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pay the interest so that this subsidy of $90,000,000 should be removed. Since the banking group as a whole is rather opposed to subsidies, I would suggest that the place to reform is at home.

In all these matters you must come into court with clean hands, so to speak.

Mr. WIGGINS. That, I think, sir, is a matter for the Congress. If they decided that is the proper policy of Government, why, then, they should pass a bill and appropriate from FDIC funds that amount and turn it over to the Treasury.

Senator DOUGLAS. That could be put in as a section of this bill, you see.

Mr. WIGGINS. But they should not be picked out as a special case and say that “because you have been successful, we are going to penal. ize you by charging you interest."

Senator DOUGLAS. But the law can proceed by degrees. It is not necessary that we deal with every situation under the sun before we can deal with the special situation. I hope that some Senator will be moved to offer this as an amendment to the bill in question.

Senator ROBERTSON. If the Senator from Illinois will yield I call his attention to this: We are proposing to give back to the banks 60 percent of their assessment, which they are very happy to get. Under that plan, according to testimony of the present witness, we will have a reserve of funds built up to $1,500,000,000 in four more years.

Mr. WIGGINS. That is right; on the present level of deposits.

Senator ROBERTSON. And when that occurs, there are several things that we can do to balance off in even-handed justice. We can provide, if we see fit, that the income from this billion and a half, which at that time will be about $50,000,000 a year, shall be treated on the same basis as assessment money; we can authorize up to 5 percent to go

back to the banks—and 1954 would be one nice time to give them a little help, so far as the members of the Senate who were elected in 1948 are concerned—and then we can also consider paying $90,000,000 back to the Federal Government, and in that way at that time we can adjust all these minor differences.

Senator Douglas. I will be glad to deal with my esteemed colleague from Virginia in executive session, as regards the details, but I do think the principle should be accepted by the banking fraternity.

In view of the pending Government debt, I do not wish to postpone getting this $90,000,000 to 1954. I would like to get it here and now, before we start cutting up the melon and distributing dividends to people before the legitimate claims of the Government have been met.

Senator ROBERTSON. We want to build up this reserve fund to the contemplated amount as soon as possible. Under your suggestion it will take $90,000,000 off right away.

Senator Douglas. It might be paid in installments if the debtors are not able to pay now. It might be done gradually.

Mr. WIGGINS. May I make the observation that I do not think that is a matter for the boards to decide? I think it is a matter of congressional policy.

Senator DOUGLAS. We are asking for your advice.

Mr. WIGGINS. My advice, if you put it that way, is that if that is the policy of Government, with respect to other corporations, in

which Government puts up capital, why, then, it should be applied to the FDIC. If it is not the policy of Government with respect to other somewhat similar corporations, agencies, then it should not the FDIC should not be picked out as one, because they happen to have some money.

Senator ROBERTSON. That is what the testimony of the Secretary of the Treasury, Mr. Snyder, was. He didn't wish to make a suggestion. He finally said it is a matter of policy for the Congress, and when Congress treats the other corporations that way, it should include this.

Senator Douglas. We will build up a general rule, from precedent to precedent. Wouldn't this be an admirable first step for a reform in the fiscal policy of the Government to be effected? Wouldn't this be a very admirable way for the Government to begin reforming itself?

Mr. WIGGINS. I certainly hope the Senators will be as jealous in matters of getting back the principle of a lot of these other corporations as they are in their interest in the FDIC capital.

Senator DOUGLAS. We shall be unswerving in our attempt to protect and preserve the financial integrity of the country.

Mr. WIGGINS. And, Mr. Chairman, may I be bold enough to supplement in a way what you have suggested!

? I hope very much that the report of this committee will state just what you have said, that when this fund reaches $1,500,000,000 that the whole question should again be reexamined as to assessments and costs of deposit insurance.

Senator ROBERTSON. I will ask the clerk to make a note of that. Are there any further questions? If not, we want to thank you

very much.

Mr. WIGGINS. Thank you.

