like to see the bill passed, and particularly we are interested, the country banks of Georgia are interested in seeing this coverage reach the $10,000.

Mr. Chairman and ladies and gentlemen, I think you.

Mr. BROWN. Mr. Gormley, do you agree with this statement, "that from time immemorial, there has been a recognized principle in every type and kind of insurance that the company assuming the risk possessed the inherent right to select the risk in a manner somewhat of its own choosing. The FDIC should be granted authority by Congress not only to examine the banks which it insures, but to decline to insure banks that do not meet quality standards?"

Mr. GORMLEY. I would qualify that, and I would say certainly they should have the right, not that I mean they are going to go in and duplicate an examination made by the Federal Reserve bank or the Federal Reserve State member bank, because I do not believe that is their intention.

Mr. BROWN. The Federal Reserve banks have the right to examine State banks that belong to the Federal Reserve System.

Mr. GORMLEY. Yes.

Mr. BROWN. That is in the application which they make to become a member of the Federal Reserve.

Mr. GORMLEY. That is right.

Mr. BROWN. And when the banks become members of the Federal Reserve, the funds are guaranteed by FDIC.

Mr. GORMLEY. They automatically are insured by the FDIC, that is

true.

Mr. BROWN. They have to be insured by the FDIC, then, whether the FDIC has made any investigation or not?

Mr. GORMLEY. That is true. I think that you could reasonably assume that you would have an intelligent examination made by the Federal Reserve.

The only objection that I ever had to that in the beginning was that in my position as superintendent of banks, I rather resented the fact that the FDIC, by law, was required to accept the examinations of the Federal Reserve banks and of the Comptroller of the Currency, and they would not accept my examination.

Mr. BROWN. That is the point that I make; I think that the Federal Reserve should be in a position to examine these banks

Mr. GORMLEY. The Federal Reserve, you mean?

Mr. BROWN. Yes.

Mr. GORMLEY. Definitely.

Mr. BROWN. These banks they are interested in, because they belong to the Federal Reserve System. By the same argument, I think the FDIC ought to have a right to examine those banks themselves, because they have to insure them when they are members of the Federal Reserve banking system.

Mr. GORMLEY. I certainly think that they should be given the right, and without the laborious procedure of having to go to the Federal Reserve Board and request permission to go into the banks.

Mr. BROWN. That is all.

Mr. MULTER. May I emphasize at this point that I think it was Chairman Harl who said yesterday that FDIC presently does not have

a sufficient staff to examine every insured bank, and it is not their intention to examine every insured bank. It is, as you indicated, an emergency power, whenever it is necessary to go in they should be able to do so.

Mr. GORMLEY. May I interrupt you a moment? As an illustration of that, my bank was examined last September by the FDIC the first time in 3 years, and I am a nonomember State bank. I do not know whether that is a compliment to me, or whether they just felt like they did not have adequate staff. Excuse me for interrupting you.

Mr. MULTER. I just wanted to emphasize that in my opinion, you are right, or at least Mr. Harl as chairman of the FDIC is of the same opinion, that it is not intended to build up a duplicating examing and inspection staff to go into every one of these banks, but they must be in a position to move in quickly.

Mr. GORMLEY. I think it is very conceivable that an emergency would arise whereby it would be necessary to move quickly.

Mr. MULTER. And they should be in position to examine in advance any new bank or any new risk that comes in and wants to be insured. Mr. GORMLEY. Yes.

Mr. MULTER. Now, I want to clarify my position, too, so far as the loan power is concerned, as to borrowing emergency funds up to $3,000,000,000. I am not in favor of taking that out of the law, and I think it is a good thing to keep it there. But I also say, and I think that you do, too, that until this surplus fund of FDIC is built up at least to an equivalent of that $3,000,000,000, we ought not to think of cutting the assessment.

