Two comments seem desirable in order to understand the above tabulation. The first is with respect to the large number of accounts designated "minors." A great number of these are accounts which have been opened for children by their fathers or their mothers or some other relative. It has been a consistent practice for a savings bank depositor to open an account for one of his children even in infancy and to maintain the account by regular deposits until the child becomes of age, to give the child a start in life. Secondly, there are many accounts designated as "no occupation," and most of these accounts are held by widows or by retired people who are maintaining their savings money for emergencies.

The bill here under consideration has been carefully studied and reviewed by representative savings bankers. It was studied by a special committee of savings bankers, known as our committee on Federal Deposit Insurance, and subsequently by the executive committee of our association, both of which committees unanimously instructed me to appear and support the program as reflected in S. 2822 with one or two suggested modifications.

Now, our banks are very much in favor of this bill, but before discussing the provisions of the bill 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 the Corporation in connection with various problems affecting the savings banks. 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 the managers exercise over the insured risks has a bearing on the adequacy of the fund.

The most important features of the bill are those provisions with reference to assessments and the method of adjusting the assessment which would result in a substantial reduction in the contributions required of the insured banks. My understanding is that the fund now amounts to substantially $1,200,000,000, and the earnings alone from this fund are at the rate of around $25,000,000 annually, which will obviously increase as the fund increases. Thus, from that source alone the fund is being built up each year by the addition of the earnings.

The present deposit liability of the banks is, I understand, in excess of $150,000,000,000. The present assessment rate of onetwelfth of 1 percent will produce aggregate assessments on this deposit liability of $120,000,000. After making allowance of approximately $10,000,000 for cost of operation, losses, and so forth, there remains $110,000,000 annually; and 40 percent of this amount, or around $45,000,000, is retained to increase the fund, at this rate the fund would increase to at least $70,000,000 a year, and would build up the fund during the next 5 years by the addition of $350,000,000 as a minimum.

Among our people there has been a feeling that the present fund is large enough without further additions and that perhaps the amount

which could be made in the way of an adjustment on the assessment might very well be increased from 60 percent to some higher percentage, perhaps 75 percent. 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. It is the state of mind of the depositor. He has confidence in the maintenance of the integrity of his deposit.

In this connection, our institutions are in a different position than stock institutions. As our institutions are mutual, any reduced amount paid by way of assessment will inure eventually to the benefit of the small savers. Any reduction in the assessment will enable our banks to further strengthen their position and will eventually permit 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. The law imposes limits in most States upon the total amount standing to the credit of a single account in a mutual savings bank. In New York State, for example, the limit was raised in 1920 from $3,000 to $5,000, and in 1926 was further raised to the present figure of $7,500. This maximum, however, can be increased by interest accruals. The maximums vary in the several States, some of them being higher than in New York. For instance, that is true in Massachusetts. I think it is $5,000 a single account, with a maximum, with interest accruals, up to $10,000. This increased coverage would substantially cover for the most part the savings account in the mutual savings banks.

The maximum limits of deposit accounts of mutual savings banks all generally fall in or below the level which is considered "small" trust accounts in the trust business. There is a reason for this. The well-to-do man or woman either has the knowledge required for the direct investment of his own savings or may obtain competent investment counsel to supplement his own judgment.

The less well-to-do depositor in a mutual savings bank has none of those advantages; he is not versed in the intricacies of sound investment and usually cannot afford good investment counsel. The mutual savings bank is the investment medium of the man of small means. I have examined some statistics dealing specifically with the effect of this proposed increase and coverage 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 proposed maximum coverage of $10,000, the aggregate amount of deposits which would be insured would be increased to 99.1 percent and the accounts which would be fully protected would be increased to 99.7 percent. These statistics indicate that from the standpoint of

the small savers of the country, the increased coverage is desirable and is adequate.

There are two provisions of the bill which in our judgment are very important. Both 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 (c), page 45. That deals with the right of the Corporation to make loans to insured banks. We refer to it normally as the "repair" provisions. 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.

I think everyone recognizes that the provision of the present law with reference to repair loans should be liberalized. If a weak 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 being required to close the bank or require it to merge with another insured bank with a resultant loss to the Corporation.

The bill, as originally drafted, section 13 (b), would have given the Corporation wide discretionary powers in the following language:

(b) In order to prevent the closing of an insured bank or in order to reopen a closed insured bank, the Corporation, in the discretion of its Board of Directors, is authorized to make loans to, or purchase the assets of, such an insured bank upon such terms and conditions as the Board of Directors may prescribe.

The bill as it passed the Senate, however, restricted—we think improperly the right of the Corporation to make repair loans to an institution. Section 13 (c) of the bill, which amends the original provision, provides as follows:

(c) In order to reopen a closed insured bank or, when the Corporation has determined that an insured bank is in danger of closing, in order to prevent such closing, the Corporation, in the discretion of its Board of Directors, is authorized to make loans to, or purchase the assets of, or make deposits in, such insured bank, upon such terms and conditions as the Board of Directors may prescribe, when in the opinion of the Board of Directors the continued operation of such bank is essential to provide adequate banking service in the community. Such loans and deposits may be in subordination to the rights of depositors and other creditors.

