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Union Calendar No. 392
88th Congress, 1st Session



House Report No. 920





November 22, 1963.—Committed to the Committee of the Whole House
on the State of the U nion and ordered to be printed



WILLIAM L. DAWSON, Illinois, Chairman
L. H. FOUNTAIN, North Carolina
PORTER HARDY, Jr., Virginia
JOHN A. BLATNIK, Minnesota
JOHN E. MOSS, California
HENRY S. REUSS, Wisconsin
JOHN S. MONA GAN, Connecticut
BILL STINSON, Washington
J.ORBERT H. MACDONALD, Massachusetts
Christine Ray Davis, Staff Director
James A. Lanigan, General Countel
Miles Q. Romney, Associate General Countel
Malcolm K. Edwards, Minority Professional Staff
J. P. Carlson, Minority Countel



Monetary Affairs Subcommittee

DANTE B. FASCELL, Florida, Chairman
M. Joseph Matan, Staff Adminiitrator
Charles Rothenbero, Countel
Millicent Y. Myers, Clerk

House of Representatives,
Washington, D.C., November 22, 1968:

Hon. John W. McCormack,
Speaker of the House of Representatives,
Washington, D.G.

Dear Mr. Speaker: By direction of the Committee on Govern­
ment Operations, I submit herewith the committee’s sixteenth report
to the 88th Congress. The committee’s report is based on a study
made by its Legal and Monetary Affairs Subcommittee.
William L. Dawson, Chairman.




Findings and conclusions__________________________________________
Window dressing_________________________________________________
The deceptive device__________________________________________
A persistent problem__________________________________________
The erosive effect on public confidence__________________________
Call reports______________________________________________________
Development of statutory requirements_________________________
Calls prior to 1961____________________________________________
Calls since the 1960 amendment________________________________
Present functions_____________________________________________
Reliance on the examination process________________________________
Elimination of window dressing____________________________________
The impracticability of self-regulation___________________________
Agency-suggested remedies____________________________________
Other remedies considered_____________________________________


Appendix 1.—Devices employed to window dress bank condition state­
ments called for by supervisory authorities_________________________
Appendix 2.—Inflation of figures in “voluntary” published statements by
methods that are not permitted in official condition reports__________




Union Calendar No. 392
1st Session j
(No. 920


November 22, 1963.—Committed to the Committee of the Whole House on the

State of the Union and ordered to be printed

Mr. Dawson, from the Committee on Government Operations,
submitted the following


On November 20, 1963, the Committee on Government Operations
had before it for consideration a report entitled “ ‘Window Dressing’
in Bank Reports.” Upon motion made and seconded, the report was
approved and adopted as the report of the full committee. The
chairman was directed to transmit a copy to the Speaker of the House.

All banks whose deposits are federally insured are required to
make reports of their condition four times a year to the Federal
banking agency under whose supervision they operate. Thus, each
insured State bank which is not a member of the Federal Reserve
System reports to the Federal Deposit Insurance Corporation; each
State bank which is a member of the Federal Reserve System reports
to the Federal Reserve bank of which it is a member, and each national
bank and each insured District of Columbia bank reports to the
Comptroller of the Currency.
The reports disclose the conditions of banks as of dates selected
jointly by the Chairman of the Board of Directors of the Federal
Deposit Insurance Corporation, the Comptroller of the Currency, and
the Chairman of the Board of Governors of the Federal Reserve Sys­
tem, or a majority of them. By law, two of the dates selected must
be within the January through June period, and the other two be­
tween July and December.
On July 3, 1963, the Federal bank supervisory agencies announced
a call for reports of bank conditions as of June 29, 1963 (a Saturday,
and the last business day in June).




The Comptroller of the Currency, in a letter dated July 3, 1963, to
the presidents of all national banks, stated that his office would have
preferred a date other than June 29; that the legislative history of the
call report laws clearly indicates a design to employ such reports as a
supervisory device and on a surprise basis, but that in practice that
design had not been followed; that the supervisory purpose of call
reports has fallen into disregard, and that this default from sound
bank supervision has brought about the wide spread practice of “win­
dow dressing,”
A principal responsibility of the Legal and Monetary Affairs Sub­
committee is the examination into, and the evaluation of, the economy
and efficiency of the operations of the Federal bank supervisory
agencies. The Comptroller’s statement amounted to a charge that
these agencies had failed to fulfill their supervisory responsibilities,
and the subcommittee undertook an inquiry into the matter.
On October 2, 1963, the subcommittee heard the testimony of Mr.
J. L. Robertson, member of the Board of Governors of the Federal
Reserve System; Mr. Justin T. Watson, Deputy Comptroller of the
Currency, and Mr. Raymond E. Hengren, Assistant Chief, Division
of Research and Statistics of the Federal Deposit Insurance Corpo­
ration, and members of the staffs of those agencies.

