Senator TOBEY. I yield to the Senator from Illinois.
Senator FLANDERS. I yield to the Senator from Illinois.

Senator ROBERTSON. We all yield to the Senator from Illinois.
Senator DOUGLAS. Thank you. That is very gratifying.

Mr. Harl, on page 2 you speak of making final payment to the Treasury on August 30, 1948, when you paid the Treasury out in full for the loans which were advanced.

Do I understand that to be your statement?

Mr. HARL. We paid them for the money advanced.

Senator DOUGLAS. Would that include the interest upon the Government loan which was made?

Mr. HARL. It did not. The law provided that there should be no dividend upon the capital stock.

Senator DOUGLAS. In practice, the Government has made an advance to the FDIC which has not been repaid; namely, the interest on the bonds which the Government issued, but for which it was not reimbursed.

Mr. HARL. It was capital stock, and the law provided by statute that there be no dividend paid on capital stock.

Senator DOUGLAS. Yes, but the Government had to borrow money in order to subscribe to that capital stock and pay interest.

Mr. HARL. The Corporation itself could not pay dividends. Senator DOUGLAS. I am not saying that you did anything illegal, but I wonder if the impression which was left that the Government had now been completely paid out and incurred no expense whatsoever is completely correct, because the Government has advanced the interest upon the subscription.

Mr. HARL. I stand on the statement. We paid everything the Government advanced by statute.

Senator DOUGLAS. Let me ask this: Has not the Government made a contribution to the FDIC which has not been repaid?

Mr. HARL. I would say this: The Government advanced $150,000,000

Senator DOUGLAS. But the Government, when it advanced the money, had to borrow $150,000,000 upon which it paid interest, and it continued to pay interest until this sum was returned. Therefore, the Government subsidized the FDIC by the amount of the interest, which was not repaid; is that correct?

Mr. HARL. There is no provision for repayment.

Senator DOUGLAS. I understand. I am not accusing you of doing anything illegal. Is it not true that the Government made an advance which was not repaid, of interest, and therefore that the Government still-I will not say has been a benefactor-but a contributor to FDIC? Mr. HARL. I would say for every dime the Government has contributed, they have been well repaid.

If you recall the bond sales program, you will find that the banks of this country underwrote these bonds for less than one-tenth of 1 percent. In other words, the banks by having this insurance were able to restore confidence to the public and at the same time we went to the banks and asked them to help us underwrite this war loan, which they did at no expense to the Government.

Therefore, it remains to be seen what it would have cost the Government if they paid the banks to help underwrite these loans, or whether they were repaid by the investment in FDIC stock.

Senator DOUGLAS. That wasn't the question. It was a simple question. I don't want to be tough on you. Is it not a fact that the Government in order to make its subscription had to borrow money from somebody, and that it paid interest on this money in order to make the subscription to FDIC, and they repaid them on the principal but the Government in the meantime had incurred interest losses which were not reimbursed, and, therefore, in effect, excellently, as you have done, the Government has still made a net contribution to FDIC? That is the question. I don't think you have answered it at all. Mr. HARL. I think it is a mutually reciprocal matter.

Senator DOUGLAS. Can't we answer these questions "yes" or "no"? Do we have to go through this elaborate fencing?

I would like to have the point cleared up.

Mr. HARL. With due respect to the Senator, I am not fencing. The law said they would buy so much capital stock. The Congress specified that it was common stock without dividends. If the Government borrowed $150,000,000

Senator DOUGLAS. Didn't they?

Mr. HARL. If they borrowed this $150,000,000–

Senator DOUGLAS. Didn't they?

Mr. HARL. I don't know what the Treasury position was.

Senator DOUGLAS. When was the FDIC formed?

Mr. HARL. In 1933, and began functioning in 1934.

Senator DOUGLAS. Did we have a surplus of receipts over expenditures at that time? Did we not have a deficit; and when we put the $150,000,000 in we couldn't get it out of the taxes we had to borrow? Mr. HARL. The stock was not taken into the Government budget. When they put $150,000,000 in they got $150,000,000 stock.

Senator DOUGLAS. Where did the Government get the $150,000,000? Didn't it get it by borrowing? They paid interest on the $150,000,000 and continued to pay interest until the capital was retired.

do

Why do we take so much time to develop this simple point? Mr. HARL. You pay for things rendered either in cash or services; you not?

Senator DOUGLAS. I am not accusing the FDIC of not rendering service.

