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Áddrsua of H* J. TOX$ JE# C&tef of Division of m®mr&h m á Statistica, mmx? m m m m cobfomììqs, at ili© ânmmX Convention of ih© CaSOEâSO fiftSKEKS ASSOCIATION, ram» ornjmm Jim© 22, 19&5* Mr* Chairman, leather» of the Colorado Bankers Assoei&tios, ha& Lm and Gentlemen* It- is a great j&.©»sure to bo her« in your magnificent State today* I wish to thank you, and Mr* Bcsrber© ©»pectsJUy, for the many courtesies which have been shown me* I m s di©appointed not to bo here earlier to attend your Fast Presidents Manor and the entire program* Bat the pressure of affairs in Washington, has made It necessary that I stay at ¡ay desk as long &$ possible and fly out here at the tery last moment. We in the federal Deposit Xoeurance Corporation are sincerely appreciative of opportunity tomcat with bankers and discuss with then our mutual problems* Our successful operation depends so much upon your success and in turn, our operations have such a vital relationship to yours, that it is on© of our prime duties to keep you informed of oux* ob jectives, our activities and our problems« On this occasion X wish to discuss broifly the internal organisation of the Corporation, its fin ancial «xporieoce to date, and its part. In the r©organ!s&tion of the banking system sine© the banking holiday« Bet-Up of , the gtesaaisatloa* As you know the Corporation Is directed fcy a Board consisting of Hr* beo T* Crowley, Chairmanj Mr* J* F* X* 0* Connor, Comptroller of the Currency* and former Senator Phillips b, Goiaaborough, who reecntly was appointed to fill fee place loft va cant fcy the resignation of Mr* 1« G* Bennett« The formal organisation of the Corporation consists of eight divisions and offices* Five of those - the bogal Department, the Se cretary1© Office, Controller’s office, Public ¿-¡Latiocui Division and fee — z «*■ accouating and Auditing B i r l s l m ~ parfom ftmctions oorrespondlng to ihos® or sisiiJUu* office© in m b u sin -& m corporation« It Ì s tino three re- m i n ing divisila» - thè ìixasiining Diviata», t m M m m à C lo e e d Bttok Di vi© loa m ia thè Division o f ¿è m m m k m d Statistica - wldoh perfora thè special dulie© catrustoà io thè Corporation by uongnm Bm Dlviataa of hacaialnatiqnB* The ìtosialng Divisi®» «ay, I thlafcy be ranked first in importane© ©ine© it constitute© thè ©yes ©ad th® ©ars of tiw Corporation# Xt is through thè Eacamlaing Biviuio» tbai ih® Corporation miataias contact© «ita tbose state bmike not albera of th© Foderai tieserv© fy & U m «boa© deposita are insured» headiKi by a Chicf l&aainer* The DiVision la Ther© are ©even revi®« unita in th» Wash ington office and li aupenrUdag c^aaiaers* office© in th» Il dlatriets bhreughout thè Country* The satire persemi©! of thè DiVision nuabers i&S eaautiaera* 190 assistaat onminers, and 156 cXerhs and ©tnographera* or a total of Uff» fìlli ia aearly three-fourths of thè «ritiro persona»! of th© Corporation* losaminatlon© are m i e of all State nonnanber barbe© applyiag far adaiasioa to thè Insur uce Fund. th© supervisiag conditi®» of th© back* In e*ch case th© fteld m d © rocoiaaendation &s to adaiaaiaa m u m m and th® SuMasri.es of all ex&juimìiiona of « r a «hich ai4© applying for adaiaaioa to th© Corporation are pressateci to th© Board of davi®« of thè Corporation* vniiah ìs coapoaed of tuo Director© m d «zarlm & other executive©* Bueh other m im m rlm of exaainations are pre se» ted to th© Board of lievi®** whleh noeta .irosa two to ihree tin«'* a «eok* &a inveivo special probi®«©* Fro® th© Board of bevi©» thè case© with thè Board* s reeoamendatiQQ procoed to thè Board of Director© sud are actotì U£xm by them* Besides these admission taauaiii&tiaas the Division is mking one regular examination each year of a U insured hanks which are not members of the Federal Reserve System, and such supplementary a»- aolaatloae mu may be required* The Federal Deposit Insurance Corpora tion examines only nonseaber banks sin c© the Comptroliar of the Cur rency and the Federal heserwe System examine national banks m d State banks respectively* Bader the provisions of the Temporary Fund tòlda Is now in operation all banks which were members of the Federal Reserve System, which includes State, member b&nxa and national banks, w#re automatically extended the benefits of Insurance* therefore was not required to examine these banks* The Corporativi Since member banks are automatically insured by law as long as the Temporary Find Is in operation, the Federal Deposit Insurance Corporation does not concern it self particularly with the affairs of these basics* However, when, in' individual cases, examination reports are needed, the Corporation has tne authorisation officially to request such reports from the Federal Reserve Board or the comptroller of the Currency as the case may be. Ail three of these agencies u m approximately the m m examination forms and conduct the examinations on practically the m m basis* The number of insured aonmambei1- banks which