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F ederal deposit Insurance Corporation WASHINGTON I1 jL [FOE RELEASE AFTER 10 A. M. ERI DA?. OCTOBER 1 9 tJL 934 ¡ADDRESS OF THE HON. LEO 0?* CROWLEY, CHAIRMAN OF THE BOARD, FEDERAL DEPOSIT I nsurance corporation, before the convention of the state BANKING SUPERVISING AUTHORITIES, BALTIMORE, MARYLAND, OCTOBER 1 9 , 1934. Mr. Chairman: The Federal Deposit Insurance Corporation welcomes th is opportunity o f meeting with you. S ta te banks are now insured in the C o rp o ra tio n s nearly s ix b i l l i o n d o lla rs . Fund in the amount of This tremendous l i a b i l i t y c a rrie d by the Federal Deposit Insurance Corporation in te r e s ts us profoundly in you as rep re sen ta tiv e s of the s ta te banking system. iphi c» insurance has been welcomed a lik e by the dep ositors and the banks. There can be no question that i t i s needed. Between 1921 and 1932, in c lu s iv e , 8,720 s ta te banks were closed , tying up three and th ree-q u a rter b i l l i o n d o lla rs in d ep osits. Our banking system broke down early in March 1933. suffered the sanie f a t e as the n a tio n a l system. The s ta te system Only the prompt a ctio n of the national adm inistration in th e enactment of the Banicing Act of 1933 prevented a complete and f in a l co lla p se o f our fin a n c ia l system. Passage o f t h is a ct was the f i r s t step in re s to rin g confidence to the m illio n s o f frig h ten ed d ep ositors in the country. No other p rov ision of the a c t was more important in th is regard than th at o f deposit insurance. These d e fin ite steps towards a stronger and more secure banking system made p o ssib le the r e -lic e n s in g and re—opening o f our banks, and once again the country was operating on a normal b a s is , or a t le a s t near normal so fa r as d a ily fin a n cial tra n sa ctio n s were concerned* The Federal Deposit Insurance Corporation, which was created by the Banking Act o f 1933, promptly undertook, in cooperation with you, the examination o f our s ta te banks and on January 1 s t o f t h is year when the Corporation began a c tiv e ly the business of in su rin g deposits 7 ,5 5 6 s ta te banks were immediately insured* Since then ad d ition al banks have been insured, making a t o t a l o f 8,719 insured s ta te banks on October 15, 1934. ity among the membership o f our Fund. S ta te banks, of course, are in the majo]>* Very n a tu ra lly , then, we are v i t a l l y in t e r e s t - led in the strength o f the s ta te system. With the retu rn o f confidence money began to flow back in to our banks and today, in sharp co n tra st to the condition o f March, 1933, the banks of the country as a whole are in an extremely liq u id con d ition . This r e h a b ilita tio n of the banking system i s brought out sharply in the l a t e s t c a l l rep o rts which show an in crease in deposits o f four and o n e-h alf b illio n d o lla rs . this phenomenal in c re a se . The s ta te banks had th e ir share o f In f a c t , the rep o rts show a su b sta n tia l in crea se fo r the banks of every s ta te in the Union. Although th is situ a tio n i s fo rtu n ate and I am glad i t has occurred, i t does not mean th at the banks o f t h is country are once again on a sound b a s is . bank which i s 75$ or 85$ liq u id i s r e a lly not in the banking b u sin ess. mere depository. A It is a And as business continues to improve and commercial loans in crea se this high degree o f liq u id ity w ill soon be reduced. Then we come to the b a sic strength o f the banks— c a p ita l stru ctu re . When the Federal Deposit Insurance Corporation began operation s i t was necessary to move f a s t and as a r e s u lt the great mass o f s ta te banks were given the benefit o f insurance immediately upon the one t e s t o f solvency. However, our ex aminations soon d isclo sed a weakness o f c a p ita l stru ctu re in many c a se s. I t became the concern o f the Corporation because we f e e l th at adequate c a p ita l i s n ecessary i f a bank i s to be fundamentally sound. We se t about to improve the s itu a tio n . We - 3 had two reasons fo r th is campaign. F i r s t , we "believe th at a strong c a p ita l stru ctu re is in the in te r e s t o f the depositors and the stockholders o f the "bank as w ell as the community i t serv es. Our second reason was a s e l f i s h one. A "bank with an ample capital i s not apt to become a drain upon the C o rp o ra tio n s Fund. Local communities did th e ir utmost to fu rn ish ad d ition al c a p ita l