Senator ROBERTSON. You may proceed. I wanted to point that out. Mr. KINGMAN. Yes.

We say this for the reason that we believe that in great part the importance of Federal deposit insurance is the psychological effect on the depositors rather than the size of the fund. I believe Senator Flanders touched on that a few moments ago.

However, we are not making a point on the question of the amount of the adjustment to be made, accepting, as I have already said, the good judgment of the officials of the Federal Deposit Insurance Corporation as to the wisdom of substantial accretions to the fund.

In this connection our institutions are in a different position than stock institutions. As our institutions are mutual, any reduced amount paid by the way of assessment will inure eventually to the benefit of the small savers. The assessment should be no greater than is necessary to produce a reasonable degree of safety for the deposits of the country. Any reduction in the assessment will enable our banks to further strengthen their already sound position and will eventually permit, we believe, a somewhat larger distribution of earnings to the small savers who need these funds.

I repeat that the savings banks are wholeheartedly in favor of this reduction in assessment, believing it is for the best interests of the small savers that they represent.

The second important feature of the bill from our point of view is the provision which would increase the insurance coverage from $5,000 to $10,000. We believe that the small saver is primarily the one to be protected by Federal deposit insurance. I have examined some statistics which have been prepared dealing specifically with the effect of this increase as it relates to the small saver in our savings banks. These statistics were computed on the basis of the insured mutual savings banks in relation to their deposit liability as it existed on September 30, 1949, the latest statistics available on the subject.

On the basis of a maximum coverage of $5,000, as the law now stands, I find that 90.4 percent of the aggregate deposits were insured and that 93.8 percent of the accounts were fully protected. On the basis of the maximim coverage of $10,000, as proposed in this bill, the aggregate amount of deposits which would be insured in the insured mutual savings banks would be increased to 99.1 percent, and the accounts which would be fully protected would be 99.7 percent. These statistics indicate to me that from the standpoint of the small savers of the country, the increased coverage is desirable and is adequate.

I might add that many of the States by statute have indicated that mutual savings banks can accept limited amounts. In New York State, for example, they cannot accept more than $7,500 per account. In the State of Minnesota it is limited to $10,000. In the State of Washington, $7,500. It is obvious a $7,500 limit would merely insure these accounts up to 100 percent.

There are three of four other features of the bill in which our mutual savings banks have an interest. I have asked my colleague, Major Oliver, to comment on those.

I wish to thank the committee for their patience and courtesy in listening to my statement.

61165-50-6

Senator ROBERTSON. Are there any questions?

Senator FLANDERS. I have one question of arithmetic which is not important, but on page 2, in the middle of the page, you speak of deposits in the aggregate amount of $19,000,000,000, plus, with 18 million-plus accounts, and say that the average deposit, or account amount to $987.

When I divide 18,000,000 into $19,000,000

Mr. KINGMAN. You are right.

Senator ROBERTSON. The witness will have the privilege of correcting it.

Mr. KINGMAN. Yes.

Senator ROBERTSON. Mr. Oliver, we will be glad to hear you. We will have to recess at 12 o'clock.

Mr. OLIVER. My name is Fred N. Oliver. My office address is 110 East Forty-second Street, New York City, and I am associated with Mr. Henry S. Kingman in appearing for the National Association of Mutual Savings Banks.

As stated by Mr. Kingman, we were directed by the appropriate committees of the association to appear and state the views of the mutual savings banks on this bill. I will cover features of the bill which have not been covered by Mr. Kingman and, consequently, there is no duplication of testimony.

At the outset, I should like to say that since the organization of the Federal Deposit Insurance Corporation in 1934, I have been closely in touch during this 16-year period with officials of that Corporation in connection with various problems affecting the savings banks. I have had an unusual opportunity to observe and appraise the functioning of that organization. Our banks have great respect for the excellence of management, the devotion to duty and the intelligence and discrimination with which the officials of the Corporation have performed their duties. They have administered the law with great impartiality and have been diligent in watching troublesome situations which occasionally arise and in correcting them before any trouble

occurs.