1. Call reports stating the conditions of banks supervised by
agencies of the Federal Government originated with the National
Currency Act of 1863, and since 1869 have been required to be stated
as of some past date specified by the supervising agency, so as to
reflect the actual running conditions of the banks.
2. “Window dressing,” as applied to a bank’s reports of condition,
is the use of temporary non-business-purpose transactions to enable
a bank to state a more favorable financial showing on a particular
date than would normally be the case.
3. There are no valid statistics on the extent of “window dressing.”
It is generally known to supervisory agencies to exist in about onehalf of the 200 largest banks, with decreasing percentages of preva­
lence among the smaller banks.
4. Almost the sole reason for window dressing by banks is their
desire to appear, and to be rated, larger than they really are.
5. Banks which engage in the practice often give but limited publi­
cation to the call reports required by law, but widely publicize
voluntary statements in which their reported condition is inflated
through window dressing.
6. Window dressing is a deceptive, uneconomical practice which
has a tendency to undermine public confidence in the banking in­
dustry, with possible resultant adverse consequences to the economy
of the Nation.
7. The banking industry as a whole regards window dressing as an
undesirable practice which should be stopped; however, individual
banks which window dress would be reluctant to stop the practice
unless all were required to do so.
8. The supervisory agencies claim to have the means, through their
examination staffs, of detecting, or even coping with window dressing;
however, utilization of their staffs for that purpose is curtailed
because of the difficulty of objectively distinguishing normal trans­



actions from nonpurpose transactions, and lack of an adequate
number of examiners.
9. Window dressing in bank reports is not illegal under Federal law,
nor have the supervisory agencies issued any rules or regulations
forbidding or limiting its practice.
10. The wider use of surprise dates for calls rather than traditional
month-end or year-end dates would aid in reducing window dressing
in call reports; however, it would not stop the practice in call reports,
and would have no effect on the voluntary bank statements.
11. Efforts to effectively eliminate window dressing must run not
only to call reports but to the voluntary statements as well.
12. Although the problem of window dressing is common to all, the
supervisory agencies have not made any coordinated, concerted,
overall effort to deal with it.

In order to eliminate the practice of “window dressing” and at the
same time to preserve the statistical and supervisory value of call
reports, it is recommended:
1. That the Federal bank supervisory agencies make a coordinated
concerted, continued use of their powers of moral suasion to have the
banking community refrain and desist from the use of nonpurpose
transactions and from window dressing of bank reports and statements.
2. That the Federal bank supervisory agencies adopt uniform rules
or regulations under which, commencing with the second call date in
(а) Every bank shall be required (1) to include in every required
and voluntary report and statement of condition a certification that
no window dressing is contained therein, and (2) to file with its
Federal supervisory agency as many copies of such reports and state­
ments as such agency shall require.
(б) Any supervisory agency which finds through bank examination
or otherwise that contrary to such certification a bank has engaged
in window dressing shall give public notice of its findings by publica­
tion of the name of the bank, the extent of the window dressing and
other details thereof in the Federal Register and by press release;
and shall refer the matter to the Attorney General for possible prosecu­
tion under the false statements statutes.

