The other option given to them, and the one which will in fact be exercised in most if not all cases, is that of relinquishment of all their rights under the bank retirement system and an assent that any funds due them upon their withdrawal from that system be paid directly into the Treasury for the benefit of the civil service retirement and disability fund. Under this option, any credit for service under the bank retirement system would become creditable under the civil service retirement system, and the Board of Governors would be required to make certain payments to the civil service fund with respect to service performed with the banks or the Board.

Thus, no employee would receive any cash payment, nor would any be required to make any such payment or suffer any tax liability as a result of his transfer. Although the employees so transferred will receive somewhat more generous retirement benefits under the civil service system than they would have received under the bank system, it should be borne in mind that these transfers are not voluntary on the part of the affected employees. Section 51 directs the Board of Governors, after appropriate consultation, to designate the employees who are engaged in the performance of functions to be transferred, and who will not be transferred to other duties-in other words, to designate the employees facing layoff by the banks as a result of the enactment of the bill. Both bills then require that an offer of employment be made to each of those employees. The offer of employment must be in the same locality as the employee's job with the bank or the Board, and with the retirement option already described.

Interim Financing of the Commission-GAO Audit

Section 61 of H.R. 107 directs the FDIC to pay $200,000 to the Commission as soon as the chairman and the rest of its members have been appointed and have qualified. The Commission may expend as much of this fund as needed for salaries, the rental of temporary quarters if needed, legal and other expert or professional services, and any other reasonable expenses which are incident to the organization of the Commission in preparation for its assumption of the functions to be transferred to it by the bill. Any part of the fund remaining unexpended at the time the Commission assumes its full functions will revert to the FDIC. The General Accounting Office is directed. to audit the financial transactions of the Federal Banking Commission during the interim period.

Reason for Amendments to Provisions of Law Relating to National Banknote Currency

National banknote currency has been in process of retirement for many years. That is, whenever any such currency is turned in at the Treasury or the Federal Reserve banks, it is redeemed with other currency or credits, and is permanently withdrawn from circulation. Thus, most of the provisions of law relating to such currency are inoperative. Nevertheless, the Congress has not specifically and expressly repealed them, and some of them may serve as a legal basis for the redemption of the tiny trickle of such currency still being received by the Treasury.

It is no part of the purpose either H.R. 6885 or H.R. 107 to serve as a vehicle for the expression of congressional intent as to which provisions of law relating to national banknote currency are wholly obsolete, and which may still have some limited vitality. Accordingly, all such provisions still carried in the United States Code have, without any discrimination whatever, been amended to transfer to the Secretary of the Treasury the functions of the Comptroller of the Currency with respect to such currency. He will not find them burdensome.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
Washington, April 14, 1965.

Hon. WRIGHT PATMAN,

Chairman, Committee on Banking and Currency,
House of Representatives,
Washington, D.C.

DEAR MR. CHAIRMAN: This is in reply to your letter of April 1 requesting a report on H.R. 6885, which would vest Federal bank supervisory functions in the Secretary of the Treasury, and H.R. 107, which would vest these functions in a new Federal Banking Commission.

In the Board's judgment, while a strong case can be made for unification of Federal bank supervisory functions, further time is needed to explore alternatives. Some progress has already been made in achieving much-needed improvement in relations among the supervisory agencies, and the new Secretary of the Treasury is adding his efforts to those of the agencies in seeking further improvement. Public discussion of a variety of proposals for consolidation or reorganization over the years has not produced any consensus as to the need for such a move or the form it should take. Before taking a position on H.R. 6885 or H.R. 107 the Board desires to give further consideration to the means best suited for carrying out a consolidation of functions, and to the possibilities of achieving the same objectives through less controversial methods.

Sincerely yours,

WM. MCC. MARTIN, Jr.

Mr. MULTER. These hearings have been called this morning to take testimony with reference to two bills which have been referred to this subcommittee by the distinguished chairman of the full Committee on Banking and Currency, the able gentleman from Texas, the Honorable Wright Patman.

I know that the subject matter is of great interest to him and I am sure he will give as much attention to this subcommittee's work as he can in the light of his other manifold commitments. All of the members of the full committee have been invited to participate in these hearings to the extent that they can find the time to do so.