Senator ROBERTSON. I have a telegram that will be inserted in the record at this point. (The telegram referred to follows:)

HARRISBURG, PA., January 30, 1950. Hon. A. WILLIS ROBERTSON, Senate Banking and Currency Committee,

Washington, D. C.: The executive committee of the National Association of Supervisors of State Banks representing the State banking departments of the 48 States wishes to record its strong opposition to the provision of S. 2822 which should permit Federal Deposit Insurance Corporation to examine insured State member banks without prior approval of Federal Reserve Board. Our committee believes that this provision might lead to further duplication of examinations of State-chartered banks and thus would tend to undermine the dual banking system and infringe upon States' rights in banking. We fear State banks faced with examinations by three different supervisory agencies would be placed in highly disadvantageous competitive position with national banks which would be examined only by Comptroller of the Currency. Our committee respectfully requests that this provision be eliminated from the bill.

D. EMMERT BRUMBAUGH, Chairman, Legislative Committee, National Association of Supervisors

of State Banks. Senator ROBERTSON. The next witness is Mr. Leo Crowley. We will be very glad to hear from you, Mr. Crowley.

Mr. CROWLEY. Thank you.



Mr. CROWLEY. My name is Leo T. Crowley. I was Chairman of the Federal Deposit Insurance Corporation from January 1, 1934, to December 1, 1945. My knowledge of the Federal deposit law goes back to the night before the President was inaugurated in 1933. I was interested in the FDIC legislation during 1933, and was Chairman of the Corporation when the extension was drafted in 1934, and also Chairman of the Corporation when the Banking Act of 1935 was enacted. Most of you who are in the Senate today were not on the Banking and Currency Committee in either the House or the Senate in 1933, 1934, and 1935.

Senator ROBERTSON. I am the only one in Congress who was on the Banking and Currency Committee at that time.

Mr. CROWLEY. That is correct, sir.

Senator Vandenberg is the only other Senator in the Senate, and Brent Spence and Jesse Wolcott are the only others that are on the Banking and Currency Committee of the House.

I want to bring you back a little bit to some of the human suffering that took place in the years 1930 to 1934, when people who had saved money for their old age or for other security found that their banks had closed, and they had suffered huge losses. The break-down of the banking system in this country started after 1920.

Senator ROBERTSON. I might say that in a town near where I lived an old colored man went to the bank, couldn't get in, kept pulling on the door, and somebody said, “That bank is closed."

"Well,” he said, “Why is it closed ?” "Well,” they said, "it's busted.”

The old gentleman replied, “First time I had a bank bust right in my face."

Mr. CROWLEY. After 1920, throughout the Middle West, there were great financial difficulties and banks started to close. Our experience indicated that the State banking commissioners, the Comptroller of the Currency, and the Federal Reserve were reluctant to examine these banks properly and to force them to charge off bad assets. They permitted many, many banks to pay dividends when they were in an unsound and unsafe condition.

When the economic situation became worse, many of these banks had bad assets that were the accumulation of many years. The result was that the depositors lost complete confidence in bank supervision, and started to take care of themselves.

Senator Douglas. This was true of the examination by the State bank's examiners?

Mr. CROWLEY. Every one.
Senator DOUGLAS. Was that true of national banks?
Mr. CROWLEY. Yes. I will get to that in just a minute.
Senator DOUGLAS. Yes.

Mr. CROWLEY. Something had to be done to stabilize public confidence in the banking system of this country. That is when it was decided that we would insure deposits. Some of the provisions in this bill that you are discussing today were compromises that came about


because of long weeks of controversy in trying to evolve the Banking Act of 1935.

I want to say this about the right of the Corporation to go in and examine any insured bank, including a national bank that it may deem necessary, in order to protect itself from loss: You men are dealing with this FDIC rather loosely this morning in talking about reducing assessment—paying back interest and everything else, not realizing the importance of the FDIC to our economy, and the necessity that the depositors must always believe that the FDIC is capable of handling its losses; that it is conservatively run, and that it does go in and take its losses currently. There is a difference of opinion as to what bank examinations should

a be used for. Mr. Eccles is a friend of mine, but we have never agreed on bank examinations. His belief is that bank examinations should be used as an instrument of economic policy.

The FDIC, while it is interested in the national economic policy, must be interested first in the soundness of banks and its right to protect itself from losses.