the Corporation examines is nearly 7,801, which is /ore than half of all insured banka* iHE M & ial&tlM lto& I&Yltfllon* ^ Rhea an insured bank closes of its depositors is in charge of the M m and Closed Bank division* This division organises a new national bank to pay off the depositors in tao tailed bank and to handle the necessary records* $Qm Am m m esumate can be made of the amount which will be necessary wti the insure^ deposits the Federal Deposit Insurance Corporation a&ke© tills sum available to the new national bank and also sufficient xu&cs to cover its operating ecspe&oe# Tbs insured depositors of a failed bank file proof® of their claims, assign the®« claims to the Federal Deposit Insurance Corporation and are paid at once in cash or in checks upon a federal Esserve bank# the new bank ;aay accept deposits and honor checks but it m :j n o t make loan® nor carry on other functions of banking* Ail of its funa® m s t be deposited with the federal Deposit Insurance Corporation or a Federal Reserve bank or lave®tod in direct obligations of the United State® Government* If capitalized by local .interest® within two ym x ’ 3 the new bank may conduct a norm! banking business and m y beco?ae a regular national bask* Hie Federal Deposit Insurance Corporation act® as liquidating agent when the Corpomtitm is appointed receiver® of a Iailed bank* ltd Corporation has been appointed receiver for ¿wily four banks, two national and two State banks* A® of June IS, 1365, 13 insured banks have failed* The 18 banks the deposits of which we have begun to pay off, bad total de posits of nearly four million dollar®* Of this asjust store than one raiUioa dollar® were secured or subject to off-sat sad the Corporation*® liability to depositor# amounted to over two m d one-half million dollar® Of this amount #2,647,658 ha® already been paid to 13,562 depositors* There remains $238,664 insured deposits to be paid to 6,211 depositors* Ail of these failed banks were small and had only a few depositors with account® in excess of $5,000* Cince the 13 closed institutions hold— in^ an aggregate of $4,000,000 in deposits had only $230,000 of deposit® that were uninsured or unsecured the loss to the depositor# hailing claim § *m in excess of the insurance Halts will be small* Alx of the IB no* deposit insurance national banks organised to pay off the depositors la these closed beaks are still being operated under the Supervision of the Urn m d Closed Bank Division of the Cor poration* Division a£ Maesrch Statistics* Th© Division of Be* search and Statistics has Hie duty of collecting statistical informa tion required, by the Board of Directors for the intelligent direction of their responsibilities and of engaging is such research as will aid the directors and Congress in mking decisions pertaining to deposit insurance* The Division has recently completed a study of losses -to bank depositors during the past 70 years for 'the pur,pose of providing the best possible actuarial basis for the rate of asaessnent charged in sured banks* It is now engaged in an analysis o f the experiences of the various State guaranty funds for the protection of depositors and of the reasons why these funds proved to be .inadequate* The Division obtains reports of condition from all insured banks wldch are not members of Hie Federal deserve System twice a year. The tabulations from these x*e- porta are combined with those from amber banks, tbu| -providing statis tics regarding Hie deposits, other liabilities and assets of nearly all th© banks in the country* slMdt of j&g kor;x?raUpp* The capital stock of Hie Corporation Is owned by the baited States Treasury and IB Reserve banks, the Treasury subscribing to £150,000,000 of stock anil the Res© ve baitks to 1X40,000,000* Insured banks have paid assessments to the Tem porary Insurance Fund of approximately $41,400,000* The only other iia- portant items on the liability aid© of the balances sheet of the Corpora tion. are appros&sataly one million dollars of reserves for deposit in surance- losses ami expenses and suspense items, and two and one-half «iilion dollars of surplus derived fro m m peases during A&M# excess of income over Hie asset side of the balance sheet included on December 01, 1 9 M - |1S,03Q,OCSU of cash, d&iS,£XD,CK>J of United States Govemrneat obligations and f2,Q0d,3Q0 of advances to the depositors of closed banks and subrogated c&ios of such depositors# Income.. £QsL M iim m * Ac lias been suggested the income of bhe Corporation from its investments has exceeded its expenses by ¡tore than *•£,503,000* The budget for the year 1B&§ provides for current expenses not in excess of two and & half million dollar© while the pre sent rata of income on inveataents exceed© 18,500,000 a year* Hie larg est Its« of expense of operation of the Corporation in, the future will, ai* course, be the losses incurred in paying the claims of depositors in bank© «nioh close* The sis© of this iteas o f expense la unpredict able and is likely to be