Mr. HARL. I am talking about the subsidy to the banks. If the Government had to go out and borrow $150,000,000, for which they bought capital stock, as the law provided-the same people who pass on the budget passed the FDIC law. Why did they put it there expressly? It was written specifically for some reason that there would be no dividend paid. If they borrowed $150,000,000 and paid interest on this money

Senator DOUGLAS. Didn't they pay interest? Why make it conditional?

Mr. HARL. And then bought $150,000,000 worth of capital stock, in the Federal Deposit Insurance Corporation, the difference there between the $150,000,000 paid and the stock bought is the same as any other investor interest.

If they borrowed this money some place they were out that amount of money unless they received it in services.

Senator DOUGLAS. Let's talk about cash. Assuming the annual interest was around 3 percent at this period on 150 million dollars, that would be 4.5 million dollars a year which the Government would pay

in interest charges on the bonds. That continued as a subsidy, even though the principal was repaid. Isn't that true? Of course the Government borrowed, and of course the Government paid interest. Mr. HARL. Another thing is this: This Corporation stands ready to reimburse the Government, or anyone else, provided it is legally authorized to do so.

Senator DOUGLAS. You are ready to pay the interest; is that right? Mr. HARL. Yes. If we have an obligation we are ready to pay it. Senator MAYBANK. Congress would have to pass a law.

Mr. HARL. Yes; Congress would have to decide that.

Senator DOUGLAS. That is a possible source of revenue that I had not thought of. This brief conversation, which I at first thought was going to be unprofitable, might yield the Government as much as $40,000,000. I first thought it was love's labor lost. It may turn out there was gold in "them there hills."

Mr. HARL. It is a contractual obligation which the Congress would have to ratify.

Senator DOUGLAS. You would not oppose it?

Mr. HARL. No, sir.

Senator DOUGLAS. You would assist in the drafting of such legislation?

Mr. HARL. Yes.

Senator DOUGLAS. And appear here in support of it; is that correct? Mr. HARL. Yes.

Senator DOUGLAS. That is fine.

Mr. HARL. I say this: I have never found the banks of this country desirous of evading any just obligation, and I think we would have their support.

Senator MAYBANK. I don't think anybody intimated that the banks would dodge anv just obligation. The question is merely a question for the Congress to act upon.

Mr. HARL. That is right.

Senator MAYBANK. It would be figured out from the year 1933 until when the Treasury was paid in 1948.

Senator DOUGLAS. With the help of Mr. Harl we will try to get the $40,000,000.

Senator ROBERTSON. I would say the Government isn't in so serious a condition as it was in 1893, when Mr. Cleveland had to borrow money from Pierpont Morgan to keep the Treasury operating, although I don't think anybody questions the fact that the Government needs help from some source.

Senator DOUGLAS. Probably we have discovered an obligation which perhaps can be turned into a cash asset. I don't want to intrudeSenator ROBERTSON. You may continue.

Senator DOUGLAS. I don't want to monopolize the questioning.
Senator ROBERTSON. We have plenty of time.

Senator DOUGLAS. At the bottom of page 2, Mr. Harl, you mention a 1.2 billion dollar reserve to protect the 150 billion dollars of deposits. That is $150,000,000,000, I take it, of total deposits, not of insured deposits?

Mr. HARL. That is correct.

Senator DOUGLAS. The insured deposits are approximately half this figure?

Mr. HARL. The insured deposits run to about $75,000,000,000.

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Senator DOUGLAS. Or something around 40 percent of the total deposits are insured; speaking of the present figure, $5,000.

Mr. HARL. At the present time there is $62,000,000,000 worth of deposits fully covered, which is 44.8 percent of the deposits insured. This represents 96 percent of the bank accounts.

Senator DOUGLAS. Yes.

Mr. HARL. If we go to the ten thousand we will then insure in full 52.4 of the deposits and 98.4 of the accounts. We are talking thereSenator MAYBANK. Did you say 52.4?

Mr. HARL, Yes.

We are talking there, Senator, of commercial banks. In the case of insured mutual banks, banks without capital stock-and I think you will be interested in this, Senator Flanders, coming from a section where the mutuals have been very successful-at the present time 93.7 of all accounts are insured. If you go to the ten thousand figure, we will insure 99.7 of the insured mutual savings bank accounts.

At the present time mutual savings banks insured by this Corporation, Senator Flanders, have total deposits of $13,000,000,000, of which we insure better than $12,000,000,000.