Now, I think that those who urge cutting the assessment overlook the fact that the interest FDIC is now to pay to the Government is about $65,000,000; and I think that that is correct, is it not? Mr. GORMLEY. Yes, 65 to 70 million dollars.

Mr. MULTER. Now, $65,000,000 is equivalent to the full annual assessment that can be collected this year, plus the full earnings of the surplus.

Mr. GORMLEY. The net, you mean?

Mr. MULTER. Yes. And so, if you are going to cut the assessment, FDIC will not receive enough by way of assessment and earnings on investments in this next year to pay the interest that it owes the Government?

Mr. GORMLEY. May I interrupt you a moment? Let me throw this in. I made the statement a while ago that in the 13 years between 1921 and 1934, there were involved in the closed banks some 81⁄2 billion dollars. I want to add this, that of that 82 billion dollars, between 62 and 7 billion dollars occurred in the last 4 years, that is, the period between 1929 and 1933. That happened at a time when we had around $40,000,000,000.

Now, it is entirely possible that you could have easily more than $1,200,000,000 plus even your $3,000,000,000, if we ever had anything similar to that. I said God knows we hope we do not, but we want to be ready if we ever do.

Mr. MULTER. I am in entire agreement with you.

Is it not a fact that prior to 1935, the banking system of the country paid out about $300,000,000 a year in interest on demand deposits? Mr. GORMLEY. I would not undertake to verify your figure. That is probably true. I haven't any figures on that. That was a general custom, especially in correspondent banks, to pay interest on demand balances, even.

Mr. MULTER. Would you know whether or not the difference between the amount paid on time deposits in 1935 and today is a difference of about $400,000,000 a year less interest on time deposits?

Mr. GORMLEY. I have no figures on that, I am sorry.

Mr. MULTER. Am I right in saying that the total capital assets of the banks of the country today are 312 billion dollars?

Mr. GORMLEY. That is approximately right.

Mr. MULTER. And do you know that today the banks of the country are earning on Government securities alone about $1,200,000,000; is that right?

Mr. GORMLEY. That is correct.

Mr. BROWN. The main function of the FDIC, Mr. Gormley, is looking after the interest of the depositors.

Mr. GORMLEY. That is right.

The CHAIRMAN. Are there any further questions?

Mr. DEANE. There is one question I would like to ask.

You read this entire bill, I assume. Do you consider it more restrictive than present legislation?

Mr. GORMLEY. In what way?

Mr. DEANE. In any way.

Mr. GORMLEY. You mean as applied to the banks?

Mr. DEANE. That is right.

Mr. GORMLEY. There may be some additional provision in there that would give the FDIC more power over banks in a supervisory way than is contained in there. I notice a clause in the bill that would require a bank to get the FDIC's permission in the event they undertook to employ a man who had been convicted of any kind of a crime, or certainly a crime involving embezzlement. I myself think that that is a prerogative that should be left to the State superintendent of banks in the case of State banks. I think that there is that close harmony and cooperation in the relation between the FDIC and the State banking departments of all 48 States where you can reasonably rely on the State banking department. That is minor. I think the bill possibly is slightly more restrictive.

Mr. DEANE. Do you think that this bill as presented and now before us would slow up the chartering of new banks?

Mr. GORMLEY. I do not know.

That suggests this to me: I notice that Mr. McCabe made the statement, relating to the examining power requested by the FDIC, that it would have the effect of deterring membership in the Federal Reserve System. I would like to very heartily disagree with that, and I do not think it will cause any bank to leave the Federal Reserve System. The Federal Reserve now has been in operation, I think, since 1913, and I think they have something like 2,000 State member banks out of approximately 10,000 or 11,000, and I do not think that this would affect either the egress or the inflow of membership to the Federal Reserve System. I disagree with him there.

Mr. DEANE. I am glad to have your view on that.

That is all, Mr. Chairman.

The CHAIRMAN. Thank you very much, Mr. Gormley.

We will call the next witness, Mr. Clerk.

