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H* J. TOX$ JE#
C&tef of Division of m®mr&h m á Statistica,

mmx? m m m m


at ili©
ânmmX Convention of ih©



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

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
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

th® 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


This division organises a new national bank to pay off the

depositors in tao tailed bank and to handle the necessary records*


m m esumate can be made of the amount which will be necessary


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*


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



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
Division a£ Maesrch


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

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*


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*


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
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#
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 ’
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.


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

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

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

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*


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*


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

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*



bevanty p e r cent of all the insured banks Imve total deposits

o f loss than *753,& X) bach#

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

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*




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

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*