The practice of requiring banks to submit reports of their condition
to governmental supervisors, and to publish such reports, began more
than a century ago. The origin and early function of such reports
was thus described by Governor Robertson:
It began against a background of so-called “wildcat” banking
of a kind that is difficult for us to envision today. Both
internal and external controls were scanty; banking standards
were high in some areas but extremely low in others. A
bank’s condition might vary greatly from month to month,
and bank insolvencies were frequent as a result of over­
extensions of credit, other unsound policies, and “runs.”
In these circumstances^ unexpected calls for reports of
condition served two principal purposes. The supervisor
H. Rept. 920, 88-1------ 2



received information that enabled him to decide whether
any dangerous trends were developing; if there were, he
might dispatch an examiner to make a special examination
of the bank or to discuss the facts of life with its board of
Equally important was the information available to the
banking public in the report of condition published in the
local newspapers. In this connection, two facts must be
remembered. Fifty or a hundred years ago commercial
banks’ customers were almost exclusively people of substance,
to use a phrase of the time. Wage earners and white-collar
workers rarely had accounts. Typical customers were
manufacturers, well-to-do farmers, and wholesale and retail
merchants. This was long before the days when 49 of
every 50 bank depositors were completely covered by deposit
insurance. In that era, the majority of bank customers
could and probably did read reports of condition, to decide
whether the bank “looked safe” or whether it might be
advisable to shift to a stronger institution. It is important
to bear in mind also that, in those days, the bank statements
so published in accordance with law were practically the
only statements that were published at all.

The deceptive device
“Window dressing,” as the term applies to a bank, is the practice
of entering into temporary non-business-purpose transactions solely
for balance sheet (statement of condition) enhancement. The practice
has two main purposes: To qualify the bank for an upper listing in
bank-size statistics, and to display to the public a balance sheet that
presents the bank more favorably than its normal condition warrants.
This it achieves, in brief, by temporarily adding deposits and tempo­
rarily repaying loans just before a call date or a month- or year-end
statement, the transactions having no geniune business purpose and
being “washed out” right after issuance of the statement for which
they were fabricated.
Examples of typical arrangements and devices employed in window
dressing where related at the subcommittee hearings and are appended
hereto. The following example is illustrative of the kinds of deceptive
techniques used by some banks to formulate the entries in their
condition reports:
(1) Bank A deposits x dollars with bank B.
(2) Bank B deposits x dollars with bank C.
(3) Bank C deposits x dollars with bank A.
Assuming that $1 million was the amount of the so-called deposit
in each instance, banks A, B, and C will show an inflated deposit
structure in the amount of $1 million. (See app. 1, par. a.)
This roundrobin exchange of interbank deposits makes a bank
appear larger and more liquid than it normally is, although the entire
exchange is nothing more than an outright sham, no-business-purpose
“Window dressing,” in the words of Governor Robertson, is “an
undesirable practice—an untruthful, unfair, wasteful, and misleading
device.” However, so long as the banks which resort to the device
steer clear of the false-entry statutes they commit no offense under



existing Federal criminal laws. No crime is committed where the
window-dressing transactions—regardless of how contrived or how
fully without business purposes—actually took place, and were exactly
entered by the bank.
A persistent problem
The problem of window dressing in bank reports is an old one. In
fact the first effort to deal with it on a national level, through legis­
lation, occurred in 1869, just 6 years after passage of the National
Currency Act, and when some 1,500 national banks were in operation.
At that time not only the number of reports then required by section
34 of the National Banking Act was changed to five per year, but the
provision was added that the reports were to be as of the close of
business of “any past day” specified by the Comptroller of the Cur­
rency. In explanation of the reason for such retroactivity of reporting,
Senator Sherman stated that under then-existing laws the reports—
* * * are required to be made at periodical times, and the
banks are generally doctored up or prepared for these reports,
so that now a contraction occurs just before the reports are
made, and after that an expansion, creating a palpable and
visible fluctuation of the currency at these times. This
amendment requires five reports during the year, and
authorizes the Comptroller to call for them at a day past,
so that they will not be prepared to doctor up their reports.
* * * (Congressional Globe, Feb. 23, 1869, p. 1482).
To the same effect, Senator Cattell stated:
* * * As the law at present stands the banks are required
to make four quarterly statements upon given days in the
year. They are advertised of the time when these state­
ments are to be made, and consequently can make their
arrangements so as to make favorable statements and not
give the actual running condition of the banks (Congressional
Globe, Feb. 26, 1869, p. 1643).
Now almost a century later, the mischief persists. In fact, it is
spreading. Ten years ago, according to the testimony, the number
of banks practicing window dressing could be counted on the fingers
of both hands of a bank supervisor; today, probably half of the top
200 banks in the country do it, with smaller percentages among those
below the top 200. Banks in larger cities engage in it to a greater
extent than those in small communities. However, even among the
small banks, in some communities all do it. The practice progresses
through the desire of banks to compete with others and to maintain,
or even enhance, their relative apparent sizes.
The erosive effect on public confidence
The practice of inflating condition reports is not limited to the call
reports which banks, by law, are required to publish. Banks are
permitted freely to publish balance sheets or reports of condition at
any time, in any place, and in any form or size they desire, so long as
they also comply with the call report laws. Small banks usually
restrict their publication of statements of condition to the call reports
required by the law. Some of the larger banks, however, virtually
hide their call reports from public gaze by inconspicuous publication