The Clerk: The next witness is Mr. Fred N. Oliver, general counsel of the National Association of Mutual Savings Banks.

STATEMENT OF FRED N. OLIVER, GENERAL COUNSEL OF THE NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS, NEW YORK, N. Y.

The CHAIRMAN. You may proceed.

Mr. OLIVER. My name is Fred N. Oliver, my office address is 110 East Forty-second Street, New York, N. Y., and I am appearing for the National Association of Mutual Savings Banks.

The National Association of Mutual Savings Banks is a trade association established primarily for the exchange of views and information among savings banks, for the improvement of savings banking methods and for the betterment of service to savings depositors.

The association represents the mutual savings banks of this country inasmuch as substantially all of the savings banks are members of the association. My recollection is that the membership represents institutions having about 99 percent of the deposit liability of these banks.

It might be well for me to explain briefly the nature of mutual savings banks and their functions. Mutual savings banks are mutual institutions; they have no capital stock; all of the assets belong to their depositors and the banks are operated solely for their depositors; the earnings available for distribution are paid to the depositors either in the form of interest or dividends.

I stated that the earnings available for distribution are paid to the depositors. From the gross earnings there is, of course, firse deducted expense of operation, and thereafter the interest payments are made to the extent that it seems wise to do so, and the balance of the earnings remaining are transferred to the surplus. This surplus is necessary as a margin of safety or, stated differently, as a general reserve to protect the depositor. This surplus provides the margin of safety in somewhat the same manner as capital funds of a commercial bank, the difference being that the surplus of mutual banks is set aside from earnings belonging to the depositors.

There are 531 mutual savings banks doing business in 17 States, but the majority of them are located in the New England StatesMaine, Massachusetts, Rhode Island, Connecticut, New Hampshire, and Vermont--New York, New Jersey, Maryland, Pennsylvania, and Delaware, with a few located in the States of Ohio, Indiana, Minnesota, Wisconsin, Washington, and Oregon.

Most of them are old institutions, some having been organized as early as 1816. I am submitting a statement showing dates of organization of mutual banks by decades, and it will be observed that most of them were organized during period 1816 to 1880. They are traditionally known as depositaries for small savers, accepting for safekeeping their savings and for investment to produce income to them giving primary consideration to the safety of the investment.

(The statement referred to follows:)

Number of savings banks organized by decades

Mr. OLIVER. The savings banks have a noteworthy record for safety. We have accurate statistics on this subject since 1864 which were compiled by the Federal Deposit Insurance Corporation with the assistance of our association. During the last 50 years, from 1900 to 1950, inclusive, the losses to depositors on account of relatively few closed savings banks amounted only to the sum of $9,029,795. This is a remarkable record, we believe, taking into account that the depression period is included within the 50 years.

Relating that, Mr. Multer, to your question of the propriety of reducing assessments, we find that 1 year's assessment would more than pay twice the total loss experienced by the mutual savings banks in that 50-year period.

I am giving in a tabulation below certain general statistics with reference to savings banks which may be of interest to the committees. These statistics are as of December 31, 1949.

Total deposits.

Total assets_

Total number regular depositors..

Total school savings club accounts, etc.
Total depositors, all accounts-

Average deposit per account_-

$19, 287, 000, 000 $21, 502, 000, 000 14, 811, 000 4,371, 000 19, 182, 000 $1,005. 50

The above statistics indicate the great number of small savers served by the mutual savings banks and the importance of these institutions to the average wage earner. You will particularly notice also the great number of school-savings and club accounts. The savings banks have long promoted the idea of thrift by intensive effort to build up school savings. This, we believe, is a real public service.

We believe that deposit insurance is designed to protect the small depositor, the typical depositor in a mutual savings bank. A study made by the second largest savings bank in the country indicates that wage earners, salaried employees, and minors, represent the preponderance of these depositors. This analysis of depositors who opened accounts during the year 1949, excluding Christmas club accounts, shows the following: