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Kea&rks of lfr.Mortimer J. Fox, Jr., Chief, Mvisioa of Research and Statistics of the Federal Deposit Insurance Corporation before the Eastern Regional Conference of Bank Auditors and Comptrollers at a luncheon meeting at the Hotel Montclair, Hew fork, April 26, 1066* Mr. Chairman, Gentlemen! It Is pleasant to meet with you today and x t.h*wk yovet program committee for the invitation to discuss some aspects of statement standardisation with you* I realize that at the close of the fiscal «nd calendar periods those of us who are responsible for the requests for information which pile tip on your desks are thoroughly unpopular* But let me ask that you keep open minds at these times of worry and work, and realise that our path is as thorny as yours. As an example: recently we finished our tabulation of year-end reports submitted to us by insured banks not members of the Federal Reserve System* seventy-seven hundred sets of reports were received and before we could even begin our tabulation, we had to write to forty-seven hundred of the reporting banks requesting amendments to their statements ranging in importance from the correction of transpositions and omissions to the construction of an entirely new report. lot too good a batting average for the bankers of the country, Is it? troubles. So you see that we, too, have our My criticism doesnH apply to this groqp, I hope, because— I hope— it is not the banks you represent which cause us trouble* fhe fmotion of condition reports has undergone a gradual, but at the same time, natural evolution* The call report was the first of the regulatory devices adopted by bank supervisory authorities, and it filled an important role in the early days of this country«« bank ing history when distances were long and the means of traversing them **• s * i m a d «»reliable. As railroads, the telegraph. ether means of Gosiomieatioa developed, however, and as direst contacts between banker and authority became easier to arrange, the examination, special report, and the conference cane Into being* As a result of the closer personal and critical contact made possible by these a m devices, the supervisory value of condition reports has to a large extent been displaced« The inception of the requirement to publish these statements is comparatively recent* For many years banks objected strenuously to opening their books even to state supervisory authorities* iaay of them were equally reluctant to take the stockholders into their confidence. The right of depositors to a knowledge of the use made of dx@ir funds was not even seriously discussed until successive waves of reform had encouraged the depositors to demand what they were not offered. Today the call report is intended primarily to be public« inforating, and Its supervisory value lies a&inly in the fact that persons preparing then certify to certain statements which stay be used in court proceedings in the discharge of the responsibilities of the supervisory authority. Then, too, an important psychological value attaches to the requirement that bankers prepare at intervals statements of the condition of their institutions* The bank statements required by governmental authorities of one kind or another have gradually grown in number and complexity **ntil they now constitute a serious burden to the banker. We find, - s - therefore, that the whole problem of reporting to s'aperrisory agencies ia keing challenged, and justly so# We welcome your newly manifested interest, and t am confident that if we us© it properly it will he possible to develop together a solution to the problem which is truly constructive* Xou probably feel that you are often asked for data by the various Federal agencies only to satisfy the whims and fancies of some otherwise idle governmental bureaucrat* mind® of this thought. Let m disabuse your It is true that there exists an apparent duplication of report requirements among the various agencies, but tiier® can be no reasonable doubt as to the need of each agency for the information it requests. The ever-increasing responsibility of various governmental agencies in the conduct of the banking business has made it essential that those administering such affairs be more adequately informed in order that their policy decisions might be based upon factual data. It is the duty of those in charge of statistical, economic or bank operations divisions of governmental agencies to develop data which reflect the true condition of matters being deliberated by administrators, other governmental executives and Congress* ton will agree, I am sure, that decisions affecting the Government *s #850 million investment in banks or the #16 billion risk of the Federal Deposit Insurance Corporation cannot properly be stade in a casual way* To be intelligent, they must be based upon facts scientifically correlated ami analysed, and it is important that adequate, reliable and sufficiently current data be constantly at hand. The various Federal agencies concerned with bank supervision have managed, during the past year, to eliminate such duplication as existed among them. Mo bank, with the possible exception of banks of one class which are affiliated with banka of another class, is now subject to examination or t© a call for reports by