to provide a solution, I would like to tell you about


one of our programs which is designed to increase the supply of
qualified and well-trained personnel versed in bank management
that is also relevant to the problems of black ghetto residents.
The Corporation conducted a program for several years that
may make some small contribution to an easing of the shortage of
people trained to work in banks.

From 1965 through 1967, we

operated a summer program for Negro students and others in which
these students were trained and utilized as assistant bank examiners
When the summer was over, these students returned to school to
resume their education.

But we are hoping that some ot them will

decide to join our permanent staff upon graduation or, at least,
to acquaint others with the job opportunities available with the
At the present time, we have 13 nonwhite examiners in our
field examination force -- and are working to increase that

Over the years, as our examiners become experienced, a

number of them are hired by banks where their experience and
training prove a most valuable asset.

Our examination teams

therefore constitute a pool of talent on which banks can and do

Banks doing business with residents of black communities

can also draw from this pool -- and thereby staff their operations
with trained personnel.

A somewhat similar training and recruit­

ment program is currently in operation with a college having a
work-study program for the education of its students.

In this

instance, the Corporation provides employment in its examination


force during the work terms.

Furthermore, we are planning to

extend this type of program to other schools.
Banks as well as the supervisory authorities will have a
part to play in solving the complex of urban problems, especially
with respect to the currently disadvantaged residents of black
ghetto communities.

Most important among our tasks is to make

certain that current institutional arrangements and practices do
not impede progress.
It is difficult to determine the extent to which the legiti­
mate needs of ghetto residents for consumer credit, business loans,
and mortgage financing, for example, have gone unmet.

In the past,

the limited volume of bank lending in the urban ghettos is largely
attributable to the fact that the loan prospects of ghetto borrowers
have been in fact risky and unprofitable in relation to the avail­
ability of other more attractive lending opportunities.

Loan demand

in recent years, moreover, has tended to be strong and interest
rates high on loans that have involved very little risk.
To a considerable degree, institutional lenders applied
credit standards -- not necessarily unreasonable ones -- that had
the effect of excluding a large share of the ghetto community,
Where individual borrowers were involved, such factors as low income,
spotty employment records and high mobility in effect excluded many
potential borrowers.
Although loan denials becapse of race have not generally been
the result of deliberate bank or institutional policies, racial
discrimination in the banking business is rapidly disappearing, and




many banks are actively seeking out Negro borrowers or extending
their activities deliberately to areas not previously served, and
developing programs to hire and train ghetto residents for banking
The Housing and Urban Development Act of 1968, signed into
law on August 1, 1968, contains a number of provisions that are
designed to ameliorate some of the problems of housing in ghetto

Two sections in particular endeavor to minimize the risk

incurred by lenders in the ghetto area:

(1) the extension of FHA

insurance facilities to owner-occupied two-to-four family properties
for all low- and moderate-income families and

(2) measures to

assure the availability of adequate property insurance to property
owners in inner city areas and reinsurance of abnormally high
losses due to riots or civil disorder.

These two provisions

should encourage bank lending by reducing the risk of the lender.
Moreover, the bank supervisory authorities in the course of their
examining activities will give proper consideration to these riskreducing arrangements in the process of determining the suitability
of an individual loan for a bank's portfolio.
To sum up banks exercise financial leadership in the community
and thus can contribute to solving the urban crisis and the problem
of the ghettos.

But they can do so most effectively only if they

continue to maintain safe and sound operations.

At the FDIC, we

are continually reexamining our procedures and practices to make
certain that barriers to economic and social progress do not exist -through inadvertence or otherwise.