Mr. SAXON. Yes, sir. I think that 43 or 45 of the States have arrangements for the interchange of information and notification, exchange of information, and these work quite well. In some of the States, I think a few, this does not exist. In a number of cases, very small. And we have never insisted on it, but this has been a very effective device and we see very few cases of the kind of conflict referred to.

I think primarily this chartering is the most controversial, has been the most controversial policy in this office far and away. This office has not in effect been exercising its chartering power over the years.

In 1952 I think there were 12 Federal charters in 48 States and this followed similarly through until my term began. The State chartering more than doubled over Federal chartering over this very period; indeed has kept well apace of the Federal chartering during my term, very close indeed.

So, 430, I guess, in our case and some 370 or 380 in the case of State charters during this same 3-year period but chartering because it involves new entry, new people, in many cases seems to generate the most severe competition of any area in the banking business.

Now, in the treatment of these we find if these are analyzed, most of them are in nonbranch States. Some five or six States, seven at the most, I think, constitute probably as high as 70 to 80 percent of all the chartering. And this is unavoidable because it is in those States where there is no other means to provide banking facilities for a growing population, the creation of new communities. We don't have one other State, greatest growth State in the country, California, but mostly these are confined-have been primarily confined to the nonbranch States where this is the only vehicle, and in addition, in those States like Florida, Texas, Colorado, and so forth, Oklahoma, a good many of these are affiliated operations.

Now, some of the very people who object most strenuously, some of the very banks, to the entry of a new group, that is, new people, new charter, are themselves strongly seeking affiliate operations, again in the nonbranch areas.

But the chartering process, the chartering activity, is far and away the one that has caused the great activity. Right here in the District of Columbia, for example.

Otherwise as at Baltimore where we hadn't had a new bank in 40 years, Minneapolis in 40 years, Boston in 40 years, District of Columbia in 30 years. This was incredible.

Now, some will say we were too liberal. This is a matter of judgment. I think the real test will be how these work out in the future. So far we have had only one case of difficulty to the extent of insolvency, in the case of a newly chartered bank, and that is the Brighton case where we had control by a-undisclosed control by a group that were just unsavory.

Mr. HANSEN. Your point is well taken. Your right of granting a charter over the head of a State agency has probably been one of the tools that has been instrumental in your bringing about the new life that has gotten into the banking industry in the last 3 or 4 years.

You had made reference to nonbranching States and that brings me to a point that some folks are a little critical about. They make the allegation in some cases that the Comptroller is ignoring State laws

in practice, if at least not in theory. To get specific, I might add that I happen to come from a nonbranching State, or nonbranch bank State, and there have been several instances where there have been new parking or shopping center developments. Perhaps the first move was on the part of a national bank in the area to set up an office which is not strictly in accord with the law of the State, followed by offices by the State banks in the community, but with one difference, and that is that the national bank in at least one particular instance staffed its office with an officer of the bank.

Mr. SAXON. Sir?

Mr. HANSEN. Staffed its branch office with an officer of the bank which in essence made it a branch bank in practice if not in theory.

The State banks, of course, are not permitted to do this. They must have an office manager who is not an officer or director of the bank, the theory being that such an office is not supposed to make loans or conduct regular bank business but merely act as a receiving window, so to speak.

Mr. SAXON. Yes, sir.

Mr. HANSEN. What is your justification for this type situation?
Mr. SAXON. Well-

Mr. HANSEN. With respect to the national bank which creates a situation where the State banks must, if they are going to be competitive, violate their own State law?

Mr. SAXON. Well, I think the way you put it, whether if not in legal theory at least in practice, I think the question goes to the law and there has been more litigation in this Office since I have been here than at any time in the whole history of the system, not only this area but every other area. People have been encouraged to bring litigation. And this very principle of the affiliation has been upheld now in a case in New Jersey, Haddonfield, and in a case in Illinois as well, and by the supreme court of those States. One went to the Supreme Court of the United States. I don't doubt there is any question of legality. Whether, as a matter of practice, it is appropriate to put an officer of the parent institution, it comes to the same thing in any case. It is an affiliate type of operation. It would be a question of policy and judgment. We do get some comfort and security from the fact that a parent institution is able to supply the management and supply loan support, supply deposit support, for the institution.

