member bank" and requires the Federal Deposit Insurance Corporation to secure the written consent of the Board of Governors of the Federal Reserve System if the Corporation desires to examine any insured State member bank.

The National Association of Supervisors of State Banks representing the State banking departments of the 48 States strenuously opposed the provision of S. 2822 which would have permitted Federal Deposit Insurance Corporation to examine insured State member banks without prior approval of the Federal Reserve Board. Our association is firm in its belief that such a provision might lead to further duplication of examinations of State-chartered banks and this would tend to undermine the dual banking system and infringe upon States' rights in banking. Undoubtedly, State banks faced with examinations by three different supervisory agencies would be placed in a highly disadvantageous competitive position with national banks which are examined only by the Comptroller of the Currency.

S. 2822 was passed by the Senate without a dissenting vote on March 13, 1950, with an amendment permitting the Federal Deposit Insurance Corporation to examine State member banks only with the written consent of the Board of Governors of the Federal Reserve System. Our association supports S. 2822 in the amended form in which it has been handed to the House Committee on Banking and Currency.

The National Association of Supervisors of State Banks has profound admiration and respect for the Federal Deposit Insurance Corporation, the splendid job the officers of the Corporation have done during the past 16 years in restoring and maintaining the confidence of the people in the security of their bank deposits, and their fine achievement in administering the affairs of the Corporation. Every one of the 48 State banking supervisors speaks most highly of the fine spirit of cooperation with which the Corporation's examining force has cooperated with State examining forces in conducting bank examinations and thus correcting and strengthening the entire banking system.

However, irreparable damage might be inflicted upon the dual banking system if S. 2822 were amended to subject State member banks to examination by Federal Deposit Insurance Corporation in addition to the regular, periodic examinations now conducted by the State banking departments and the Federal Reserve. Even one Federal examination places State banks at a certain disadvantage, for that means these institutions have examinations by two different agencies, two different examination reports to go over with directors and two different agencies' points of view to satisfy.

National banks are examined solely by the Comptroller of the Currency. On most matters State-chartered banks now must obtain two sets of approvals, against only one for national banks. If the dual banking system is to have a fair chance for survival, the trend should be toward less rather than more duplication of supervisory and examination function.

Regarding wasted motion and duplication of effort in joint examinations by our State banking departments with both the Federal Deposit Insurance Corporation and the Federal Reserve, I think it is appropriate to point out that the law empowers both of these Federal agencies to accept examination reports prepared solely by the examiners of the respective State banking departments. Inasmuch as

national banks are examined solely by the Comptroller of the Currency and such examination reports are accepted by the other Federal agencies, it seems logical to me that officers of the Federal Deposit Insurance Corporation and the Federal Reserve should accept State examination reports in lieu of making their own examinations, especially in those States where the examinations conducted by the respective banking departments are well recognized as comprehensive, adequate, and most efficiently conducted; State banking systems would be aided immeasurably if such a policy were adopted inasmuch as officers and directors would have to deal directly with only one examining agency and one examination report form as is the case with national banks.

I make the foregoing suggestion because our State examination procedures and policies have been placed on a uniform basis with the three Federal agencies through the close cooperation of our National Association of Supervisors of State Banks with officials of the three Federal bank supervisory agencies. Uniformity thus attained enables our State banking departments to furnish to the Federal supervisory agencies examination reports containing complete and comparable information with that contatined in examination reports now compiled by their own examining force.

In his testimony before the Senate Banking and Currency Committee, the Chairman of the Federal Deposit Insurance Corporation took the position that "the insurer should have the right to look at his risk." He made this statement in asking for the right to have his Corporation's examiners conduct a separate examination of State member banks even though such banks are examined by both examiners of the Federal Reserve System and the respective State banking departments.

This statement implies that the Federal Deposit Insurance Corporation is not willing to test its risk on the results of the complete, uniform, and comprehensive examinations conducted by both the Federal Reserve System and the respective State banking departments.

I have discussed this matter thoroughly with members of my bank examining force and it is their firm opinion that examinations conducted by representatives of the Federal Reserve are in every way as thorough, efficient, and painstaking as are the examinations conducted by Federal Deposit Insurance Corporation examiners.