in newspapers of limited circulation. Their voluntary reports, how­
ever, often take the form of large, expensive advertisements in largecirculation media, and it is often in those that the most puffed-up
statements may be found.
Occasionally (according to the testimony) a bank will use window
dressing to hide the fact it is in debt. Usually, however, it has no
purpose other than to have itself appear bigger than it normally is.
Some banks believe they will attract more business by inflating their
relative sizes, and that the deceit in their swollen figures will be little
However, there is already substantial public cognizance of the
practice, and writers on banks and banking are bringing it further to
public light. Thus in “Money and Banking” (Richard D. Irwin,
Inc., 1961, seventh edition) author Charles L. Prather comments that
the commercial bank statements of condition most widely distributed
to the general public are those published at the end of the year, and
that banks window dress those by repaying loans so that they do not
appear on the statements, and by padding deposits and other items.
In the same vein, in discussing how some banks window dress
end-of-year statements by very temporarily squaring their obliga­
tions to Federal Reserve banks, in “Money, Prices, and Policy”
(McGraw-Hill, 1961) the author, Walter W. Haines, states (p. 183)
that there is one figure on the Federal Reserve bank balance sheet for
December 31 that needs to be taken with a grain of salt. Because
commercial banks usually publish their balance sheets on that date
(and also at the end of the other quarters) and because they consider
it somewhat degrading to have any debt appear on such published
statements (he says), they will move heaven and earth to pay off their
debt to the Federal Reserve (discounts and advances) on this one
date although they may have sizable debts outstanding on December
30 and may borrow again on January 2; and that this sprucing up of
published balance sheets is known as window dressing and is almost
While there is public awareness of the practice, nevertheless the
public is deceived by the practice, for it is impossible for anyone to
look at a bank’s balance sheet and say whether or not it is window
dressed, or which, if any, items are inflated, or to what extent. As
was testified, to the degree that the practice is recognized and dis­
counted, it results in raising doubts as to the reliability of “bank
statements and bankers’ statements.” In long-run effect this erosion
of the banking community’s most valuable asset—public esteem and
trust—can eventually destroy public confidence in banks, with conse­
quent great harm to the Nation.
That a bank, the very epitome of respectability, truthfulness,
exactitude, and reliability should willfully and needlessly resort to
fabrication of its statements of financial condition is so incongruous
as almost to defy belief. And particularly so when the prime reason
for such misconduct approaches vapidity: to be listed as being larger
than it really is.

Development of statutory requirements
Reports calling for the conditions of commercial banks which are
subject to Federal regulation have been required since 1863, when the
Congress enacted the National Currency Act (*12 Stat. 665). • -Section