We have a number of cases in the State of Minnesota of fairly substantial interest. They might not be technical affiliates. I am not talking of national banks only. States banks might not be technical affiliates but where the interest would be quite substantial.

Mr. HANSEN. Thank you, Mr. Saxon.

Thank you, Mr. Chairman.

Mr. MULTER. Mr. Clawson.

Mr. SAXON. If I may make one point to Mr. McGrath, I think it is quite right, there was a great-the volume of change in this office was enormous and it came with great rapidity and the question that was created in that movement, the volume created something distinct in an industry like the banking business which is "The Establishment” in the United States, if we have such a thing, a British term. We have completed this entire revision program now, Mr. Hansen, with a new completed revision of the entire chartering process, legal procedures,

instructions, new investigative techniques, entirely rewritten, new biographical requirements, new financial requirements.

This program now is completed. All of the manuals have been rewritten and policy guidelines, instructions to examiners. We have completely revised the examination reports both for trust examination and for commercial examination which are now separate and very much more effective this way. The investment regulations have been rewritten. The trust regulations. We instituted the voluntary disclosure requirements-required disclosure in 1962. The Comptroller's manual on the other activities all have been rewritten. Every paper and form in the Office has been reexamined. Just by way of addendum, when we sent the new biographical requirements form and financial requirements form now under certification which clearly brings it within the title 18 of the Criminal Code, two of the directors who were in a group that took control resigned rather than submit the material.

This was the first substantial revision of the whole chartering process in 55 years. This is the kind of thing I was talking of earlier where stagnancy can develop and it is really harmful, not only to the regulatory process but also to the industry and to public policy.

So we are at a period of digestion. We should have had it earlier, and some say the real problem here is not in the structure, it is not in the laws, it is Saxon. When Saxon leaves the problem will be resolved.

Mr. HANSEN. Thank you, Mr. Saxon.

I want you to know that it isn't our desire to try to get into your hair. The reason for the questions we asked was to clear up some points that might be the cause for friction that is very minor yet sometimes develop into the sort of a mountain-to-a-molehill thing, you know.

Mr. SAXON. Yes, sir.

Mr. HANSEN. Advancement causes a lot of friction. We all recognize whenever you have revolution or progress, you have friction and contention.

Thank you.

Mr. MULTER. Mr. Clawson.

Mr. CLAWSON. Thank you, Mr. Chairman.

Apparently the conflict and controversy of being the target of many of these attacks doesn't disturb you. You withstand them very well. Mr. SAXON. Thank you.

Mr. CLAWSON. We have had during the course of these hearings the question asked on a number of occasions whether or not there would be any violence, injury, or harm to the banking system where this legislation finally adopted; and so far I haven't heard any specific answer to this query.

Mr. SAXON. Be any violence to the concept of dual banking system. Mr. CLAWSON. To the dual banking system if this legislation were adopted.

Mr. SAXON. Yes, sir; in my opinion, again, we are back to questions of principle.

Mr. CLAWSON. I recognize that you and the chairman established this right at the beginning of this session.

Mr. SAXON. I think the two existing side by side is a good thing. I think it has some limitations but on the whole it has constructive benefits. It acts as a source of checks and balances. It avoids oppressive regulation which has existed in the past in this Office, pretty rigid, arbitrary and what I would almost characterize as oppresive. And I think this is healthy. And I am concerned also about the enormous power-for example, the central function of commercial banking is the strengthening of credit. The rest, while important, sir, as you know, is peripheral. Whether it is fiduciary powers, investment powers, the other powers, the core of commercial banking is commercial lending and the concentration of the power over the allocation, amount of credit sometimes, which would exist, which could exist and would exist in a centralized agency does frighten me and it could be very harmful to the economy.