I mention this because I think the method by which a mutual fund of this character is administered and the careful scrutiny which they exercise over the insured risks has a bearing on the adequacy of the fund, and the proposals which they are making in this bill.

I should like to mention first a provision which relates only to mutual savings banks. In the present law the Corporation may in its discretion set up a separate fund for mutuals and, if it does so, the capital assets of the Corporation are liable for losses. The capital stock has now been retired. The Corporation has never exercised this power nor have the mutual savings banks requested the Corporation to do so. The present law is impracticable in that there is no provision which would allocate a portion of the present permanent fund to a separate fund for mutuals, if established.

The bill would eliminate this provision. Our association has considered this proposal and is in agreement with it, and I have been authorized to say there is no objection to this elimination.

There are two provisions of the bill which in our judgment are also important because they have a bearing on the adequacy of the fund and the propriety of reduced assessments. Both of these provisions

deal with the broad proposition that it is the function of the Corporation to protect the depositors as a whole by maintaining the integrity of the fund and to see that the insured banks are in a sound condition. The first of these provisions to which I have reference is contained in section 13 (b). The present law permits loans to an insured bank or the purchase of assets of such a bank only in the case of the merger or consolidation of an insured bank with another insured bank.

The bill would amend this provision in a most desirable way and authorize the Corporation to make loans to or purchase the assets of an insured bank in order to prevent its closing or in order to reopen the bank, if closed.

If a situation develops, the Corporation should have power to take corrective steps and to prevent trouble in a proper situation by giving temporary financial assistance rather than closing the bank or requiring it to merge with another insured bank with a resultant loss. to the Corporation.

It seems to us that this provision, to be exercised only in a proper situation, is a most constructive one. It is designed to prevent trouble rather than to pay off the depositors or to require the merger of the bank with another one. We can see no possible objection to this pro

vision.

I was interested in Senator Robertson's discussion of that. I am certain that if the intent was not to permit the FDIC to make loans to solvent banks and if there is any ambiguity, I assume that there would be no objection to clarifying it.

Senator MAYBANK. I wondered about that provision. I didn't see how it could possibly be done except in case of an emergency.

Mr. OLIVER. That was the intention. Rather than letting a bank get bankrupt and forcing the Corporation to lose, this is to prevent bankruptcy. It is to try to tide them over. It is a very feasible provision. I can't see any possible objection if it is limited, as suggested by the Senator.

Senator ROBERTSON. Certainly, this discussion will make the intention of the Congress clear on the subject.

Mr. OLIVER. I should think so.

Senator MAYBANK. I noticed that section particularly. I was assured that the language would cover it. What it said was what it meant.

Mr. OLIVER. Yes.

Under the present law, the Corporation may examine State member banks of the Federal Reserve System only with the consent of the Federal Reserve Board. The proposed subsection 10 (b), now section (k) (2), would eliminate the requirement that written consent of the Federal Reserve Board must be had before the Corporation may examine a State member bank. This is the controversial point which you have just been discussing.

This likewise in our judgment is an essential change.

Senator ROBERTSON. You mean necessary.

Mr. OLIVER. Yes.

The mutuals, with three exceptions, are not members of the Federal Reserve System. This System was devised for commercial banks and is not adapted for use by the mutual savings banks whose sole function is to invest safely the funds of the small savers.

We favor strongly the provision because we are interested in preserving the integrity of the mutual fund. As Chairman Harl has stated, "it is fundamental that the insurer have the right to inspect the risk" and this right should be without limitation. Some other agency should not have the power to veto the decision of the Corporation to inspect one of its risks. If a weak situation develops, the Corporation may be required to move fast without the possibility of delay on differences of policy.

It may be necessary in such a situation for the Corporation to send its examiners into the particular insured bank frequently to be certain that the conditions of the bank are improving. The Corporation has the financial risk and there should be no restrictions on its right to make an examination of a State member bank when in its judgment such examination is necessary.

The Federal Reserve does not have the financial responsibility. We certainly don't subscribe to any theory, in response to your suggestion, Mr. Senator, that there should be no unnecessary duplication in examinations. I assume that it would not be the policy to make unnecessary examinations, except when a weakness develops, such as I have indicated.

