Mr. O'CONNOR. Not down to line 10.
Senator BULKLEY. All right.

Mr. O'CONNOR. Section 314 is new. It provides that before the declaration of dividends, national banks shall carry not less than one-tenth part of their net profits of the preceding half year to surplus until the same is built up to an amount equal to the common capital instead of the present requirement that same need only equal 20 percent of capital. This change is deemed desirable in connection with the provision that assessment liability be eliminated from bank stock, and is further desirable from the standpoint of building up a proper capital structure.

I fully explained that yesterday, Senator.

Senator BULKLEY. Yes; I felt quite satisfied with what you said yesterday.

Mr. O'CONNOR. Section 315 is new. It extends the criminal provisions of existing law relative to embezzlement, false entry, and so forth, by officers and employees of member banks, to include any insured bank.

Senator TOWNSEND. Did not that apply to the insured banks under the old law?

Mr. O'CONNOR. No; not to nonmember banks.

Senator GLASS. Do you make that a prerequisite to entrance into the insurance fund? Otherwise, it does not seem to me that you have any right to do it.

Mr. O'CONNOR. Let us read the section and see if it is broad enough. With the permission of the committee, I should like to insert a short statement showing just what the Attorney General has done since the passage of the act of May 18, 1934. It is a remarkable record, since we have been giving the Attorney General jurisdiction in these cases, under the new law you passed a year ago.

It is just a paragraph or two, and I should like to insert it.
Senator BULKLEY. You want to read it to us?

Mr. O'CONNOR. I do not have it with me. I just thought of it, as I was reading the section:

Senator GLASS. How do you mean it is a remarkable record?

Mr. O'CONNOR. In two ways: First, the number of convictions, the number of arrests; and also as indicated by a statement of one member of a gang of bank robbers. I have a statement from one of them, in which he said that they were very careful not to violate, or not to commit any act which is punishable by the Federal authorities, because the Federal Government would get them. But under the State they could get away with it.

Senator GLASS. Yes.

Mr. O'CONNOR. And then I have the summary of what has been done by the Attorney General's office since you passed the last act. Senator GLASS. You mean, in convictions of persons who have been guilty of offenses against nonmember State banks?

Mr. O'CONNOR. Member State banks.

Senator GLASS. Well, there is no question about the right to do that.

But I am talking about nonmember banks. It seems to me that the only way you can apply the penalty to nonmember banks is to make it a condition of entry into the insurance fund.

Here is a provision, in title II, that would authorize the Federal Reserve Board to wipe out every single solitary requirement that might be made for entrance into the Federal Reserve System of a nonmember State bank, except the capital requirement. It practically waives everything.

Senator BULKLEY. Yes; that proviso is in the discretion of the Federal Reserve Board.

Senator GLASS. Yes; it is.

Senator BULKLEY. But it only applies to banks that have already been admitted to the insurance provisions.

Senator GLASS. That is very true. But it might mean this—and my conjecture is that it primarily means this: The Federal Reserve Act, in its very beginning, while it did not completely abolish exchange charges on check collections, it required that the banks could collect only actual costs, and it provides that now.

The actual cost is so infinitesimal that no statistician has ever been able to define it-meaning that the actual cost does not amount to anything. It has saved the business men of this country an average of $250,000,000 a year.

Under this provision of the bill that requirement could be abolished. The thing was fought out in the courts over a period of 5 or 6 years. Cases were handled by Newton D, Baker, advisory counsel of the Federal Reserve Board, and carried to the Supreme Court; and the Board was sustained all the way through.

Now, here is a proposition that would enable the Board to abolish every requirement of membership in the Federal Reserve System. Senator COUZENS. Mr. Comptroller, your Department has nothing to do with part II of the bill?

Senator GLASS. No; I understand that. But with respect to imposing penalties on offenses perpetrated by the officials of nonmember banks, I am no lawyer; and it seems presumptuous of me to raise a legal point.