Senator FLANDERS. Can you give a figure for the mutual savings banks and for the commercial banks, of the total number of billions that will be insured under the proposed extension to ten thousand?

Mr. HARL. Yes. On the proposed extension, under the proposed extension to ten thousand, we will insure $13,289,891,000 in mutual savings accounts, and in the commercial banks we will insure $72,998,093,000, which roughly is a total of $86,000,000,000.

Senator DOUGLAS. How much of an increase is that over the present total of insured deposit accounts?

Mr. HARL. At the present time in commercial banks, we insure $62,411,242,000, and in the insured mutual savings baks we insure $12,121,851,000.

That would bring the total up to from $78,000,000,000 to $86,000,000,000.

Senator DOUGLAS. An increase of $8,000,000,000 in insured accounts? Mr. HARL. Correct.

Senator DOUGLAS. An increase of fourteen

Mr. HARL. $12,000,000,000.

Senator DOUGLAS. $12,000,000,000?

Mr. HARL. Yes.

Senator DOUGLAS. Then your reserve at present is a little less than 2 percent on insured deposits.

Mr. HARL. That is correct, sir. As you know

Senator DOUGLAS. You would-under the new figure, you would reduce that to about 1.5 percent?

Mr. HARL. Well, the funds there would grow about 40 percent of the net assessment income each year.

Senator DOUGLAS. Yes?

Mr. HARL. Yes.

Senator DOUGLAS. The proportion of reserve is slightly reduced, at least in the initial year, by the proposal?

Mr. HARL. That is right; yes.

Senator DOUGLAS. Now, at present did I understand you to indicate. that if a bank is in danger of failing you generally arrange a merger?

Mr. HARL. Yes. Take in your own community of Lemont, Ill., we had some bank officials who got involved with the village officers in switching bonds, and so forth, as you remember.

Senator DOUGLAS. Members of a different political party, I hasten to say.

Senator FLANDERS. How did the word "Vermont" get into that situation?

Senator DOUGLAS. Lemont. Lest undue suspicion be attached to my party.

Mr. HARL. I didn't know whether or not they were constituents of the Senator.

Senator DOUGLAS. Constituents, but not supporters.

Mr. HARL. Nevertheless, you had the First National and the Lemont National. In the First, they got to taking home a few samples, and so forth, and got the bank involved, and it was a case of closing the bank and having a long, lengthy receivership, or turning the good assets over to the other bank, and we were given the chore of taking up the bad assets, which we did.

In that case there was no cessation in the banking business in the community, no one had his credit curtailed, the depositor woke up the next morning to find out that the First Lemont was in trouble, but his deposits were secure, and safe, and were in the other bank.

Senator DOUGLAS. Let me ask this: Does not this amount in fact to a guaranty of all deposits and not merely of insured deposits? Mr. HARL. It did in that case; yes.

Senator DOUGLAS. Have you used this in other cases?

Mr. HARL. Within the act we have used it in several cases. Up in Newark, N. J., in the summer of 1948 a judge up there was general counsel of one of the banks, and he became involved to the tune of about $750,000.

In that case, we went in and met with the clearinghouse, and transferred 16,000 accounts to the United States Trust Co., which was the designee of the clearinghouse, and took out the nonacceptable assets and liquidated them. The equity was plowed under, and, strange as it may seem, that deal may come out 100 percent.

Senator DOUGLAS. Isn't this furnishing a precedent? It may well be the correct policy, but isn't it creating a precedent under which in effect there will be a moral obligation upon the Government to protect all deposits and not merely the insured deposits, because if you do this in a period that is not subject to strain, they will say, "How can you discontinue this policy now?" Wouldn't you, therefore, in effect be committed morally to guaranteeing security of all deposits and not merely those under a given figure?

Mr. HARL. We have, perhaps. However, we found out this is the most economic way to handle it from every standpoint.

One other thing: As fast as these banks are examined we have a list of what we call problem banks and semiproblem banks. In other words, we hope to be able to swallow them faster than they develop. The State supervisors work with us. We know the banks we think are a little ill. As a doctor always has a few sick patients-regardless of the penicillin and all those drugs, still you have sick people. Regardless of the FDIC you are always going to have a few sick banks.

Senator DOUGLAS. Well, that raises the inquiry as to what your judgment is. Do you think if we were to have appreciable numbers of