The subject of these hearings is two bills-H.R. 107, to establish a Federal Banking Commission to administer all Federal laws relating to the examination and supervision of banks, and H.R. 6885, to vest in the Secretary of the Treasury all functions relating to the examination and supervision of federally insured banks. Both bills deal with the same subject and seek to accomplish the same result, but each offers a different administrative solution to the problem.

All interested parties, including Government agencies and industry representatives, have been asked to address themselves to both bills, and we hope that all parties will feel free to express their opinions, both pro and con, on the bills.

There has been much criticism lately about the confusion which has resulted in the banking industry from the dispersion of Federal authority among several agencies.

Many people believe we should consolidate bank examining and supervisory functions of the Comptroller of the Currency, Federal Reserve Board, and Federal Deposit Insurance Corporation under one roof. We anticipate there will be witnesses who will disagree. We hope they will have some alternative suggestions as to how to improve our banking system.

In general, disciplinary jurisdiction over member banks is transferred to the Banking Commission under H.R. 107 and to the Secretary of the Treasury under H.R. 6885. No more disciplinary authority with respect to member banks will be possessed by the Banking Commission or the Secretary of the Treasury than is now available to the Board of Governors of the Federal Reserve System and to existing Federal agencies.

We on this committee believe our banks and our banking system are sound. If their operation and supervision can be improved, we want to do so in order to keep them sound.

These hearings have not been prompted by any of the recent bank closings. H.R. 107 is the same as H.R. 5874 of the last session of Congress on which hearings were conducted in May 1963.

I would like to direct attention to my statement which appeared in the Congressional Record, at page 6185, on March 31, 1965, wherein I set forth some of the statistics with reference to bank closings as compared with failures and insolvencies in the general economy of the country. The record indicates very clearly that our banks have a much better record in that connection than the general economy, bearing out what I have already said, that our banking system and our banks are sound. I want to emphasize that these hearings are not caused by any alarm in any quarter, or that there is anything financially wrong with our banking system. While there are occurrences that make headlines from time to time, this is no different than what happens in every other segment of the economy. Unfortunately, now and then some bad people get into every kind of operation, whether it be manufacturing, retailing, or occasionally banking.

We hope that these hearings will develop all the facts relevant to these two bills so that we can report a bill which will bring about improvement in our chartering, branching, merging, holding company, and other supervisory functions of all the Federal agencies involved.

These hearings will continue on Wednesday of this week, and then we will recess subject to call of the Chair for further hearings as soon as we can set dates in accordance with the needs and conveniences of the Government and other witnesses who desire to be heard.

Unfortunately, the Easter recess will intervene and necessitate a longer recess than we anticipated. We will resume as soon after the Easter holiday as possible.

We hope that all witnesses who have indicated their intention to testify will be able to meet the subcommittee's schedule and will appear at the times which will be assigned to them.

The subcommittee intends that these hearings will provide a full, fair, and frank, opportunity for all interested parties, including Government agencies and all segments of the banking industry, to make known their views regarding these bills and to offer pertinent comments and recommendations. We hope to afford every member of the

47-444-65- -6

committee full opportunity to inquire regarding all matters relevant to these bills within the time set for these hearings.

At this point, at the request of our distinguished chairman, Mr. Patman, I will, without objection, make a part of the record his statement with reference to these two bills, and include with it an editorial which appeared in the Washington Post on April 11, 1965. They will be made a part of the record at this point.

(The statement of Chairman Patman and the article from the Washington Post follow :)

STATEMENT OF HON. WRIGHT PATMAN, CHAIRMAN, COMMITTEE ON BANKING AND CURRENCY

Today, the committee begins consideration of H.R. 107 and H.R. 6885, two bills to consolidate the bank supervisory activities of the Federal Reserve Board, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. These three Federal agencies share responsibility for the soundness and effectiveness of our commercial banking industry. Since it is the privately owned commercial bank which creates the great bulk of our Nation's money supply-demand deposits, or checkbook money, there is a great public interest in a healthy commercial banking industry. Bank examination and supervision is, of course, a major Government activity to protect the public and to encourage business and commerce. The Constitution, in article I, vests in Congress all governmental authority with respect to money and banking. It is the continuing duty of this committee to assure the public that the commercial banking industry in general and our bank supervisors in particular are both performing well. This is why we are meeting here today.