24 thereof provided for verified quarterly reports to be made to the
Comptroller of the Currency on the first day of each quarter in the
form prescribed by the Comptroller. Publication of specified ab­
stracts of the reports was required to be made by the Comptroller
in a newspaper in the cities of Washington and New York, and the
separate report of each bank was required to be published in a news­
paper in the locality of its establishment. In addition to the quar­
terly reports, every bank in Boston, Providence, New York, Phila­
delphia, Baltimore, Cincinnati, Chicago, St. Louis, and New Orleans
was obliged to publish a monthly statement, under oath, showing the
bank’s condition as regards “average amount of loans and discounts,
specie, deposits, and circulation.”
In the next year, 1864, the National Bank Act was passed (13 Stat.
99). Its section 34 enlarged the reporting requirements, so that in
addition to the quarterly reports all national banks were required to
file with the Comptroller, and publish, monthly statements showing
“average amount of loans and discounts, specie, and other lawful
money belonging to the association, deposits, and circulation.” By
the end of 1864 there were about 600 national banks in operation.
In 1869 the reporting requirements laws were again changed (15
Stat. 326). Monthly reports were eliminated, and banks were re­
quired to make not less than five reports annually, on any past date
specified by the Comptroller of the Currency. The Comptroller
was also authorized to call for special reports from any bank whenever
in his judgment such reports were necessary to a full and complete
knowledge of its condition. In substance the special reports provision
has been carried over into present law (title 12, U.S.C., sec. 161).
In 1922 the minimum number of national bank calls was reduced
from five to three (42 Stat. 1062).
The Federal Reserve Act (38 Stat. 259) gave the Federal Reserve
Board authority to make calls for reports of condition of all State
banks which were members of the Federal Reserve System. The
Banking Act of 1935 (49 Stat. 713) provided that State member banks
must make not less than three reports annually on call of the Federal
Reserve bank on dates to be fixed by the Board of Governors of the
Federal Reserve System. This act also required each insured State
nonmember bank (except a District bank) to make reports of condi­
tion to the FDIC in such form and at such time as its Board of
Directors may require.
By a 1960 amendment to the Federal Deposit Insurance Act (title
12, U.S.C., sec. 1817(a)) each insured bank is required to make four
condition reports annually to its Federal bank supervisory agency, as
of dates selected by a majority of the heads of the agencies.
Both Senate Report 1821 and House Report 1827 (86th Cong.,
2d sess.), which preceded that amendment noted under the heading
“What the Bill Would Do”:
* * * basing deposit liabilities on “surprise call” dates will
eliminate any tendency which may now exist among banks
to resort to “window dressing” to create artificial assessment
deductions for the assessment dates fixed in the statute.
Calls prior to 1961
The 1869 provision required five reports of condition per year at
the close of business “on any past date” specified by the Comptroller



of the Currency. For the next 45 years it appears that the Comp­
troller made nothing but surprise calls. Calls were seldom on the
same date 2 years in succession. Usually calls were made during the
months of June and December, but only infrequently on the last
business days of those months.
Beginning about 1914, it became an almost invariable custom to
have calls on the last business days of June and December, although
call dates in other than those months followed no such pattern.
During the past, 25 years 21 calls have been made on the last business
days of June, and 24 times on the last business days of December; and
between 1914 and 1961 only 6 June and December calls were made on
other than the last business days of those months. Those dates were
set by the Comptrollers then in office. The procedure followed was
for the Comptroller to notify the other agency or agencies beforehand,
to permit coordination with State authorities to issue their calls as
of the same date.
A tabulation of all call dates between 1914 and 1962 appears in the
1962 Annual Report of the Comptroller of the Currency, at page 190.
Calls since the 1960 amendment
Since January 1, 1961, the effective date of the 1960 amendment,
all three June calls have been for month-end dates. The December
call for 1961 was for its last business day, but in 1962 that call was for
Friday, December 28.
Total deposits of all commercial banks which were members of the
Federal Reserve System had risen 4.7 percent ($10.3 billion) between
December 30, 1961, and December 28, 1962. Based on reports sub­
mitted to the Board of Governors of the Federal Reserve System in
connection with their compilation of required reserves, total deposits
on December 31, 1962 (3 days after the December 28 call) were 7.6
percent above December 30, 1961. Thus, in the 3 days between
December 28, 1962, and December 31, 1962, deposits reportedly had
risen $5.7 billion, or 55 percent of the total deposit increase for the
year 1962.
Many, particularly the large banks, published both their call
reports as of December 28, 1962, as required by law, and also volun­
tary reports as of December 31, 1962. Comparison of the figures in
those two statements of the hundred largest banks in the country
(according to a compilation published in the American Banker)
showed that they had total deposits of $121 billion on December 28,
but by the end of December 31 their deposits had increased more
than 6 percent, to almost $129 billion. Nine of the banks showed
deposit increases of more than 10 percent, and some ranged up to a
high of 34 percent. The supervisory agency witnesses were agreed
that most of the increases were due to “window dressing.”
In June 1963 the Comptroller “in the interest of moving against
the practice of window dressing” proposed the call date of June 14
as a departure from June month-end calls. He was outvoted by the
heads of the other two agencies and the call was made for June 29,
1962, the last business day of that month.
Immediately on announcing the call date to national banks the
Comptroller issued his charge that the supervisory purpose of call
reports has fallen into disregard through the failure of the agencies
to call for them on a surprise basis; and that the widespread practice
of window dressing has resulted from such default in bank supervision.