fo r weak banks* but u nfortu nately t h is was not enough. Where lo c a l funds were not a v a ila b le and c a p ita l was needed the situ a tio n was met through cooperation on the part o f your selves, the R econstru ction Finance Corporation and t h is Corporation. About 3,600 state banks were aided by the R econstruction Finance Corporation in reb u ild in g th e ir cap ital to a to ta l amount o f 480 m illio n d o lla rs . A ll w ill agree t h a t th is has been an outstanding co n trib u tion to the stren g th of our s ta te system. There i s s t i l l much to be done, though our banking stru ctu re today, includ ing the s ta te system, i s in a stronger p o sitio n than i t has ever been before* ¡banks have been la rg e ly weeded out. ened. Weak The c a p ita l stru ctu re has been g re a tly stren g th There i s no longer any fe a r o f a panic among d epositors with the re s u lta n t disastrous run on a bank. However, we must not lo se our present g ain s. The h is to ry o f bank sus pensions from 1920 to 1933 has proved th a t the country was g r e a tly overbanked. In that period the t o t a l number o f banks has been reduced o n e -h a lf. for s ta te banks i s about the same. process in more than s ix ty y e a rs. The proportion I t has been the most in te n siv e weeding out With the gains we have made in the l a s t year we niust not f a l l in to the erro r o f former days and allow new and uneconomic banks to open in d iscrim in a te ly . There are undoubtedly many s itu a tio n s where the s ta te s ta tu te s and the powers given to the supervising a u th o ritie s do not enable them to prevent the chartering o f banks which are not needed and which are econom ically unsound. theless every e f fo r t must be made to prevent such a tragedy-»-there i s no other name fo r i t . Never A bank without adequate c a p ita l, without the p o s s ib ility o f s u ffic ie n t lamings to meet expenses and lo s s e s and to provide capable management, or without [fe, real f i e l d fo r se rv ic e , i s more lik e ly to be a menace than a b e n e fit to the community* The healthy bank i s the fin a n c ia l h eart o f the community, providing the ¡strength fo r development and growth. I t i s your p r iv ile g e and th at o f the Federal ¡Deposit Insurance Corporation to promote and aid such banks* Is a I recognize th at th ere d is tin c t d iffe re n ce between the huge m etropolitan in s t it u tio n and the small ■bank which plays such an important r o le in community l i f e . t To have a c le a r under- ■standing o f our banking problem we must recognize th a t th is d iffe re n ce does e x is t . I am sure we are a l l agreed th a t no in solv en t in s t it u tio n can be allowed Ito operate* In the past there have been undoubtedly many cases o f continued ■operation by banks with an impaired c a p ita l or even by in solven t banks. l e d to the in e v ita b le consequence— depositors have always su ffered . This has F airn ess to depositors demands th at impairment o f c a p ita l stru ctu re be promptly co rrecte d . The ■federal f a c i l i t i e s now a v a ila b le fo r aid in g banks are such as to p ro te c t every ■situation and every le g itim a te in t e r e s t . No in ju s t ic e w ill now be done in taking la firm and courageous stand fo r an immediate 100$ sound banking stru c tu re . In deal— ■mg with t h is , as in oth er m atters, the f a c i l i t i e s and resources o f the Corporation Iwill be fr e e ly placed a t your d isp o sal. In the business o f promoting sound banking you, as the S ta te Banking Super v i s o r s , are a l l p a rtn e rs. You p a r tic u la r ly have a common in te r e s t with each oth er pmd with our Corporation with referen ce to the Federal deposit insu rance. I The »federal Deposit Insurance Corporation i s only another p artn er with you seeking the ■same end in preventing lo s s e s to a l l o f us in bank c lo sin g s . I b e lie v e th at o f f i c i a l s o f the Corporation and you, as s ta te banking au th o rities, see eye to eye g en erally on the problems which confront u s. Any d if feren ce of opinion i s more the r e s u lt o f misunderstanding than divergence o f views. ~5~ piiat i s why I hope you w ill make use o f the se rv ice which the Corporation can give p i, To f a c i l i t a t e our own a c t i v i t i e s and to give the most e f fe c t iv e coopera tion in your work, the Corporation has considered conducting a school fo r examiners, and developing a se rv ice which we would lik e to cadi a nbank c l i n i c , 11 This