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Remarks by
Ricki Heifer
Chairman
Federal Deposit Insurance Corporation
before the
Conference of State Bank Supervisors
Annual Convention
San Antonio, Texas
April 23, 1995

Some people collect stamps; some people collect coins; I
collect sayings by Yogi Berra.
Once, while he was playing for the Yankees, Yogi received a
twenty-five-doliar check for a radio interview with sportscaster
Jack Buck. Berra glanced at the check, which was inscribed "Pay
to Bearer," and promptly complained: "How long have you known
me, Jack? This ain*t the way to spell my name."
Then there is the quotation that is my personal favorite:
"You know," Yogi said, "the future is not what it used to be."
The man could have been a banking consultant.
Banking has long had a reputation for being a business where
nothing much changes. Maybe the architecture or style of dress
favored by bankers sends this signal — or perhaps it has
something to do with the penchant of bankers toward the reliably
concrete rather than the faddishly abstract — or it could be
that — from the outside — a business so technically oriented
seems to be immutable.
In any event, it is — as all of us know — a false
impression. Banking has never known a golden age of stagnation,
when it did not face change. As Yogi would say, in banking, the
future is never what it used to be.
That observation makes the current debate over the future of
small banks — and particularly state-chartered small banks —
all the more interesting.
Because of the technological, legislative, and structural
changes that banking is now experiencing, there are those who say
that time has by-passed the small bank. Critics were saying the
same thing when I went to work at the Federal Reserve Board 10
years ago — and they were saying much the same thing when




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Congress created the Federal Deposit Insurance Corporation in
1933. The critics assumed — and continue to assume — that
small banks cannot weather change. The critics were wrong then - and they are wrong, now. Small banks survive by changing with
the times.
On occasion, the future has looked bleak — that is true.
That only makes the rebound by small, state-chartered banks all
the more impressive. For example, in the five years from 1864 to
1869, the total number of state-chartered banks declined from
1,566 to 247. By the turn of the century, however, the total
grew to 6,650 — explosive growth that inspired the creation of
this organization's predecessor, the National Association of
Supervisors of State Banks. Again, from 1930 through 1933, more
than a quarter of all state-chartered banks failed. With the
creation of the FDIC, however, the situation stabilized and only
nine banks — state and national — failed in 1934.
State-chartered banks have prospered since then. One of the
reasons why is the partnership that exists among the FDIC, state
supervisors and state-chartered banks — a partnership that
results from our community of interest in preventing bank
failures and, thus, losses to the bank insurance fund. This
partnership was defined by FDIC Chairman Leo Crowley before the
annual convention of state banking supervisory authorities in
1934 — more than 60 years ago — and was brought into being
largely through his leadership.
At that convention, Crowley invited state bank supervisors
to — and I quote — "make use of the service which the
Corporation can give you" — and, as an example, he envisioned
the day when the FDIC would train state examiners.
It took a while, but his vision came to pass.
There is no doubt that Leo Crowley was a remarkable person.
During the Second World War, he held nine other senior government
posts in addition to the FDIC Chairmanship — and despite his
awesome wartime responsibilities, he invariably concluded his
workday at 5 p.m. I find that impossible with the FDIC job
alone.
Through his energy, his talent and his vision, Leo Crowley
aided and encouraged the national organization of state
supervisors — in effect, making its executive committee his
advisory committee. In doing so, he established the spirit in
which the state supervisors and the FDIC have worked for 60 years
— and, indeed, work today.
It was no easy task: In the early 1930s, the emphasis on
coordination and the shift of focus to Washington were big
changes for state banks and state bank supervisors — but they