Present junctions
Call reports have long had two functions additional to that of
advising the public of the financial conditions of the reporting banks:
They have been used by the supervisory agencies as supervisory tools
and as sources of statistics for the analysis of banking trends. The
1960 amendment of the Federal Deposit Insurance Act added still
another purpose; data contained in the reports is used in calculating
the amount of assessments on banks for deposit insurance.
Call reports remain the primary source of statistics for the American
banking industry, which are required in economic analysis and plan­
ning, and in the formulation of monetary policy.
The reports have lost some of their importance as instruments of
supervision, for the agencies have alternative means of obtaining
information they need in the performance of their supervisory func­
tions, and bank examination reports have been so improved that the
information they contain can in large measure supplant that of the
call reports. However, such reports remain useful tools of the bank
supervisor in assessing the effects of regulatory policies on the lending
and investing activities of banks, and in connection with matters such
as the approval of charters, branches, and mergers. Quite obviously,
if window dressing were removed from the reports, the data they
contain would be more realistic and reliable.
According to the testimony, for statistical purposes the call reports
of the several agencies should be comparable. In that connection,
the Comptroller’s call report forms have been revised to include data
resulting from rulings of the Comptroller in such matters as Federal
funds transactions (ruling 1130), bank real estate (ruling 3005), direct
lease financing (ruling 3400), and interpretations pertaining to valua­
tion reserves. The report forms of the other agencies were not
changed. A series of meetings is planned between the agencies to
discuss revisions of the report forms. The Deputy Comptroller
expressed hopefulness of the agencies’ devising a uniform report by
the end of June 1964.
At least insofar as deposit insurance assessments are concerned, the
Congress in the 1960 call report amendment to the Federal Deposit
Insurance Act sought to base deposit liabilities on “surprise” call
dates, to eliminate window dressing by insured banks as a means of
creating artificial assessment deductions. Whether all call dates
need, or should, be “surprise” dates is a matter of difference between
the Comptroller and the Federal Reserve. The FDIC witnesses
stated, in substance, that a call for reports as of any past date is a
“surprise” call; that prior notice of call dates would surely facilitate
window dressing; and that if the Congress had contemplated prior
notice to the banks of call report dates it would have fixed them in the

In varying degrees witnesses for the supervisory agencies sought to
minimize the inefficacy of window-dressed call reports by asserting
that their examiners could be sent to “examine the books and records
of a given institution, to see which of these transactions were not
genuine business transactions” (Federal Reserve); that their examining
people say “they have full command of the manner in which banks are
indulging in this practice, so they find it” (Comptroller); and that



“the bank examining authorities now have [the means for detecting
and] adequate power to cope with window dressing situations”
Conceivably the bank examination process could lead to the identity
of the banks which window dress their statements, and the extent
thereof. Implicit in the record, however, is the fact that the examiners
do not have the time to fully deal with window dressing, because they
are too hard pressed to carry out their other responsibilities. The
FDIC has only about 800 examiners to examine 7,300 banks; the
Comptroller of the Currency about 997 to examine 4,583 commercial
banks; and the Federal Reserve about 500 to examine 1,515 banks.
In consequence “nothing” is being done by the Federal Reserve
examiners to detect window dressing. It “has been done on occasions
* * * but it is not a normal practice” for the Comptroller’s examiners.
The FDIC examiners check for window dressing but only make real
issues of aggravated cases.
In the circumstances some means other than the examination process
needs to be found to deal with the window-dressing problem.