Another provision which we regard as important is to be found in section 3-page 56 of the bill-which would amend the third paragraph of section 709, title 18 of United States Code, so as to enlarge the definition of false advertising.

Senator FLANDERS. May I inquire there: In what respect is advertising false?

Mr. OLIVER. I think I try to develop it here. If I don't do it adequately in my statement, I will pick it up afterwards, Mr. Senator.

We particularly refer to the clauses relating to advertisements to the effect that deposits or shares are insured or guaranteed by the United States or that deposits or shares are federally insured.

Senator FLANDERS. Oh, yes; it is the use of the words, "United States."

Mr. OLIVER. Yes; or that they are federally insured. The point is that member banks of the Federal Deposit Insurance Corporation have specific instructions as to their advertising. They do not say they are federally insured, because that is a half-truth. This is really a mutual fund. But they say "We are members of the Federal Deposit Insurance Corporation." "We think all agencies who take funds of the small saver who has been induced to make a deposit or buy shares, on the strength of the fact that it is insured by the United States Government or by the Federal Government, I think is entirely wrong. I think the Congress should protect them, as far as it can. Senator FLANDERS. That clears the matter up.

Mr. OLIVER. Yes.

Advertisements of this character are misleading, particularly to a small saver who is investing his life savings and who should not be misled by representations of this type. Instances of this are quite numerous. The most extreme situation has been developed in some of the larger eastern cities where western associations have employed brokers as solicitors for the sale of their share accounts, and these brokers advertise in the prominent papers to the general effect that 3 percent or more is paid on share acounts with an association which is federally insured.

I have brought with me a number of copies of advertisments of this character which the committee may inspect, if it so desires.

This concludes our testimony on the substantive features of the bill which from our point of view are most important. I have not attempted to discuss the purely technical changes contained in these proposals.

Senator ROBERTSON. Thank you.

This afternoon the committee will hear Mr. Potts, speaking for the Reserve city banks, Mr. DuBois, of the Independent Bankers' Association, and then the hearings will be recessed until next Monday, at which time we expect to hear again from the Comptroller of the Currency on some matters he wishes to present, and possibly Mr. Lee Wiggins, who has been very much interested in the whole program; and perhaps the Chairman of the Federal Reserve Board, in view of the fact that I asked a representative of the FDIC this morning to put in the record the report that the Federal Reserve Board made to the Budget Bureau when this bill was cleared for action in the Congress.

The committee will now stand in recess until 2 this afternoon, in this room.

(Whereupon, at 12 noon, the hearing in the above-entitled matter was recessed until 2 p. m., of the same day.)

AFTERNOON SESSION

Senator ROBERTSON. The committee will please come to order. Senator MAYBANK. I ask unanimous consent to put into the record suggested wording covering deductions in computing net assessment income.

Senator ROBERTSON. Without objection, it is so ordered. (The information is as follows:)

SUGGESTED WORDING COVERING DEDUCTIONS IN COMPUTING NET ASSESSMENT INCOME AS DEFINED IN S. 2822, SEC. 7 (D)

(2) additions to reserve established by the Corporation to cover possible losses arising out of deposit insurance obligations assumed by the Corporation during the calendar year in connection with banks in which financial assistance is provided by the Corporation.

(3) the insurance losses sustained in said calendar year in connection with banks in which financial assistance is provided by the Corporation.

Senator ROBERTSON. The first witness is Mr. Frederick A. Potts, of the Philadelphia National Bank.

We are glad to have you with us, Mr. Potts.

Mr. Ports. Thank you.

Senator ROBERTSON. You may proceed.

STATEMENT OF FREDERICK A. POTTS, PRESIDENT, PHILADELPHIA

NATIONAL BANK

Mr. Ports. Mr. Chairman, my name is Frederick A. Potts. I am president of the Philadelphia National Bank, and I am here as a member of the Reserve City Bankers Association.

The association did not have time to get together, so I am not speaking officially for them, but I am purely here as a member of that association.