The FDIC must always be positive enough and courageous enough to require that before banks pay dividends, they charge off their losses. I don't think it is the responsibility of the FDIC in bank examinations to tell the bank the kind of loans that it ought to make, or the kind of bonds it ought to buy. I think that is the responsibility of management. But I think the FDIC has a right to say to the banks, "If you make bad loans, you must charge off the losses and not let them accumulate as the banks did from 1920 to 1930; that you will keep yourselves clean.'

I have no objection to Federal Reserve using its examinations for carrying out its economic theories. It is in an entirely different field from the FDIC. But let me say this to you about the FDIC's right to examine any risks: I don't say this to create controversy. I spent 12 years with the FDIC. I have a great pride and interest in it. It inherited a lot of banks in 1934 which were what we call "problem banks.” We went into banks in States like New Jersey and New York. They were not small banks. They were big banks. I want to tell you something of the thing we found the Federal Reserve and Comptroller's office had done in order to pass over some of their problem banks. The Federal Reserve says in this statement that we made 115 requests, or the FDIC did. Those had nothing to do with the problem banks. These requests concerned mostly banks withdrawing from the Federal Reserve System. If you go back into the history of the FDIC requests, you will find that when we tried to get into State member banks, and the national banks, there was delay after delay after delay.

Many times, we had to threaten the dismissal of the bank from insurance to get the Comptroller's office to get something done.

If you want the FDIC to continue, and you want it to remain an integral part of the banking system, then you should give it the right to protect itself.

As a matter of fact, the Comptroller of the Currency does not belong on the Federal Deposit Insurance Corporation Board, at all. That was only a compromise, and it was always expected that later it would be corrected.

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The FDIC should have 3 appointed members. There is no more reason why the Comptroller of the Currency should be on the FDIC Board than a member of the Federal Reserve should be on the FDIC Board or a member of the FDIC on the Federal Reserve Board. The FDIC should have an independent board of directors. It should have the right to go into any problem banks without asking any other agency. I have no objection to your modifying your language. Senator MAYBANK. What about that language?

Mr. CROWLEY. I would like to study it. I have no objection to limiting it to cases of problem banks. I don't want them to go into banks promiscuously and examine all the 1,800 State member banks. I think you would find that maybe not more than 5 or 10 banks a year are all that would be involved.

In 1934 we had a big list of problem banks. It was about a foot long. The only way that we corrected the situation was by going in and examining them.

So I request you to be careful. I think that written consent of the Comptroller should come out as well as written consent of the Federal Reserve. It is an insult to the FDIC to have to write and say, “Please kind sir, may I examine a member bank?" In place there should be respected the dignity of the Corporation and the right of the Corporation to protect its loss.

I am for the increase of insurance from $5,000 to $10,000, because I think it will help lots of smaller savers; it will help a lot of small banks, it will help a lot of small banks to improve their position back in their home communities and plow credit back into the local community, which is very sound.

Senator MAYBANK. You think this $5,000 to $10,000, then, will help the smaller banks far more than the larger banks; is that right?

Senator MAYBANK. So it will be sort of local self-interest.
Mr. CROWLEY. That is right, sir.

I may say that I have always been a strong believer in the dual banking system. I don't believe in unifying the banking system by indirection. When I was here they tried in every conceivable way to get me to agree that either the FDIC would have all examinations, or that there would be a superexamining body. When you put examinations all in one place, you unify the banking system indirectly.

If Congress wants to unify the banking system, it should do it by legislative action-not by some indirect act. On the question

of loans, you should not be too restrictive in your language. The FDIC

Senator MAYBANK. Is it too restrictive?

Mr. CROWLEY. I would like to study that. I say that for this reason: I know that the FDIC does not intend to interfere with the Federal Reserve prerogative on making loans, et cetera; but there are banks that could be consolidated or helped in some day before they are closed.

One reason that I would like to see that provision broadened is this: A time of stress is no time to start changing your banking laws. Let back to your

RFC: The reason the RFC was given the authority to buy preferred stock and issue debentures was because President Roosevelt felt that it was unfair to expect the FDIC to absorb all the shock for the situation

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