But it seems to me that you could not sustain a proposition of that sort unless you make it a prerequisite of membership in the insurance fund.

Senator COUZENS. Can we not take care of that when we come to revise the bill?

Senator GLASS. I hope so. We may not revise the bill, you know. Senator COUZENS. Let us go ahead.

Senator GLASS. All right; go ahead.

Mr. O'CONNOR. Section 316 gives the Comptroller closer supervision over national banks in voluntary liquidation, as distinguished from those in receivership, by requiring reports to him and to the shareholders, and subjecting the bank to examination. It also enables shareholders to remove an incompetent liquidating agent. Senator BULKLEY. That was agreed to.

Mr. O'CONNOR. Yes, sir; and it is a rather important provision. Section 317 is new, and extends present prohibition on use of the word "national" by banks other than national banks to include "Federal" or "United States", or any combination of such words. We are trying to prohibit the use of any of those words in anything but a national bank.

Senator BULKLEY. As I understand it, this is an amendment to the provision of law that already prohibits the use of the word "na

tional "; and the purpose of the amendment is to preclude the use of these other phrases.

Mr. O'CONNOR. That is right. For instance, we have a State bank in North Dakota called the "International Bank."

Senator BULKLEY. That would not be prohibited here?

Mr. O'CONNOR. Any combination of the word "national."
Senator COUZENS. I think that is highly desirable.

Senator BULKLEY. Oh, yes; it would cover that.

Mr. O'CONNOR. It is very important to prohibit any use of the words" United States "Federal."

or

Senator BYRNES. Do you have the use of the words "United States "?

Mr. O'CONNOR. We did have in New York-which I hope we shall never have again.

Section 318 amends section 5 of the Federal Reserve Act so as to require member banks to reduce their holdings of Federal Reserve bank stock upon a reduction in their own surplus, just as they are already required to do upon a reduction in their own capital. It would also repeal the provisions of sections 5 and 6 of the Federal Reserve Act, which require the board of directors of a Federal Reserve bank to execute a certificate to the Comptroller of the Currency showing an increase or decrease in the capital stock of the Federal Reserve bank. Inasmuch as every adjustment in Federal Reserve bank stock is approved by the Federal Reserve Board before the stock is issued or canceled, the filing of such certificates with the Comptroller of the Currency is a useless formality involving duplication of work.

That is entirely a matter of the Federal Reserve Board.

Senator BULKLEY. Here is a new proposal, to strike out the last paragraph of section 6 of the Federal Reserve Act. What is that? It is a proposed addition to section 318.

Mr. O'CONNOR. This is what goes out, Senator:

Whenever the capital stock of a Federal Reserve bank is reduced either on account of a reduction in capital stock of any member bank, or of the liquidation or insolvency of such bank, or on account of the appointment of receivers for a national bank, following discontinuance of its banking operations, as provided by this section, the board of directors shall cause to be executed a certificate to the Comptroller of the Currency showing such reduction of the capital stock and the amount repaid to such bank.

It is just useless and is entirely a duplication of work with the Federal Reserve Board.

Senator BULKLEY. All right.

Senator GLASS. The Comptroller of the Currency is a member of the Federal Reserve Board and ordinarily would be apprised of the fact, anyhow, would he not?

Mr. O'CONNOR. Yes; that is very pertinent.

Section 319 authorizes the Federal Reserve Board to prescribe form and contents of reports of conditions to be made by State member banks, and prescribes the manner in which such reports must be published.

Senator TOWNSEND. Does that refer to new State member banks or the old ones? Do you not already have a form for the present member banks?

Mr. O'CONNOR. There is no authority in the act to require publication of these reports unless the State law happens to require it. Senator TOWNSEND. Even though they are members?

Mr. O'CONNOR. Even though they are members.

Senator TOWNSEND. All right.

Senator GLASS. The Federal Reserve Board is authorized to accept the examination of the State authority, and to conform to the requirements of the State law, as to publicity.