I am disturbed at the broad implications in the statement, "the insurer should have the right to look at his risk." Surety companies writing substantial amounts of fidelity coverage for banking institutions assume a great risk and many shortages are being uncovered in banks today which exceed total fidelity coverage carried and result in a loss to surety companies of the full amount of their bonds. Should surety companies also demand the right of examination so they can "look at the risk"?

It can be argued that examining agencies do not make complete audits with the primary thought of uncovering dishonesty. Surety company examiners might be able to uncover irregularities at their inception by a detailed examination and thus greatly reduce their ultimate loss. Surety companies however, look to the Government agencies, both State and Federal, to make comprehensive examinations and they depend upon these Government-created supervisory agencies to determine the true condition of banking institutions

through regular periodic examinations. The same holds true for individuals with large deposits in banking institutions far in excess of the maximum insured amount under existing law of $5,000. It seems logical to me that the Federal Deposit Insurance Corporation, in reality an insurer of a form of risk, should be as ready and willing to accept examination reports prepared by efficient Federal Reserve examiners and State bank examiners as are other insurers or individuals assuming heavy risk.

Our Department endeavors wherever possible to conduct examinations of State member banks jointly with Federal Reserve examiners. There are many times, however, when it is impossible to schedule joint examinations, and State member banks are subjected to separate examination by Federal Reserve examiners and State examiners. Under Pennsylvania law, every State bank must also be examined once a year by a committee from the board of directors or by accountants employed for that purpose.

In effect then, Federal Deposit Insurance Corporation officials were asking for the right to inflict a fourth examination upon State member banks by their proposal in the original bill, before amendment, that they be authorized to examine State member banks without consent of the Board of Governors of the Federal Reserve System.

Undoubtedly, the result would have been to place some State member banks under almost constant examination day after day through each entire year, and the only relief from such an intolerable situation would be the withdrawal of the member bank from the State banking system into the national banking system. The dual banking system would thus be terribly weakened, if not destroyed.

Another point overlooked by Federal Deposit Insurance Corporation officials in seeking the right to add their examination to those conducted by Federal Reserve, the State banking department, and the directors with respect to State member banks is the bad psychological effect upon the public which would result if four different sets of examiners descended from time to time upon a small State member banking institution located in a small locality. The people of the community would have their confidence undermined if day after day they witnessed their small State member bank being subject to one examination after another. The confidence so well instilled into the public by the fine policies pursued by officials of the Federal Deposit Insurance Corporation in the past should not be endangered by any law which would make possible an additional examination of State member banks located in our small communities.

In the interest of maintaining our strong dual banking system, to prevent further infringement upon State's rights, the National Association of Supervisors of State Banks respectfully requests favorable action by this committee on S. 2822 with the amendment to section 10 (b) of S. 2822 contained in the bill as approved unanimously by the Senate.

Mr. BROWN. We are always very glad to have you back with us. Mr. BRUMBAUGH. Thank you very much.

Mr. MCKINNON. I would like to ask one question.

The Federal Reserve System and the FDIC serve a different function; do they not?

Mr. BRUMBAUGH. Yes; I would say the one insures, and, of course, the other is a depositary for the reserve of the various banks.

Mr. MCKINNON. The examiners place a different emphasis on their surveys or examinations; do they not?

Mr. BRUMBAUGH. All our experience has been that the examinations are very little different from our own or from the FDIC. They are practically along the same lines. I am president of a small national bank, and I would say there is very little difference between any one of the four or any one of the three examinations, very little difference.

Mr. BROWN. Thank you very much.

Will you call the next witness?

The CLERK. The next witness is Mr. George L. Bliss, chairman of the legislative committee, United States Savings and Loan League.

STATEMENT OF GEORGE L. BLISS, CHAIRMAN, LEGISLATIVE COMMITTEE, UNITED STATES SAVINGS AND LOAN LEAGUE, MOUNT VERNON, N. Y.

Mr. BLISS. My name is George L. Bliss, and I live in Mount Vernon, N. Y. I am president of the Century Federal Savings and Loan Association in New York City, and chairman of the legislative committee of the 58-year-old United States Savings and Loan League.