This is one of the crucial aspects. I think in our society we have in an industry-take General Motors or Ford, I don't think the country is harmed by this competition, I don't think we get a poorer car because Ford and General Motors are in competition. I think we get a better product and a better price. That is my opinion, because this exists.

Mr. CLAWSON. Conversely to this, then, centuries ago the question was asked if any good could come out of Nazareth. May I ask this question, can any good come out of these bills?

Mr. SAXON. I think it is good that these issues as in other areas are examined.

Mr. CLAWSON. I mean in being passed, not just talked about. I think our hearings and discussions will be salutary, may be good for us to bring the subject out in the open. But now if it were adopted

Mr. SAXON. The only point I make, the differences are greatly exaggerated. The fundamental question on which all of these hinge and are really little barnacles on the hulls is the chartering process. This is where the struggle has come.

Now, there are points which the chairman and I have discussed and other members here on whether or not the Federal Reserve as the Central Bank should exercise examinatory authority. To me this is repugnant to the central function of a central bank and not desirable. I don't know why there should be two agencies, two Federal agencies, for example, supervising, examining, and regulating in a nonmonetary sense State banks. This is one system, the State system. There is a system-it seems to me all of the Federal functions to the extent that they exist, in my opinion they should be minimized as far as possible, should be centered in one Federal agency. But by the same token, similarly all powers over national banks. Then I think we would have achieved a highly desirable structural change.

Mr. CLAWSON. From your statement, then, I believe that you consider the three separate functions of these agencies to be material and significant, and that they should be separate even though they get into both the State and national banking systems.

Mr. SAXON. Certainly the monetary functions should be.

Mr. CLAWSON. Yes.

Mr. SAXON. The insuring function is a separate animal. I don't see that these powers-I think quite rightly all of the powers over na

tional banks should be in the Comptroller of the Currency, in the Treasury. It has been for 102 years. It operates under the supervision and direction of the Secretary of the Treasury and has worked well for 102 years. But I have never understood as a banker why we have two different Federal agencies supervising and examining State banks and I don't understand-never have very difficult for me—why, for example—let's take, for example, the Chase Manhattan Bank-why the State supervisor, Mr. Wille in New York, a very capable man, approved a branch for Chase Manhattan-and yet it has to be approved in Washington—in a matter like this, just a modest extension of an institution. But I do think there is merit to the contention that a desirable structural simplification could come by vesting in one agency all Federal powers over State banks and with a careful look at the existing Federal powers exercised over State banks and the extent to which, if at all, some of these powers should be retained by Federal authority.

Mr CLAWSON Recently before the McClellan committee and I think this is related here to some extent-you testified that the banks are being subjected to—

an increasing demand by governmental authority for information and that this is particularly onerous on the smaller banks who lack the staff and competence to prepare them.

Then further you indicated that—

this was costly and that some of it frankly comes from congressional committees. In this you also testified that your office receives complaints from banks in connection with these requests on the basis that they serve no public purpose You were charitable I think in your reference to the operations as originating with the congressional committees, because I have been advised that neither the Senate Committee on Banking and Currency nor the McClellan committee made any of these inquiries nor sent out questionnaires and that this has been done by our own House Committee on Banking and Currency. We are the only ones that developed this practice.

Now, as you stated there, this places a burden on some of the smaller banks who don't have the staff or competence to meet this obligation the same as others. One of the questions raised recently in connection with our questionnaire had to do with outside auditors and the cost of this service, also whether or not they use an outside auditor in their banking operation. It is quite possible that internal audits provide this function and do it very well and efficiently. Would there be a possibility of an implication that if a bank that did not have an outside audit or it might not be quite as efficiently operated as one that had only an internal audit? Also, are there possible implications from the variable costs of outside audits?

Would you agree questionnaires of this type, the expense that the smaller banks must bear in answering them, might be reflected in the cost of the bank's operation and doing business and perhaps even in the interest rates to the small rural lender, and would you agree that perhaps all or subsantially all of this information is already available here in Washington from agencies like your own or others? Would you comment on that.

Mr. SAXON. Well, in working as I did for years with very large correspondent systems, First National Bank of Chicago, mainly the