more than one of these agencies. The Comptroller of the Cœrency calls periodically for reports of condition and of earnings and dividends from national banka only# The Federal Reserve Board receives reports only from state member banks while the Federal Deposit Insurance Corporation examines azx! calls for reports from insured banks not members of the federal Reserve System. The Reconstruction Finance Corporation uses the call and examination reports of the other offices. The only other Federal agency requiring regular reports from banks is the Bureau of Internal Revenue. Such agencies as the Department of Agriculture or the Federal Housi^- Administration occasionally make specific requests, but this Is done only with the coopérât ion and consent of on© of the three supervisory groups mentioned above. The activities of the Securities Exeimnge Commission insofar as banka are concerned at this time is very limited. The cooperation between Federal and state supervisory agencies has also made much progress during the past year. It la in this field, however, that the most remains to fee accomplished. must be slow since so many vital elements are Involved, Progress For example, ~ ®ari*t6'a 5 ~ superstition that the Federal governsamt la attempting to displace the state sygmrwimry syetese# îhie is entirely erroneous when on® considers that strong supervieiea w «ta.te authorities is the best possible protection that the Federal Deposit Insurance Corporation specifically and the banking community generally can possibly have* A cooperative relationship between sstm.i© and federal bank authorities is a natural thing since their interests in sound bank ménagement are one aad the same, veryii^ only as to degree. To say that one la ettempt lag to destroy or displace the other is evidence of failure to consider the baste factors, The National Association of State Bank Supervisors, following its arnual convention at Baltimore last fall, appointed, at oar request, a special committo® to work with Federal authorities in the development of standard report forme, île are happy to say that w® have enjoyed very fin® cooperation from this group end we look forward with a great deal of pleasure to further association with them on this project of mutual interest. It is natural, too, that a subject affecting so generally the bankers of the country should have attracted the attention of several professional groups, last November a special group of the national Association of Bank Auditors and Comptrollers was invited to a seating at the office® of the Corporation .in Washlagtea and at that time the existing Federal forms were reviewed aad ** op*a dieeuealon was lied oa the sore controversial items on 6 the foras *hich i30w in use, It was the consensus of that Meeting that the form should not he changed until a thorough study could be mad® of the whole problem and until there was some degree of assurance that the new form would be universally adopted, Since that time officials of the Corporation have been in contact with & special committee of the Reserve City Bankers Association and this committee assure© us that the Association is vitally interested in the problem of bank statement standardisation and' stands ready to lend its support to any activity in this direction. We understand, too, that committees of the American Bankers Association are studying the problem# A form of report can and. should b© developed which will be at the same time less burdensome to you end more satisfactory to those to whom the reports are rendered. It is important that the interests of si^erwieory agencies, comptrollers and auditors and bankers generally be reviewed in order that we may arrive at a mutual understanding of the many problems involved. A recent analysis made by us of the statutory require* mente for various reports to be rendered by banks revealed that surprisingly little of the variation in present forms was due to specific legal requirements. We discovered that thirty-nine states either were already using or could adopt, without any amendseat to existing statutes, a fora comparable to that currently being used by the Federal agencies# in the remaining nine states the present form is inadequate only because certain items. it does not go into sufficient detail for Some states, for example, call for a list of the - 7 - parcels comprising banks» «other real estate* or for an itemized litít of interbank balances* legal «all* We are not confronted by an inmuraiouatable This fact alone should give the development at the standardised report form a considerable boost* fo complement the legal analysis a study was made of all report forms currently need by state bank supervisors and clearing houses, as well as of tax forms, forms for the annual reports of Insurance companies and the financial statements of industrial concerns, fills analysis has placed at our disposal a complete list of the items called, together with the frequency ©f their appearance* t believe the background has been quite thoroighly covered and summarized and we are now ©agar to undertake the con struction of a sound set of forma which will be uniformly acceptable and which will approach as nearly as possible the ideal* To be valuable as supervisory aids the reports must continue to be exhaustive* to b© of value as sources of