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changed with changing times, and in so doing, survived and
prospered.
I cannot understate the magnitude of the changes we —
bankers and bank supervisors — face today. Clearly, when one
person and a computer on the opposite side of the globe can
trigger a failure at the oldest banking company in England; when
Congress brings interstate branching into law; when Charlotte,
North Carolina, becomes a major banking center; when banks
routinely create and hold instruments that were literally
inconceivable a decade ago; and when the repeal of Glass-Steagall
restrictions becomes a debate not over MifM but over "when and
how,” the banking landscape is shifting.
I am convinced, however, that if we continue to work
together in partnership, state-chartered banks will continue to
prosper.
I want to give you an idea today about how the FDIC is
responding to changes.
The most immediate shift in the landscape is interstate
branching. One of the first things I did when I became FDIC
Chairman was to create a Task Force to analyze the impact of the
new interstate banking law on the FDIC, the banking industry, and
the financial system. From deposit insurance to examinations to
bank resolution activities, interstate branching will affect the
way the FDIC does business. The Task Force is identifying the
specific projects we need to undertake to prepare for the future.
It will report its initial findings to me by July.
You have in development the state bank supervisors' response
to the interstate legislation — a plan to establish a seamless
regulatory structure to harmonize supervision among the states.
I applaud your effort to find a way to adapt state supervision to
the new interstate banking reality. I have instructed the FDIC
Task Force to coordinate its efforts with state banking
regulators, the CSBS, and the Federal Reserve to assure that
state-chartered institutions can enjoy the advantages of
interstate branching.
In the same light, it is interesting that people in
Washington would attempt to erase one of the advantages of the
state charter — examination costs that are generally lower than
those for federally chartered institutions — by proposing that
the FDIC charge for its examinations. State nonmember banks
already pay for FDIC examinations through deposit insurance
assessments — and those state members and national banks that we
examine have paid for their examinations through deposit
insurance assessments, too. Someone, somewhere, must think that
the principle of equity requires that, when one's basement is
flooded, one floods one's neighbor's basement, as well. That is




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unfair. I oppose any proposal to charge banks for FDIC
examinations — and I will continue to oppose the idea.
Another changing feature of the banking landscape is the
emphasis on making bank supervision more effective and efficient.
To that end, I am also committed to improving our
examination process and to assuring that our supervision of banks
is effective and efficient for the FDIC as well as banks. Last
month, I announced that the FDIC would begin surveying bankers
for suggestions to improve the quality of examinations. The
program is aimed at detecting where the FDIC examination process
is burdensome or inefficient and then refining it. The effort is
expected to run one year. We will give most of the 3,500 or so
FDIC-supervised commercial banks and savings banks undergoing
safety and soundness examinations next year a questionnaire at
the end of their examinations. The three-page survey will ask
bankers about the appropriateness and thoroughness of examination
procedures; the quality and professionalism of the FDIC team that
conducted the review; and the usefulness of the written and oral
reports from the FDIC that discuss examination findings.
Each completed survey will be sent to the FDIC's Director of
Supervision. Respondents will have the option to remain
anonymous or to give their names so that we can seek follow-up
information or clarifications. Participants will also be able to
speak with an FDIC senior manager to discuss any additional
problems or issues. Quarterly reports on findings from the
survey will be distributed to examiners in the field.
The emphasis in this program is on two-way communications,
timely analysis and effective follow-up. All are essential if
the FDIC is to maintain an efficient supervisory program that
works effectively with bankers to encourage safe and sound
banking operations in order to keep banks open rather than
closing them.
We are also addressing the issue of regulatory burden from
another direction: two weeks ago, all the FDIC regional offices
conducted a survey of a sample of FDIC-supervised institutions to
determine just how costly, and therefore, burdensome, a number of
regulations are. The survey sample was designed to reflect
asset-size and geographic location. We asked the banks to give
us their recent estimations of the annual costs to them of
complying with specific regulations. This information will be
given to Congress in hearings on regulatory burden, which are
likely to be held next month.
Regulatory burden came into being through accretion. Each
regulation — in and of itself — may have been appropriate when
adopted, but taken together the accumulation of regulations
became unjustifiably burdensome, and, over time, some regulations