erratic from year to year* Baas suspensions during the years ISM- and 193$ have been unusually few in number end the .amounts involved abnormally ©mil* Is due to several factors* Hits A great deal of liquidation of banii asset© of doubtful m i n e is being accomplished through such agencies as the Farm Credit Administration and the Home Owners* Loan Corporation* The reconstruction Finance Corporation lias mads largo sum® available) not oruy in the fora of capital but also as direct loans* Further, th® li quidation which occurred prior ot the Banking Holiday ha© eliminated a large proportion of the w-*ak banks* Periods of recovery subsequent to «*► *1 «* banking crises have in the past been characterised by relatively few sank failures* The low rate of failure® since the organisation of the Corporation cannot be expected to continue and it Is a wise policy for the Corporation to built! up reserves at the present tin© as & safeguard against the large nusahor of failures wideh are likely to occur in the futUTO* The foregoing rea&rks have been concerned with the prosent structure and activities of the Federal Deposit Insurance Corporation« X would like to add a few words about its background* the banking situa tion at the tiara it was established and the aid it Im s rendered in im proving that situation# ,m oJL .ttm .S s a s& a X . .M m M .L t Influgarafl...Corporation# Sou are familiar with 'the creation of the Federal Deposit Insurance Cor poration by the hanking let of 19SS# The Congressional hearings and dis cussions of till® Act had been conducted during end immediately after the Banking holiday * T e adoption of &ra principle of deposit insurance was undoubtedly the direct result of the exceedingly large ouatber of banks which had just been closed and the lack of confidence in the ’ banking system of the e o n b y « The Congressional committees which reported the banking bill of 19&5 to tb© Houses of Congress stressed two reasons for tft© inclusion of the insurance of deposits in the Bill* On one hand there was the desire to extend to all b§nk depositors a protection which would lan*-diately reestablish and. maintain confidence in the banks* CM the other hand there m s the desire to provide a iaethod of advancing to depositors oi- failed banks th© funds which wore tied up, toollminate the inconveniencea to which the depositors had been subject and the disturbance to business caused fey t o inability of bank depositor® to use their money* At the time tk© Banking Act m s passed in June, 1925, the Becretasy of the treasury and State banking authorities were engagod in trie licensing of the banks which had bem closed during the Holiday* the urgent necessity of reopening the batiks muis it imperative that all banks which had a reasonable chance of continuing their business should be licensed. The decisions incident to such licensing were necessarily m&e with tremendous speed and under unusual conditions. It was natural that some banks were licensed which did not have adoc|uate support to really warrant their continuance m banking institutions. During Urn m m m ? m d autumn of 1925 a diligent effort was made ^ t o Federal au thorities to deters*!«« the actual capital status of the banks of the co\intry • It was felt that while deposit insurance would reestablish confide®©® in the banking system it was necessary to replace the capital of mnj beaks which lied been impaired if t o reestablishment of confidence in the banks was 'to be Justified. The real situation in respect to the aonaeaber State banka first becaa© known when the ©seminations of banks applying for admission to the Insurance Fond were eoapleted. The de posit insurance law provided t o t all bank® found to be solvent were to 'be admitted to insurance* Since solvency was defined As the ability to meet deposit liability, many banks were admitted to Insurance wliich ***** bad to i r entire capital or most of it wiped out through losses. In fact more than 1,4D0 nonsaaber State banks among those admitted to in surance were found to have capital funds which were decidedly inadequate. These weak banks were admitted to insurance benefits on the condition that their capital would bo rehabilitated Ihrtnigh local aid and fdais from the hecoaatructioa Finance bor,>or&tion* Th© it@O82i0t?Q6tl(Ki Finance Corporation h&d not s&d® material progress ln t o reconstruction of bank capital priox* to September 1955# From September 1955 to February 1954 mi intensive campaign was carried on to recapitalise the ba ..