We think the restriction which is underscored is undesirable for two reasons. First, the power of the Corporation to make preventive loans or repair loans should not be limited. This is an important feature from the standpoint of preserving the integrity of the fund. It enables the doctor to take steps to cure his patient by treatment before it is too late. Secondly, this limitation might very well strike at our dual system of banking. For example, assume that in a particular community there exists a national bank and a State bank. If the State bank should need assistance of a temporary nature, the Corporation might feel that it would be precluded from giving proper help if it finds that the national bank furnishes adequate banking service in the community.

We respectfully urge that the last clause underscored above should be eliminated.

The second provision which we believe is of great importance in preserving the integrity of the fund relates to the right of the Corporation to examine insured banks. I think, Mr. Brown, our views coincide with yours in that respect. Under the present law the Corporation may examine State member banks of the Federal Reserve System, only with the written consent of the Federal Reserve Board, and national banks only with the written consent of the Comptroller of the Currency. The bill as originally drafted and upon which hearings were held before the Senate Banking and Currency Committee contained a proposed subsection 10 (b) reading in part as follows:

(b) The Board of Directors shall appoint examiners, who shall have power, on behalf of the Corporation, to examine any insured State bank (except a District bank), any State bank making application to become an insured bank, and any closed insured bank, whenever in the judgment of the Board of Directors an examination of the bank is necessary. Such examiners shall have like power to examine, with the written consent of the Comptroller of the Currency, any national bank or District bank.

This proposal would have eliminated the requirement that written consent of the Federal Reserve Board must be had before the Corporation might examine a State member bank. In our judgment, this was a desirable change.

The bill as it passed the Senate, and now before this committee, adopted in lieu of the above proposal the provisions of the existing law on this subject, which would require written consent of the Federal Reserve Board before a State member bank might be examined by the Corporation. We favor the adoption of the original proposal.

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.

We believe that this change was made because of the objections of the Federal Reserve Board and some of the State supervisory authorities. I do not understand the reasons for the objection of the State supervisory authorities, inasmuch as their consent is not now required. The Corporation now has the right without limitation to examine State nonmember banks, and I know of no situation where friction has developed between the Corporation and the State supervisory authorities in the States in which mutuals operate. It seems to us that the objections of the Federal Reserve Board are not valid. The suggestion that no reasonable request for an examination would be disapproved by the Federal Reserve Board is beside the point. The Federal Reserve Board does not have the financial risk of insurance, and the reasonableness of the request should not be left for its determination when there are indications that a prompt examination is required.

There would, as we understood it, be no unreasonable duplication of examination services. This provision is not intended to place responsibility on the Corporation for periodic examinations of these State member banks, but it does give them the right, where some indication of weakness develops, to move in promptly with their examiners to ascertain for itself the condition of the bank, without being vetoed by another agency. Under such circumstances, inconvenience should not be the controlling factor.

I think it is only fair to say that the same problem does not arise, as a practical matter, in the same degree in connection with the national banks, inasmuch as the Comptroller of the Currency is a member of the Board of the Federal Deposit Insurance Corporation, and has in the past and will probably continue in the future to cooperate in this respect in examination by the Corporation's staff of national banks. However, as a matter of principle, I see no reason why the national banks should not be examined without the consent of any other agency when in the discretion of the Corporation quick action is required. We hope that the committee will restore the provisions contained in the original bill.

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.

I will endeavor to answer any questions the committee may have. Mr. MULTER. May I say that Mr. Oliver is one of our most respected and respectable citizens of New York, and I am sure that I voice the opinion of the committee that we are very happy to have him here and have his views and those of the association and the banks which make up the association that he represents.

Mr. OLIVER. Thank you, sir.

Mr. MULTER. There is just one comment that I would like to make with reference to your testimony. I appreciate that the savings banks, and particularly the mutual savings banks, are in a slightly different position than the commercial banks, particularly with reference to the deposits.

Mr. OLIVER. Yes, sir.

Mr. MULTER. The average depositor in a savings bank is salting his money away and intends to let it stay there; and the man in the commercial bank is putting it in and drawing it out.

As you have indicated, the losses in the savings banks, even in times of depression, were a great deal less than in the commercial banks, so there is more reason to separate the two and possibly try to develop two formulas, one that will apply to the savings banks and another to the commercial banks. But as of this moment, having in mind that the surplus is only $1,200,000,000 now, against a total of $156,000,000,000 of total deposits, I think that it would be unwise, unless some formula could be worked out to separate the two, to try to cut the assessment now. As a matter of fact, in savings bank accounts, the average deposit per account is $1,005.50.

Mr. OLIVER. That is correct, sir.

Mr. MULTER. Assuming that that deposit bears the full one-twelfth of 1 percent assessment now, that amounts to only 84 cents per account. I think the average interest or dividends being paid by mutual savings banks in New York City today is 2 percent.