would he L service fo r dealing with individual hanking problems which would be a v a ila b le to Lu i f you wish to use i t . I t i s the in ten tio n th a t the f a c i l i t i e s o f the school jfor examiners and o f the ^ c lin ic 1* be made a v a ila b le to the supervising a u th o ritie s of any s ta te so fa r as the Commissioner o f the s ta te may d e s ire . this serv ice merely as p a rtn e rs. We plan to o ffe r Our thought i s th at every co n trib u tion p o ssib le must be made to carry our jo in t e n te rp rise to a su ccessfu l conclusion . Changes in the permanent Federal Deposit Insurance law w ill doubtless be necessary before i t goes into e f f e c t on Ju ly 1 s t o f next y ear. Within a snort time I expect to give ny views on these changes, and I w ill not d iscu ss th a t problem here. Let me remind you th a t the several s ta te le g is la tu r e s w ill be in sessio n [this w inter. Doubtless you w ill be c a lle d upon to meet and advise 'with members of your le g is la tu r e in the preparation o f more adequate supervisory law s. The co lla p se of our banking system in 1933 impressed people g en erally with the need fo r such [added powers. Amendments may also be required to enable you to get the g re a te st I advantage from recent Federal le g is la t io n . You must take the lead in th is m atter land give the lawmakers o f your various s ta te s the b e n e fit o f your experience. The problems w ill d if f e r with each s t a t e , but may I suggest that you con[ sider c a re fu lly the idea o f making c e rta in th at your laws are such th a t your banks land you as supervising o f f i c i a l s can obtain the maximum amount o f b e n e fit from the I various Federal ag en cies. In t h is the Corporation w ill give any a s s is ta n c e p o s s ib le , I especially with a view o f promoting a d e sira b le u n iform ity, and you w ill not only I increase your e ffe c tiv e n e s s as su pervisors and aid the banks, but you w ill in crea se L e ffic ie n c y o f the governmental agencies esta b lish e d to odd you* We appreciate the wholehearted cooperation we have receiv ed from s ta te Liking a u th o ritie s* Without i t the fe d e ra l Deposit Insurance Corporation could Lot have accomplished many of i t s o b je c tiv e s . But now I am fe a r fu l th ere may be a tendency to l e t down the bars a b it and allow econom ically unsound banks to open* I cannot impress upon you too strongly th at i f the s ta te system o f banking i s to survive i t imist be fundamentally strong* I t s u n its must be sound i f the stru ctu re as a whole i s to be an important part o f our economic l i f e * I t i s my firm opinion th at the s ta te banking system can be as strong and jas important as any p art o f our system o f banking i f the present trend i s continued* PStrengthened by funds from the R econstruction fin an ce Corporation, which w ill be [gradually replaced by lo c a l money, b u ttressed by the fe d e ra l Deposit Insurance Corporation, and properly supervised by s ta te a u th o r itie s , the s t a t e system i s and will continue a v i t a l fo rce in our fin a n c ia l l i f e . We of the fe d e ra l Deposit Insurance Corporation come b efo re you as p artn ers in that en terp rise* C ertain ly no one, not even the bankers themselves in many in stances, i s more in te re s te d in a strong s ta te system than the fe d e ra l Deposit In surance Corporation in view o f i t s great r e s p o n s ib ilit ie s . The Corporation i s insu ring approximately 7C$ o f the d ep osits in s ta te jbanks* That i s why we are so v i t a l l y in te re s te d in the stren g th o f th e u n its and the soundness o f the system. in stitu tio n s* Ho group o f banks has more small dep ositors than s ta te Deposit insurance was created by Congress to p ro tect the small de^ positor. Our s ta te banking system was saved in 1933 by fe d e ra l Deposit Insurance* Its continuance depends upon m aintaining the in te g r ity o f t h is insurance* that depends upon the e ffe c tiv e n e s s o f banking supervision* merely du plicate the past* We have learned our lesson * Again The fu tu re must not I t i s our job to see th a t -7 there i s no re p e titio n o f the p ain fu l and d isastrou s experiences o f the years between 1921 and 1933, e ith e r fo r the depositors or fo r the "bankers. We have the same re s p o n s ib ility you have in build in g and strengthening a strong s ta te banking system. Let us meet i t to g eth er. ## I
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