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became obsolete. It is time-consuming to review each layer of
regulation to decide what is needed and what is not — but it is
a process that is essential to assuring that the regulatory
system works effectively.
On the fairness side, last month we established a new,
formal process under which bankers may appeal supervisory
determinations by agency examiners and regional supervisory
officials — including examination ratings, loan loss reserve
provisions, and asset classifications.
Under the new guidelines, institutions have 60 days
following receipt of such a determination to appeal. The appeal
will be reviewed by a committee composed of the FDIC Vice
Chairman Skip Hove, the Director of Supervision, the Director of
Compliance and Consumer Affairs, the General Counsel and the FDIC
Ombudsman. The committee will notify the institution of its
decision within 60 days.
Another changing feature in the banking landscape is the
explosive growth of capital markets activities at banks.
Late last year, I set up a Task Force to look at the capital
markets activities of banks and to make recommendations about how
we — as deposit insurer — should respond to their growth and
growing complexity — including how we should respond to the
potential risks and to problem situations from derivatives and
other capital markets activities. In the last five months, we
have drawn on a wide-range of participants and observers for
information and advice. Our Task Force is producing several
reports, including reports on supervisory issues and contingency
planning. When the task force's mission is completed, we will
have a much better idea of how we, as deposit insurer, are to
deal with market-driven changes in the business of banking.
Finally, a key shift in the landscape for banking is that it
is less menacing today — from the perspective of bank failures - than it appeared a few years ago. As a result, the FDIC must
downsize, must cut its costs, must refocus its mission.
When I became FDIC Chairman, I began a process of strategic
planning that will guide us in all three areas. We are nearing
completion of a strategic plan — the first in the FDIC's history
— that will shift our focus from closing institutions when they
fail to helping institutions stay open by operating in ways that
more effectively account for risks in the changing landscape for
banks.
These changes in the landscape for banking affect us all —
banker as well as bank supervisor. Some of the changes offer
opportunity — some uncertainty.




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It is easy to forget, however, that at one time federal
deposit insurance was considered to be a radical experiment ——one opposed by most bankers, even by the small institutions that
benefitted from it almost immediately. It is easy to forget that
at one time, the home mortgage loan was considered to be far too
dangerous a credit for banks to make. It is easy to forget that,
more recently, the credit card was considered beneath the dignity
of banks to issue. Change is a constant in the banking equation
— it always has been.
In the 1930s, Leo Crowley said that Min the Federal Deposit
Insurance Corporation bankers have for the first time an agency
concerned with the soundness of the entire banking system and
without special interests in any class or segment of the
membership of that system.” Now, as then, the FDIC brings to the
table, if you will, a dual banking perspective: as regulator of
state chartered banks, certainly, but also as deposit insurer for
all banks, concerned with the safety and soundness of the system
as a whole. Having a foot in each world, the FDIC can bridge
both.
As Chairman Crowley noted: "The Corporation offers bankers
an unprecedented opportunity to develop a much needed uniformity
of practices and standards without imperilling their traditional
structural set-up." That traditional structural set-up continues
to allow the states to be the laboratories where new approaches
to banking can be tried and tested. Within the traditional
structural set-up, the FDIC continues to enjoy the opportunity to
bring state supervisors — and federal supervisors — together to
work on and work through our common concerns.
During my recent, brief term as Chairman of the Federal
Financial Institutions Examination Council, my interest in
fostering regulatory cooperation prompted me to seek consistently
the State Liaison Committee's position on issues. As Jim Watt,
and many of you, will testify, it has also led me to keep my door
— and my telephone lines — open to state supervisors.
Someday — I am sure — we can achieve a seamless system of
bank regulation in the United States that will assure bank safety
and soundness — if we work together. We can achieve a system of
regulations where benefits outweigh costs — if we work together.
We can achieve a regulatory system where the flexibility of state
supervision and the sweep of federal supervision will complement
one another — if we work together. In short, if we work
together, we can achieve a future that is better than any one we
can create if we work separately. I came here today to tell you
personally that I intend to continue to work closely with you so
that together we can make the future even better than it used to
be.




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