*2 which had been admitted or were applying for admission to insurance# Emphasis w m at first placed on the State banks which were not members of the Federal Reserve Sjystc» ocean so of the active interest which tlie Federal deposit Insurance Corporation took in these banks* Toward t o latter part of ttm period the authorities extended their efforts to Federal Reserve member banks believing that manjr of thee® beides required capital rehabilitation prior to the anticipated inauguration of the Permanent Deposit Insurance Fund on the first of July 1854. This program of capital rehabilitation has now been nearly completed. There remain only 500 beaks of all classes in the list of those inadequately capitalised. On June 7, the Reconstruction Finance Corporation had a net investment of about #890*000*000 in the capital structures of apprcodaately 6*000 banks in this country* It has In vested approximately #4 5/4 million in the capital obligations of &2 Colorado banks as compared with total capital funds of all Colorado banks of about |kd million* I* t ®® tell you what has happened to those 1*450 weak noamember «»täte beaks which I just mentioned and which were admitted to insurance *dth the definit« understanding that their capitals were to be rebuilt# Ail but 188 Rave been recapitalized to the extent that at the «ww* of February t o r e remained only 1504*000,000 of deposits in these so-called banks*. These remaining weak nonamber State banks shfi&sd a total took capital of about #09*000*000* while the examiners allowed these banks - IQ - ia tiave a act sound capital of about £*? million dollars* la other words, U10 number of uader-capi Ulised State rtooaeaber ban m has beam reduced from i#450 to 18-8 and the volume of deposits supported by inadequate margins of capital bM& hom reduced from $1,503 million to |£04 aillioa. This, X believe, shoes real progress« ©acouaterod in carrying out the program* The Many difficulties have Comptroller of the Cur rency and the Federal Reserve Board have sufiXcimi poser to require banks under 'their Jurisdiction to remove capital tmp&rmssibs and increase their capital if necessary* The Federal Deposit Insurance Corporation had no such authority and could, only resort to the powers of persuasion with the aid of the State banking authorities* The credit for the success of the recap italisation program is to bo- shared with the Reconstruction Finance DorpoaaUoa whose cooperation mane it possible and to the various State banki/ig authorities who also in most cases gave us their hearty cooperation* Investment by the deconstruction Finance Corporation in the capi t&X of banks is now practically at an end* The Corporation has stmouncad that it intends to complete its investments in the capital of banks soon after July 1, and teat all applications for the sale of capital obligations to the Keeonstruotian Finance Corporation mist bo filed by July Id* It is of the utmost importance for the entire banking structure and deposit in surance that those still tmvtag inadequate sound capital take steps to repair their condition through the Reconstruction Finance Corporation during the next few weeks*. Capital rehabilitation of the banka made it possible to write off From the books of the banks a tremendous volume of looses which had aocusulAted during previous years* The amount written off during iyjss and «* \1 •» 1954 by all commercial banks has exceeded two billion dollars or ¿a©r® than cue-third of the book capital of the banka* o m billion dollars of the bank»* It estimate that less than X o m m which still remain to b® written off the book® of It is our policy to do everything possible to accelerate the com pletion of this house cleaning* Perhaps you would be interested in the results of a recent tabulation of emailnor»1 reports# In about 7,701 'insured- aonmeaber State banks and 5,500 national banks, or a total of almost 13,000 banks with total leans of about H 0 * 4 billion, 'fee national and Federal Deposit In surance Corporation examiners classified S*$% as worthless, 5*3$ aa doubtful and 2B«4% as alow* For national banks the wordless and doubtful loans total 7*1$ of total loans, while for State newraenber banks this figure is 8»0%* The insured beak» of Colorado which are not aoafoora of the federal Eeserve System appear to be in a somewhat sounder position than are such banks for the country m a whole* £5$ of all assets of State non- aeaber banks tliroughout the country are subject to criticism as being loss, doubtful, or slow, while in Colorado only 17$ are so criticised* 7$ of the assets of all such banks in the United States are either doubtful or loss while in the Colorado banks &% of the assets fall in these categories* It mist be added that these figures are approximate and that the examination» from which they were taken cover a period of about ten maths* In all pro bability there has been a substantial change since these tabulations tore mdo owing to the rapidity with which Conditions - particularly those affect in. bank© - have improved ©Inc® last au*a®r, m d owing to the fact that large portions of these losses have been since written off* - xz - á& w© h&v© noted, on© of the chief purposes of the Federal Deposit Insurance Corporation is prevention of ¿resting of bank deposits and consequent economic stagnation* In this ©oanoction the Corporation recen U p undertook and inquiry concerning the deposits & 1 H tied up in b&aka in receivership* hi tee be&lrmiug of this year over 3,000 banks were still in the hand of receiver;s* Of tee 4 8/4 Millón dollars of deposits in these banks at U s e of closing, 2*4- billions or 51$ still r e m i n d unpaid* Judging by the experience of the past, depositors in thee© banks probably will not receive substantial dividend© la addition to teoso al ready ¿mid* i&ttfiftfc &£> laflynmce. Coverage* Insurance of deposits in commercial banks in th© United State© is now almost universal. 