The present statutory framework for bank supervision, the National Currency Act of 1863, the Federal Reserve Act of 1913, and the Federal Deposit Insurance Act of 1933, evolved over a span of many years without regard for a coordinated system of bank supervision. While I have been interested in modernization of the supervisory structure ever since the early thirties, I believe that until now, the time has not been ripe for major improvements. I urge the banking industry to support our efforts here. Our staff has been working steadily for over a year. Both the bills now before the committee, H.R. 107 and H.R. 6885, are the product of much hard work over a long period of time. While each bill has its own approach, the objective is the same, improvement an up-to-date supervisory system for an up-to-date industry. With the cooperation of the banking industry and the banking associations, I am sure our efforts will bear fruit.

Now I will turn these proceedings over to my distinguished_colleague from New York, Representative Multer, chairman of the Subcommittee on Bank Supervision and Insurance, before which testimony will be given this week on these vital proposals. Without objection, I will insert into the record at this point an editorial appearing in the Washington Post of April 11-yesterday, on this very subject. Thank you, Mr. Multer.

[Editorial from the Washington Post, Apr. 11, 1965]

SUPERVISING THE BANKS

The moral to be drawn from the Senate's investigation of banking irregularities is not that there should be a freeze on chartering new banks, not that volume of credit should be restricted in order to improve its quality, but that the bank examination and supervisory functions, now lodged in three, independent agencies of the Federal Government, should be consolidated.

The present system of bank examination and supervision is an untidy creature of the haphazard process of historical evolution.

With the establishment of the national banking system in 1863, the responsibility for supervising the operation of the federally chartered national banks fell upon the Office of the Comptroller of the Currency. But with the birth of the Federal Reserve System in 1914, a second center of supervisory power was created.

All national banks were compelled to enlist in the Federal Reserve System, and they were joined by the State-chartered banks that opted for voluntary membership. Then a third layer of Federal supervisory authority was added in 1934 with the inception of the Federal Deposit Insurance Corporation. All members of the Federal Reserve System were automatically insured by the FDIC, and its protection was also made available to nonmember, State banks.

It should be noted that all State-chartered banks are subject to the supervision of 50 State banking commissions. And if one protests that a single bank should not be subject to as many as four sets of supervisory authorities, he is informed that ours is a "dual banking system" in which the rights of States, while of dubious constitutional validity, are somehow inviolate.

Long before the principal personalities became locked in a mortal bureaucratic conflict, it was obvious that the trifurcated system of Federal bank supervision was both dangerously inefficient and needlessly expensive. It is for these reasons and others as well that James L. Robertson, a distinguished member of the Board of Governors of the Federal Reserve System, has long been urging that all supervisory and examination functions be consolidated in a single agency.

Mr. Robertson's proposal would merit widespread support save for one objectionable feature. It would establish a Federal Banking Commission, another independent authority. But Washington is surfeited with independent regulatory commissions, many of which have become utterly torpified. It would be far better to consolidate the supervisory functions in the Department of the Treasury, an arrangement that would permit of much greater flexibility.

No system of banking supervision that is compatible with freedom in a rapidly growing economy can eliminate all bank failures or guarantee that individual banks will not fall under the control of unscrupulous or incompetent managers. But by eliminating the three-legged stool that now passes for a system of Federal supervision, the country can be reasonably sure that easy credit will not be confused with loose credit.

Mr. MULTER. Mr. Patman has indicated that he intended to be here this morning at the opening of these hearings, but unfortunately he has been detained.

Mr. Moorhead, would you like to make a statement at this time?

Mr. MOORHEAD. First, I should like to commend the chairman of this subcommittee for the leadership which he has given the committee and the Congress in trying to bring some form of rationalization out of our confused bank supervision situation.

The chairman of our subcommittee was alone in the Congress in starting to recognize this problem and proposing steps to cure it.

Mr. Chairman, I would like to insert into the record of the hearings at this point a speech which I made a year ago before the National Association of Mutual Savings Banks on this subject, a speech entitled "The Tangled Web of Bank Supervision."

I hope that these hearings will lead to some form of untangling of this web.

Mr. MULTER. Without objection, that will be made a part of the record at this point.