It should be understood, Mr. Chairman, that the basic purposes and objectives of this bill do not lie within our purview. The consideration of the bill does, however, present three items which are of interest to our organization, and it is to those three points that we address ourselves.

The savings associations and cooperative banks of the country have been providing savings facilities for the past 119 years and are now serving approximately 12,000,000 savers. These savings funds are, in turn, the largest principal source of home-mortgage credit in this country and have been a substantial factor in enabling veterans to obtain low-cost home loans under the GI bill. The Congress has previously recognized the public service rendered in fields of thrift and of home financing by the savings associations by establishing the Federal Home Loan Bank System and the Federal Savings and Loan Insurance Corporation.

After the Congress had created the Federal Deposit Insurance Corporation in 1933, it became quickly apparent that insurance of deposits in the insured banks would siphon off savings from institutions of the savings and loan type unless a similar step was taken to provide for insurance of their accounts also.

Accordingly, Congress established the Federal Savings and Loan Insurance Corporation in 1934, to prevent any necessity for the curtailment of the home-financing activities of savings associations and cooperative banks.

Insurance of accounts by the Federal Savings and Loan Insurance Corporation has met with the same success as the Federal Deposit Insurance Corporation. There are nearly 2,800 insured savings associations, whose outstanding savings accounts amount to more than $10,000,000,000, constituting approximately 80 percent of the entire amount of such accounts in all savings associations and cooperative

banks.

In previous appearances before this committee, we have urged parity of treatment for the public served by both the insured banks and the insured savings associations. In recognition of that_principle, and upon the recommendation of this committee, both Houses of Congress have recently enacted amendments to the statute governing the Federal Savings and Loan Insurance Corporation. For that activity I would like to express at this time the great appreciation of the United States Savings and Loan League.

In the event of the enactment of S. 2822, in the form in which it has been passed by the Senate, there would remain one important area in which parity of treatment to the insured public would be lacking. This disparity relates to payment in the event of default.

Beginning at line 22 on page 38 of the pending bill, there is proposed a new section 11 (f) which substantially rephrases the language for settlement by the Federal Deposit Insurance Corporation. The existing statute provides that payment to the depositors of an insured bank shall be made by the Federal Deposit Insurance Corporation "either (A) by making available to each depositor a transferred deposit in a new bank in the same community or in another insured bank in an amount equal to the insured deposit of such depositor and subject to withdrawal on demand or (B) in such other manner as the board of directors may prescribe."

In the pending bill, there would be substituted for that language a provision for payment "either (1) by cash or (2) by making available to each depositor a transferred deposit in a new bank in the same community or in another insured bank in an amount equal to the insured deposit of such depositor and subject to withdrawal on demand."

We respectfully submit that it is in the public interest that people who entrust their savings to savings institutions should receive the same treatment, regardless of which of the two Government instrumentalities is settling the accounts of a defaulted institution. To provide such parity of treatment, we strongly urge that this committee amend the bill by adding a section to amend section 405 (b) of title IV of the National Housing Act that will read as follows:

In the event of a default by an insured institution, payment of each insured account in such insured institution which is surrendered and transferred to the Corporation shall be made by the Corporation as soon as possible either (1) by cash or (2) by making available to each insured member a transferred account in a new insured institution in the same community or in another insured institution in an amount equal to the insured account of such insured member:

Provided, That the Corporation, in its discretion, may require proof of claims to be filed before paying the insured accounts, and that in any case where the Corporation is not satisfied as to the validity of a claim for an insured account it may require the final determination of a court of competent jurisdiction before paying such claim.

In the case of both the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation, the present statutes authorize settlements by providing transferred accounts to other insured institutions or by certain alternatives which, in practice, have not been used.

In the amendment that we have proposed, as is the case in section 11 (f) of the pending bill, the alternatives would be either cash or a transferred insured account. Insofar as the Federal Savings and Loan Insurance Corporation is concerned, this would involve no hardship. In all of its settlement cases to date, virtually 100 percent of the insured savers have elected to receive an insured account in another insured