15,£93 commercial banks* the deposits are insured* 14,208, or 9E*85$,of the In Colorado 90$> of tec banks 99*6$ of In tee insured banks of the entire country 44$ o f te© deposite are covered by insurance while in Colorado 58$ of tee deposits of insured banks have such coverage* Under tee present system whereby deposite are injured up to vh,333 the vast majority of accounts are fully insured* la the Insured banks of Colorado are approximately 410,003 deposit accounts and 405,000 of tees©, or 99$, are fully insured* Hintsty-elght per cent of tee ée¿>osltors in tee insured banks of the eountey have accounts with not /acre than #5,003 to teeir credit and arc therefore protected in full* Use aggregate amount of deposite of the fifty million depositors which are telly protected is betwe a IS m ü 14 billion dollars* the remaining three or four billion dollars of insured deposits represente the first $5,031 in tee accounts of depositor© with larger balances* mm «** bevanty p e r cent of all the insured banks Imve total deposits o f loss than *753,& X) bach# class# la Colorado 74% o f Insured bank® fall i,n this these banks hare an Insurance protection covering mere than 80 per cunt o f their total deposit liability. The Federal Deposit Insurance Corporation thus has a very real and tangible interest and responsibility in practically all of the licensed banks la the country and in the great m j orlty of those banks that interest is equal to or greater than $Q per cent of their total deposit liability# In accord with -the Act of June 16, 18&S m amended June 18, X9M# the extent of insurance coverage will bo increased at the beginning o f next south« In order that they say conform with the law, the banks tev© teen supplied with forms for applying for participation in permanent insurance, and forms for jacking 'the rmittenee© required ly law# A ret aliation has teen issued by the Federal Kesarve .Board defining precisely the content of “total deposits*, the item upon whieh the new remittances o f the banks to the FBIC mist be based# It is legally necessary that the banks remit for participation in the peraansnt fund before they receive & refund from the temporary Insurance fund if they are to have their de posits Insured without teterruption* However, refunds will be made from the temporary fund as soon as the nseessaxy accounting detail permits# If teere are any questions which you may car© to ask about the change in deposit insurance which will take place at the m d of tel® month, I etell te glad to answer than to the boat of ay ability at the conclusion of ‘these reawrka« M k i h s m m '$mm, Beaoslt Insurance# radically changed the significance of tend: losses# Deposit insurance has Formerly local de positors and stockholders bore the terdens resulting fro© bank fsllures and the long ;iessor«Oi2ing period of liquidation which fo llo w e d » X a -ed not stress the paralysing effect of the fr a m in g of deposits resulting from beak failures, for you in t .is State have suffered Intensely from this evil* In the years 1920 to IBM, 149 of your beaks with f«l#6&g,0QO of deposits failed* Partieularly did you suffer In 19Z$ when banks with deposits of 14,689,000 failed and in X92S when the failing banks had $9,062,000 of deposits* The economic paralysis and uneconomic liquidation which resulted in many com^mities is known to all of you* Mow losses which have accum dated la any bank until it fails &i'& shifted to the entire banking system, since such losses effect the rate of assessment which must be paid* cans directly in dollars and cents* A bank Allure now of foots ©very The Federal Beposit Insurance Cor» poration considers it on© of its chief responsibilities to do everything possible to reduce losses from baa* failures. It is not possible, however, for the Corporation to take much specific action which will eliminate bank failures* It am only encourage bankers 'to conduct their busiaesis in such a way as to k«*ep losses at a mlisfwum* m -ucli 0^*8* xt Is This is now your concern our hope that you will be Instrumental in pre venting bank failures, and reducing the losses therefrom* In this way you will lie keeping the insurance assessments upon talks at the lowest possible figure* While deposit insurance has added greatly to the security of bankers and the banking system, it 1ms also added, to the responsibility of b&akors* Xt is now of vital interest to the bankers not only that their o m banks be sound, but also that other banks be sound* Thus, it is of primary importance to all of us that we continue to be vigilant in the promotion of sound banking*