The impracticability of self-regulation
While bankers and their industry on the whole regard window dress­
ing as undesirable, its practitioners are not prepaied to stop it unless
others also do so. But no one wants to be the first, lest the competi­
tors obtain some advantage, particularly the ephemeral distinction of
being rated as larger.
That attitude seems shared by the supervisory agencies. At least
none has taken any action to stop or limit the practice. The reasons
therefor seem evident from the Deputy Comptroller of the Cur­
rency’s testimony, to the effect that if a bank examiner were to stop
the practice in one bank, and there was no concerted effort to stop
it in other banks the examiner who took the “tough position” on the
matter would really be penalizing the bank he was examining. Fur­
ther, that if the Comptroller stopped the practice without similar
action by the other supervisory agencies “we would be penalizing our
national banks.” The Federal Reserve’s position was to the same
In that posture of the problem it is evident that the practice of
window dressing of bank statements will not be stamped out, or even
controlled, except on some across-the-board basis which is made
applicable alike to all banks responsible to the Federal supervisory
Agency-suggested remedies
From the subcommittee’s review of the problem two facts are
unassailable: (a) It is in the public interest that bank financial state­
ments be reliable; and (6) it is the responsibility of the bank super­
visory agencies to employ every possible means to see that they are.
The public interest in this regard has not been served. Windowdressed bank statements are unreliable; and the responsible agencies
have virtually condoned the practice through inaction.
The incumbent Comptroller of the Currency indicates the spread of
window dressing is attributable to the preponderance over the years of
calls on June-end and December-end dates. It is significant to note
that it was the predecessors in the office he now holds who set those



dates, and that no definitive action to deal with the problem (except
for a limited situation several years ago in Dallas) was taken until last
year, when efforts were made to avoid use of the “traditional” monthend call dates in December 1962 and June 1963. Governor Robertson
characterized as the “surprise call fallacy” the contention that such
action would readily solve the window-dressing problem. For one
thing it would not prevent banks from window dressing their widely
publicized voluntary statements.
The Comptroller intends to propose legislation to amend existing
law, so as to provide for fixed call dates as of the last business days
in June and December of each year. The authority the Comptroller
now has under section 161 of title 12, United States Code to call for
special reports would be used to preserve the purpose of surprise
calls, by requiring national banks to submit and publish averages of
net deposits, loans, discounts, and selected items at random dates
between the fixed calls. Limiting such procedures to national banks
would not solve the problems other agencies might have with window
dressing, however more accurate the information the Comptroller
might derive thereby about national banks. Also permitting two
fixed call dates without provision for the reliability of information
in those reports would not overcome the problem of window dressing
in them. It would seem to perpetuate that problem. It would also
not deal with the problem of voluntary statements.
The Advisory Committee to the Comptroller recommended that
an averaging method would discourage window dressing efforts. The
Federal Reserve, according to its testimony, believes it to be a helpful
device, and tried, unsuccessfully, many years ago to have it adopted
in call reports used by the supervisory agencies.
The difficulties of solving the window-dressing problem are reflected
in this exchange at the hearings:
Mr. Fascell. Well, now, let’s use your words—-“a
deceptive device.” If it is deceptive, is that wrong?
Mr. Robertson. I think it is wrong. I think it is also not
in their own interest.
Mr. Fascell. Can we regulate the wrong in any way?
Mr. Robertson. That is what I have been trying to
devise a way to do; and I don’t know a sure way to do it; and
I don’t know of anyone else who has come up with a sure
way. If we can find it, that is wonderful.
Governor Robertson gave as his judgment that the most promising
avenue toward elimination of window dressing is moral suasion.
This would require the convincing of bankers that the practice is
morally unworthy, that it could be injurious to the public confidence
in the ethics of banks, and that “the game is not worth the candle,
in the long run.” He stated his belief that if the bank supervisory
authorities, acting vigorously and simultaneously, would request
banks throughout the country to quit window dressing, their likeli­
hood of success would be excellent. He emphasized that such an
effort would certainly fail unless based on complete cooperation and
coordination, most careful preparation, and determined face-to-face
discussion with the bankers in every city where the practice prevails.
He alluded to solution of a “most active” window-dressing problem
in Dallas a few years ago through the coordinated efforts of the super­
visory agencies, and expressed his belief that the present problem
could be whipped without any difficulty if the same kind of coordi­



