Mr. OLIVER. That is correct. Mr. MULTER. That $1,005 then earns $20.10 a year. If you cut out the assessment entirely, it would earn $20.94. I think if you canvass your depositors, every one of them will say that they are willing to pay that 84 cents a year for that insurance. As of this time, I do not think that it would be wise to cut the assessment. Maybe next year or 2 years from now, upon review of the matter again, it should be done, or possibly we ought to put into the law some provision which would give the directorate of the FDIC the right a year or two from now to reduce the assessments from time to time in accordance with the increase of surplus based on their loss experience. Mr. OLIVER. I can see your point of view, Mr. Multer. If you consider this purely as an insurance fund, that may be true. I think it is a question of philosophy and your thinking on this subject. Of course, we do not want, at the expense of a relatively small amount, to do anything which would jeopardize the integrity of the investment of the people that we are supposed to protect in a trustee capacity. On the other hand, it is our feeling that here you have a situation which differs widely from life insurance or casualty insurance or fire insurance funds, and there is no comparability between the two things. There you have certainty of losses, with a question of determination when the losses will come about or the extent of the losses. Here we think that the losses are bound to be negligible for three reasons: In the first place, this insurance has eliminated the mass hysteria of depositors which develops in a time of crisis. Secondly, the supervision of the FDIC will provide assurance that these banks keep in good condition, and that they keep their margin of safety up to the proper level. I refer to "margin of safety," and in our case it is our surplus, as you know, plus undivided profits, which is equivalent to the capital assets of a commercial bank. In the third place, if they have adequate funds and wide powers to make repair loans if a certain weakness develops, then we think that the loss situation is going to be negligible. If you look at it purely from the insurance fund point of view as you would life insurance or fire insurance, you are looking at it from a point of view entirely foreign to our approach to it, you see. Mr. MULTER. I do not think it is fair to compare this with life insurance, or for that matter even with fire insurance. I think that the only comparable experience you can take is that of the surety business. Possibly the nearest experience you can rely upon is that of credit insurance. Now, you could not get credit insurance anywhere in this country for one-twelfth of 1 percent. That is what this really is, it is credit insurance, and that is the nearest comparable thing that I can think of in the insurance field. The next comparable thing would be the surety business, and nowhere in this country do we permit a surety company to operate at less than two and a half times, or assume maximum liabilities on their bonds of more than two and a half times the surplus exclusive of capital. They are issuing specific bonds, after a specific examination, based on financial statements, with a 1-year limitation of suit upon the bond. Mr. OLIVER. Yes. I think that we have gotten into two different animals, myself. I hope I have answered your question the best I could, sir. The CHAIRMAN. Áre there any further questions? We are very glad to have had you as a witness. Congressman Abbitt, of Virginia, is present and would like to be heard at this time. STATEMENT OF HON. W. M. ABBITT, A MEMBER OF CONGRESS FROM THE STATE OF VIRGINIA Mr. ABBITT. I just want to present a letter that I received from one of my constituents, which I think sums up the situation regarding the pending legislation dealing with the Federal Deposit Insurance Corporation. I am passing it on to you, thinking that it may prove of benefit to the committee. The CHAIRMAN. Thank you, sir. The letter will be incorporated in the record. PETERSBURG SAVINGS & AMERICAN TRUST Co., Re Federal Deposit Insurance Corporation. Hon. W. M. ABBITT, M. C., House Office Building, Washington, D. C. DEAR WATT: As you probably know, the House Banking and Currency Committee started hearings on June 20, which we understand will last for several days, on the above bill, the original bill having been amended and passed by the Senate some 6 weeks ago. Our It is our feeling that the bill in its amended form is best for the public and the banks. We particularly have reference to limiting the Federal Deposit Insurance Corporation to obtaining permission from the Federal Rerserve Board when it wishes to examine State member banks, which is now the case. bank is a State member bank, and once each year we have an examination by the examiners of the Federal Reserve Bank of Richmond and by the State banking department-and we see no necessity for being subject to the third examination possibly by the FDIC. It is our feeling that the Federal Deposit Insurance Corporation has done a fine job in being most helpful to the public and the banks, but we further feel that it has sufficient authority and in the amended bill to properly handle the situation. Some of the larger banks do not want the additional coverage, that is, the increase from $5,000 to $10,000, which is in this bill, but for the smaller banks in the smaller cities and towns, it is a fine idea, for it will tend to distribute deposits throughout the Nation and they will not be drawn into the larger money centers probably in the future, if this bill is passed, as has been the case in some instances, with only a smaller coverage. However, we definitely feel that $10,000 should be the maximum limit permanently. In some places, they do not feel that the FDIC should pay something over $90,000,000 interest on advances made to it when the FDIC started business. Recently, these advances have been paid off in full. For our part, regardless of what other agencies may or may not do that have been advanced money by the Treasury or other departments of the Government, we feel that it is only fair that interest on these advances be paid. Moreover, you probably know that all of the surplus represents assessments paid in by the banks and earnings