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Mr. DELANO. That is right.
Senator ROBERTSON. One proposal is to give them a dividend.
Mr. DELANO. Yes.

Senator ROBERTSON. Another is cut down the rate. Then if it isn't enough, try to get it up again.

Mr. DELANO. Yes.

Senator ROBERTSON. I understand that you feel the more prudent plan would be to pay a dividend when you know you have it, but not give them a reduction when you know you will have to have more.

Mr. DELANO. Yes. Senator ROBERTSON. We have five more minutes. Mr. DELANO. May I add one other thing? Senator ROBERTSON. The Senator from Ohio will be recognized. Senator BRICKER. I have nothing further. Mr. DELANO. I wanted to say this: In addition to those two things which I have mentioned, which I think are the most primary, the bill results in a very important technical correction; that is in the assessment base. I think that will save the banks money and the Corporation trouble. It is something that has grown out of experience in the 16 years of operation.

There are two things that touch the Comptroller of Currency. One is that in the previous legislation, that gave to the FDIC the-well, let's put it this way: That directed the Comptroller of the Currency to designate FDIČ as the receiver of national banks, there was left a little vestigial remainder of supervision by the Comptroller's office over the affairs of the Corporation. It is expensive, and I don't believe we are giving up any important thing in giving up this. .

The Comptroller is very glad to have the full responsibility for such receivership vested with the Corporation.

The other is that there was a provision that the receivers for the Corporation should be appointed for all receivers except in certain instances, where laws are broken, and instances where it was a receivership that grew out of something other than inability to pay deposits.

Again, I think that is an unnecessary vestigial remainder. It has never been used. Again I think it had better come out of the law just as a matter of cleansing

the statute. Senator ROBERTSON. The chairman announces that it had been his desire and intention to conclude the testimony of the Government witnesses tomorrow, but he found that this committee room would not be available for that purpose. So the chairman wishes to announce that these hearings will be recessed until Monday, January 23, and the subcommittee will be glad to hear the Secretary of the Treasury and the Chairman of the Federal Reserve Board, if they desire to testify.

The chairman would then like to hear from a representative of the American Bankers Association, a representative of the member banks of the Federal Reserve System, and a representative of the nonmember banks.

There will be no desire on the part of the chairman to shut off any necessary or pertinent testimony, but the Chair calls attention to the fact that this committee handles more legislation than possibly any other committee of the Congress except the Appropriations Committee. We have a very full calendar. It is going to be very difficult for any one committee to monopolize the use of this committee room; and if the subcommittee undertook to hear individual bankers from all over the United States, it would probably delay our action to the point where we could not get this bill through the Senate and through the House before adjournment, which in all probability will come this year at the statutory period, on or before July 31. So the chairman expresses the hope at this time that interested bankers, who are opposed to this bill, primarily, will select a limited number of spokesmen to present their viewpoints for the record, and for the consideration of the subcommittee, and the full committee, in order that we may not spend too much time in taking the testimony and have too little time left for action.

The committee will stand in recess.

(Whereupon, at 12 noon, the subcommittee recessed until Monday, January 23, 1950.)




Washington, D.C. The subcommittee met, pursuant to call, at 10:10 a. m., in room 301, Senate Office Building, Senator A. Willis Robertson presiding.

Present: Senators Robertson, Maybank, Tobey, and Flanders.
Also present: Senator Frear.
Senator ROBERTSON. Will the subcommittee please come to order.

At our last hearing I had inserted in the record the numbers of the bills that had been previously introduced relating to changes in the law on FDIC.

Senator MAYBANK. I would like to ask permission to have filed for the record a letter to me from Senator Arthur Vandenberg, who was of course very much interested in the original FDIC legislation. The Senator could not be here to testify this morning. I was asked to have it put in the record.

Also, one from Mr. George Clark, of the Consumers Bankers Association of Chattanooga, Tenn.

Senator ROCERTSON. Without objection, those two letters will be included in the record at this point. (The two letters referred to by Senator Maybank are as follows:)


Chattanooga, Tenn., January 18, 1950. Hon. BURNET R. MAYBANK,

United States Senate, Washington, D. C. MY DEAR SENATOR MAYBANK: Following up my wire requesting that the Consumer Bankers Association be permitted to testify on the Federal Deposit Insurance Corporation bill:

Five or six members of the Consumer Bankers Association are national banks or members of the Federal Reserve System. However, most of our members who emphasize the consumer credit side of banking to a degree that is unusual of most banks have been discouraged from seeking membership because of an evident lack of knowledge of this form of banking on the part of the Board of Governors and have feared the promulgation of regulations with attention centered on the commercial side that would adversely affect the consumer credit side of banking. Let us keep in mind that consumer credit, while relatively small dollar-wise, nevertheless touches and affects the majority of the citizens and voters of this country in a direct way more frequently and more deeply than any other form of banking.

The validity of these fears has been partially sustained by requests by the Federal Reserve Board in the past for a special and selective form of control of consumer credit beyond and in addition to the quantitatively depressing effect of increased reserves. The excuse offered has been that a great deal of consumer credit was extended outside of the banking structure, which is exactly true, but this excuse overlooks the fact that the depressing effect of increased


reserve requirements on commercial loans follows through and affects businesses which finance their own installment sales and discourages the purchases of the notes of national finance companies at low rates that prevail.

The Federal Reserve wouldn't dare suggest the establishment of some inflexible ratio of current assets to current liabilities before any business, without regard to what ratios have been found sound for its industry, could be eligible for a loan, and the establishment of some arbitrary maximum limit that such loans could be renewed or remain outstanding. Yet this is a similar sort of straitjacket the Federal Reserve has recommended in the past (and I hope abandoned now) which interferes with the handling of individual financial affairs of the 80 percent of the population and the thirty-odd million families who occasionally or more frequently find the consumer credit form of banking necessary or useful in acquiring those durable and substantial articles that make up the American standard of living.