nated effort were exerted now. He expressed delight at the subcom­
mittee's interest in the problem, saying that “the more we can point
up the differences between agencies and the need for concentrated,
coordinated action the better off we are.”
The FDIC witnesses advanced no suggestions for dealing with
window dressing.
Other remedies considered
Various other methods for eliminating the window-dressing problem
were discussed in the subcommittee’s hearings, among them the
suggestion that since most of the practice is bottomed on aspirations
for size status, the determination of the relative sizes of banks should
be made officially by the supervisory agencies; and the desirability of
requiring a certification on each condition report of whether or not the
report contains any non-business-purpose transactions. Agency
comment on these was principally to the effect that these would
present large administrative problems and the need to examine and
analyze each bank statement.
Problems similar to window dressing have occurred where brokerdealers wish to dress up their balance sheets filed with the Securities
and Exchange Commission so as to improve their apparent capital or to
give the appearance of financial solidity. The Securities Exchange
Act of 1934 requires that such statements not be false or misleading
with respect to any material fact. In Associated Underwriters, Inc.,
SEC release No. 7075 (1963), $2,000 cash was reported in a financial
statement. On investigation the cash was found to have been but a
loan, and that it was withdrawn within several days after the state­
ment was filed. The SEC’s public release reports the Commission’s
finding that such statement was false and misleading under the act,
and the act’s sanctions could be imposed.
To the extent that window-dressed reports are reflective of actual
transactions their makers are not punishable under title 18, United
States Code, section 1005, which, so far as pertinent provides:
Whoever makes any false entry in any * * * report or
statement of such (i.e. Federal Reserve Bank, member bank,
national bank, or insured bank) with intent * * * to
deceive * * * the Comptroller of the Currency, or the
Federal Deposit Insurance Corporation, or any agent or
examiner appointed to examine the affairs of such bank, or
the Board of Governors of the Federal Reserve System, shall
be fined not more than $5,000 or imprisoned not more than
five years, or both. * * *
However, window-dressed reports, to the extent they are puffed up,
defeat the purposes for which they are intended, i.e., for statistical
purposes, as supervisory tools, and for deposit insurance assessments.
The supervisory agencies are entitled to condition reports which are
meaningful, exact, and reflective of normal and usual conditions.
Certification by banks to their supervisory agencies that their con­
dition reports and statements contain no window dressing would
assure the agencies they are getting reports of that kind. Any certi­
fication which was false would seem clearly to fall within the proscrip­
tions of the quoted criminal provision.
The subcommittee does not believe that resort to any specific
legislative action is necessary at this time, particularly in view of
agency witness statements that the bankers desire to be rid of the

Appendix 1—Devices Employed To Window Dress Bank Con­
dition Statements Called for by Supervisory Authorities

a. Roundrobin exchange of interbank deposits among three or more
banks which increases both deposits and cash-equivalent assets to
make the bank appear larger and more liquid than it normally would.
At least three banks must participate, since reciprocal deposits be­
tween two banks are required to be reported “net” in official condition
b. Short-term reductions in borrowings, which member banks may
offset by larger borrowings on other days of the reserve-computation
period to maintain the required level of average reserves. This does
not inflate the report’s figures, but it does show a debt-free condition
in published statements of the borrowing bank, although the payoff
of the borrowing may be in the mail on the statement date and the
loan account of the lending bank may not be reduced.
c. Arrangements with large depositors to increase their deposits
temporarily by drawing drafts against their accounts at other banks.
These drafts are credited to the customer’s account immediately but
are in the process of collection on the statement date and are not
charged against the account at the other bank until after the statement
date. This transaction may be reversed immediately after the state­
ment date, so that there is no change in the allocation of the depositors’
balances in the long run.
cl. Very short-term loans to cooperating customers the proceeds of
which are credited to the customers’ accounts on the statement date
and repaid immediately afterward. Similar results may be obtained
by purchase of bank acceptances or open-market paper from brokers
or nonbank dealers or by shifting of loan participations among banks.
Payment is credited to the seller’s account and the drafts used in
payment are in transit on the statement date so that both loan and
deposit totals are inflated.
e. Delayed processing of items presented for collection, or of inter­
office clearings in a branch system. This is a simple and practically
undetectible way of inflating total deposits and liquid assets and can
be accomplished by holding back only a relatively few large checks
without disturbing normal processing arrangements and without
resorting to collusion with other banks or with customers.





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Appendix 2.—Inflation of Figures in “Voluntary” Published
Statements by Methods That Are Not Permitted in Official
Condition Reports

a. Voluntary statements may include reciprocal interbank balances
which are required to be reported “net” in official reports of condition.
b. Voluntary statements may incorporate the assets and liabilities
of foreign branches, which must be excluded from official condition
c. Loan and investment totals and capital accounts may include
bad debt reserves and other valuation reserves. They are required
to be excluded from totals in the official condition reports of most