on their investments, which is now in excess of $1,000,000,000. Will you please do what you can to help this legislation along, by getting in touch with the Honorable Brent Spence, chairman of the committee, and any others that you may know on it? With best wishes. Cordially yours, R. F. B. STEELE, President. We have three other witnesses scheduled for this morning. I regret that we have some matters on the floor of the House that make our attendance imperative, and we will have to adjourn at this time to meet tomorrow morning at 10 o'clock. (Thereupon, at 11:51 a. m., the committee adjourned until 10 a. m., Thursday, June 22, 1950.) AMENDMENTS TO FEDERAL DEPOSIT INSURANCE ACT, 1950 THURSDAY, JUNE 22, 1950 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 10 a. m., pursuant to adjournment, in room 1301 of the House Office Building, Hon. Brent Spence (chairman) presiding. The CHAIRMAN. The committee will be in order. The CLERK. The first witness will be Mr. A. Lee M. Wiggins, chairman of the board of the Bank of Hartsville, Hartsville, S. C. STATEMENT OF A. LEE M. WIGGINS, CHAIRMAN OF THE BOARD OF THE BANK OF HARTSVILLE, HARTSVILLE, S. C. The CHAIRMAN. We are always glad to hear Mr. Wiggins. You may proceed as you please. Mr. WIGGINS. Thank you very much, Mr. Chairman. The Chairman's reference to my appearing on former occasions recalls to me that the last appearance before this committee was on the FDIC legislation in 1947, at which time I was Under Secretary of the Treasury and undertook to present the viewpoint of the Treasury on the proposal before the committee at that time to return to the Government the capital invested in the FDIC. It may be recalled that at that time there was a question of reducing assessments to the banks, and the position that I took, representing the Treasury and representing my own views, was that it should not be done at that time, but that after the capital had been returned to the Treasury, that when the surplus was $1,000,000,000 or more, it would be an appropriate time for the Congress to reexamine the whole question of assessments. And that is, of course, the measure now before this committee. The surplus funds of the FDIC, of course, have now reached $1,200,000,000 plus, so that it is something over $200,000,000 more than the figure I indicated in my previous testimony would be the appropriate time for reconsidering the question of the assessment. My statement will be brief and informal, Mr. Chairman. As I see it, S. 2822 has four principal objectives. One is to increase the coverage per deposit from $5,000 to $10,000. the second is to reduce the cost of deposit insurance to the banks. The third is the simplification of the assessment base and procedure, which is a highly desirable objective and one that has been worked out by the FDIC in 75 a manner that will save the Corporation a good deal of money and time in making assessments, and also save the banks a great deal of work in making the reports. And, fourth, to give greater effectiveness in administering deposit insurance. Those are the four objectives of this bill, S. 2822. Briefly, I would like to discuss three of these objectives. In the first place, the increase from $5,000 to $10,000 seems to me to be consistent with the basic objective of deposit insurance, which as I understand was to afford protection to the vast portion of the depositors in banks and particularly to people of small means. I think all of us recognize that what was $5,000 in 1934 is nearer $10,000 in 1950, and that we are merely bringing the coverage into line with the greater abundance of money and the increase in the smaller bank accounts. I might say for small business that formerly seldom had above $5,000, it will be very helpful to increase the amount to $10,000 because there are some cases in which small-business men and individuals and savings depositors like to have their deposits covered, and they have more than $5,000, so the disposition is to split the account between two banks, which neither the bank nor the depositor likes very much, and in many cases they would prefer to carry it all in one bank. So I think it will help particularly the country banks and the savings banks, but more particularly the depositors who will be able to carry their accounts, their insured accounts, up to $10,000. Attention has already been called to the fact that the change from $5,000 to $10,000 in coverage of individual deposits will not add too greatly to the deposit coverage in dollars. That is, some 111⁄2 to 12 billion dollars, or about 8 percent, is the additional coverage under the insurance when you raise the coverage from $5,000 to $10,000; that is, about 8 percent of the total deposits not now covered will be covered, and it will increase the coverage in the number of accounts from 96 percent to something like 98.4 percent. That is approximately the percentage of accounts covered originally in 1934 under $5,000. I think that is further proof of the proposition that $5,000 then and $10,000 now are fairly comparable, because when you cover the $10,000 now you are covering almost exactly the same percentage of accounts that were covered in 1934 when deposit insurance was put in on a basis of $5,000. I would like to make the point, Mr. Chairman, that I think, however, we should drive a stake at $10,000. I do not like the idea of continuing to raise the amount of deposit-insurance coverage. I do not subscribe at all to any theory that it should cover all deposits. I think it is designed to protect the people of small means and the savings depositors and small-business people, and I think it should always be kept in mind that that is the principal objective of deposit insurance, and it should be limited to an amount that covers the preponderant number of those people. The second item is as to the reduction of assessment costs. I think in the minds of many people this raises a question as to the adequacy of the FDIC surplus. As I have said earlier, 3 years ago I testified before this committee that, in my opinion, a surplus of $1,000,000,000 was adequate. I still think so. The facts are that there is no actuarial basis on which to determine the adequacy of a surplus. If we take the actuarial history of the FDIC, we find that in the 16 years of its |