information to depositors and the public they must lend themselves to simple and complete presentation of the facts of a bank*® true condition; and, finally, to be reliable sources of statistical Information, they must permit a uniform treatment of accounts despite the variety of accounting methods used by banks. It m e m to m that the construction of new forms should be based on the premise that the condition report Is aa adjunct of the examination rather than a substitute therefor* la other words, where the examination is designed to check the observance of regulations and to analyze aaset ralues, the condition report should be confined to the analyst» of asset types or the diversification of » bank's holdings} where the examination aia* to analyse a static condition of accounts the call report should be Intended to reflect breads. Whatever torma are developed »art be designed for easy interpretation by bankers. To be of statistical vaine all reports most have bean prepared uniformly, which mean. that country banker and city banker alike mast be able adequately and accurately to transfer to the report the actual condition of his bank as reflected by M s books» I éovtot whether the benefit® which will accrue to bankers theaselve* as a result of the standardisation of report forms are very generally realised. Most tangible, of course, will be the considerable reduction of tine and expense now incurred in the preparation of reports for governmental agencies. But even aore important is the fact that standardisation will be the means of asking available to bankers nuch information which will assist thro to aahievs a aore efficient degree of bank operation. Throjgh the analysts of typical statements of banks, developed by the coapilation of hundreds of statements of siailar institutions, re know that bank uanagsaents will find the « . n s of improving their operating positions for many years bankers have made consistent and profitable « , of typical balance sheet and earnings statements tor various industries In determining the relative worth as risks of credit applicants. At no tim 9 however, has &mh a yardstick been prepared for the bankers theaselTes and I feel sure that the profession will welcome the development of gauges of this sort» 13i® problem of the federal deposit Ins wane® Corporation is that of the snail bank particularly and it is is an effort to assist the snail banker to make sufficient earnings that the Corporation is primarily concerned* for this purpose we should like to engage aggressively in finishing the many small bankers throughout the country with material which will help then* so to speak, to help themselves* t o n g all the criticism that has been leveled at existing reports and at their perpetrators, very little of a constructive nature has appeared* This is a tendency with all of m $ of cows®, but X feel that the time has come for concerted action designed to develop a satisfactory solution to our problem* As I have explained, the background has been covered as thoroughly as possible. What can be done we know, and la order to get it done* X now state my proposition* biace it is you sen sad others active in the profession who will derive the most benefit from statement standardisation and simplification, t believe you will agree that it is you, through your professional groups, who should take the initiative from now on* The suggestion which I make to you, and which I plan to make to the other groups with which w© have been in contact is thiei Let your officers select a committee to foe known as the Committee on Statement Standardisation. This committee ©an serve to gather and correlate the ideas of members of your organisation. Then, for the - 10 * sale® 0 1 the record, I should like "to see ©<aeh of these oossittees address the Federal Deposit Insurance Corporation, -the Comptroller of the Currency and the Federal Beserv© Board asking that those offices appoint representatives to work with the committees in developing desirable report forms. Xou will find m all quit® amenable to your suggestions and eager to do everything in our power to hasten the realisation of the project. Vigorous and concerted action by all of m should make it possible to have new forms constructed and ready for general adoption within the a©xt few months, I am sure that you will breath® a sigh of relief when you can satisfy the requirements of various agencies practically by preparing copies of only one report, and X tit confident that X express the uimnijsGus opinion of tha supervisory contingent when I say that we could easily forego the tug at our heartstrings of letters like the following, which accompanied the reports submitted by a small aiddlevostera bank, in response to our call last June* «Gentlemen,* writes the cashier, «we enclose herewith our report as of June SO, 13S4. W© don’t mine! telling you that it was some effort to make out reports to your Corporation, the necosstruction Finance Corporation and the State Department with the iemperatur© ranging 104 degrees! Likewise, the work all fell on me as cashier and my temperature was not far below that of the weather. Hoping our report will be acceptable to the Corporation without any further correspondence, we are— -Very truly yours." Thank you.
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