For these reasons, the yast majority of the members of the Consumer Bankers Association have retained their status as insured nonmember State banks.

As members of the Federal Deposit Insurance Corporation whose single purpose of maintaining the strongest possible banking structure' we applaud, we are vitally concerned that this corporation continue its single-purposed independence and by the thoroughness of its examinations maintain the insurance premium at the lowest possible rate. Since this is a corporation that guarantees the deposits of all banks, it is but elementary reasonable that it should have the power to inquire and satisfy itself through its own responsible representatives of the condition of organizations it insures.

I sincerely cannot comprehend the opposition of the Federal Reserve System to authority for the insuring corporation to examine any insured State bank.

To me this seems to be an entirely reasonable request and after having read the entire bill I do not believe any amendment exempting insured Federal Reserve State member banks should be permitted. I doubt very much that the Federal Deposit Insurance Corporation would deem it necessary to examine all State banks that are members of the Federal Reserve System, but any amendment which would deny the FDIC that right would not appear to be common


These are some of the reasons that I wired you a request for the opportunity to testify on behalf and in support of your bill. With very best wishes. Sincerely,

GEO. CLARK, President.

JANUARY 18, 1950. BURNET R. MAYBANK, Chairman, Senate Committee on Banking and Currency,

United States Senate, Washington, D. C. MY DEAR SENATOR MAYBANK : First let me thank you for your generous personal references to me when you presented the new FDIC legislation to the Senate. It is true that I am one of the few remaining Senators who participated in launching FDIC. I continue to maintain a deep interest in its welfare andwhat is more important—a profound conviction that the maintenance of impregnable public confidence in FDIC is indispensable to our national economy. Our banking record for the past 15 years is eloquent proof of the indispensable importance of FDIC in our national life and of its sound administration. Therefore, I take the liberty of making the following comments on S. 2822 and I shall appreciate it if this letter may be made a part of your hearings on this bill.

I do not, at the moment, pretend to pass upon all of th details of the comprehensive and often technical proposal. But I do want to comment upon the two major changes which it proposes to make in the FDIC concept.

(1) Since FDIC has now fully repaid the Government's contribution to its capital structure and earned a billion surplus, I believe the annual assessments upon member banks can be safely and wisely reduced (contingent upon the maintenance of its present healthy capital structure); and I favor the pending proposal to achieve this result on a "dividend basis” which still preserves the opportunity for enhancing its capital structure. Further justification lies in the fact that such a large proportion of insured deposits are now invested by FDIC banks in Government bonds or carried as cash. It may be added that this

proposal is not calculated to impair depositor protection under FDIC because the so-called dividends will ordinarily remain in the capital structure of the member banks themselves.

(2) Since the change in assessments will reduce the current income of FDIC, I respectfully assert my conviction that its liabilities should not be, at the same time, heavily increased (as proposed in S. 2822) by doubling the coverage from $5,000 to $10,000 in individual insured deposits.

It is this latter point I wish to stress. To decrease assets and increase liabilities at one and the same time seems to me-I say it most respectfully—as somewhat lacking in the prudence which should govern every FDIC procedure. In the language of the street it "plays both ends against the middle.” It moves too rapidly in reorganizing the FDIC concept. It increases FDIC liabilities by a minimum of $12,000,000,000 without compensatory offsets while reducing annual FDIC income by a probable average of 55 percent net. Although fully acknowledging the good faith of this proposal and the persuasive arguments that can be made in its behalf, I earnestly warn against any such wholesale changes in the FDIC balance sheet.

There is no general public demand for this increased coverage. It is chiefly requested by banker demand in some quarters for increased competitive advantage in bidding for deposits. This is a perfectly legitimate incentive and I do not criticize it. But I respectfully submit that the vital FDIC objective is unrelated to bidding for deposits and is confined solely to impregnable protection for the bank deposits of our mass citizenship. This is clearly provided within the present $5,000 limit where 100 percent insurance is already maintained. I respectfully submit that the FDIC position of this “mass citizenship’ is actually weakened by extending its protective assets to include additional deposits in the higher brackets. I do not suggest any sort of imminent danger as a result. But I earnestly believe it is a step in the wrong direction.

If we extend the coverage to $10,000, how long will it be before we confront demands for total coverage? Total coverage would virtually socialize our private banking system. It could involve many of the vices which so often wrecked previous well-meaning adventures in this field. Partial coverage (such as we now have) entirely escapes these vices although we fully protect about 98 percent of our depositors. It seems to me that the present proposal, increasing coverage by 100 percent, could be an unfortunate evolution. Particularly in these days of economic flux, when the existing FDIC formula has yet to test itself under major strain, I hope we shall proceed with extreme caution in any FDIC innovations ' which might affect this incalculably vital supoprt for our economic stabilities. Any doubts should be resolved in favor of a prudent preservation of these precious values. With warm personal regards and best wishes, Cordially and faithfully,


Senator ROBERTSON. The first witness this morning is the Secretary of the Treasury, Mr. Snyder. We welcome you here, Mr. Secretary, and will be glad to hear from you at this time.



Mr. SNYDER. Mr. Chairman, I have a very brief statement I would like to read in the record with your permission.

Senator ROBERTSON. You may proceed.

Mr. SNYDER. Mr. Chairman and members of the committee, the creation of the Federal Deposit Insurance Corporation was one of the important reforms undertaken in the banking legislation of the 1930's. During the depression which followed the market crash of 1929, public confidence in banks was very seriously impaired. The banking system was unable to stand the strain put upon it, and no adequate provision for relief through governmental agencies was

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