Mr. O'CONNOR. That is right; that is the way it stands.

Senator COUZENS. Is there any uniformity between the reports required of the State boards, and the reports required of the Comptroller of the Currency, of these State member banks?

Mr. O'CONNOR. They are identical.

Senator COUZENS. It seems to me, in my observation, that there is a great deal of confusion existing, with respect to the form of these published bank statements. I have had considerable correspondence with the Comptroller and his staff about that. It seems, for example, that after the Comptroller has made a call, a certain form is published, under the requirements of law; and about that same date, another kind of report is published by the banks, giving a different set of figures, and which is not required by the Comptroller of the Currency. And the comparison of the two reports by that part of the country that does not belong to the banking fraternity cannot be understood.

It seems to me that there ought to be some provision requiring a uniformity of publication of these reports. I think the Comptroller recognizes—and at least his staff ought to that this has created confusion. I do not know whether it can be covered by law, or not; I just raise the question.

Senator GLASS. As a matter of fact, not one person in ten understands the published reports.

Senator COUZENS. That indicates the perfect uselessness of publishing the reports.

Senator GLASS. Do you not agree with that statement?

Senator COUZENS. I think that is true, where there are two kinds of reports issued-one by the bank, on its own initiative, and another by order of the Comptroller of the Currency; I think that is true.

But if there were a uniformity of published reports, from time to time, so that some comparison could be made, they would be of benefit to the public, especially to large industries and large businesses. Now, the trouble is that the published statement ordered by the Comptroller of the Currency, cannot be discerned, from reading the press, from a report that is published by the directors of a bank itself. And when you pick up one of these reports, you do not know whether it is a report published by order of the Government or a report published by order of the directors.

And in many of those cases a comparison is made, and no human being can get an understanding of what it says-just as the Senator from Virginia has said.

I brought this point up, because I thought the confusion should be stopped.

Mr. O'CONNOR. I can clear it up.

Senator COUZENS. You can clear it up, but you cannot clear it up by a statement for the record.

Mr. O'CONNOR. I should like to suggest this clarification: The Senator has in mind banks that make further publication of statements and figures.

I can clear that up; I can make the regulation that the report that I require the banks to publish, shall state at the head, that it is the report that is required by the Comptroller of the Currency; I can require the banks to publish that statement right under the bank's title.

Senator GLASS. Does not this happen, Mr. Comptroller: The reports that are required by the Comptroller's Office to be published are technical?

Mr. O'CONNOR. Yes; very.

Senator GLASS. My observation has led me to the conclusion that not 1 patron of the bank in 10, unless he be an expert accountant as is the Senator from Michigan, or a large depositor, as is the Senator from Michigan-I am conjecturing, but I do not think that anybody would contest the accuracy of the conjecture-understands this technical report.

Therefore, many of the banks, in order to advertise their position so that the ordinary business man may understand it, print advertisements in the newspapers, and emphasize what they regard as the strength of the bank in particular items.

Of those reports, the Comptroller has no jurisdiction.

Senator COUZENS. The question is, Is it good judgment to have jurisdiction?

Senator GLASS. As a newspaper publisher, I am opposed to a regulation which would prohibit a bank from advertising its business.

Mr. O'CONNOR. But, Senator, I do think that Senator Couzen's point is well taken-just to show the report is one that is required by the Comptroller. When the forms are sent out, we can place, right under the bank's name, that this is a report that is required by the Comptroller of the Currency.

Senator COUZENS. That simplifies that particular part of it. But anyone who has been a banker, or who has had any experience in banking, knows that one of the best tests of the growth or falling off of a bank's responsibility and management, is caused by a comparison of the total deposits, and the character of resources, as they have changed from one report to another.

Now, if I take up a report published under the requirements of the Comptroller of the Currency today, and if the Comptroller of the Currency calls for another report in 6 months, and that is published, I have to go back to the newspaper of 6 months previous, and find out, by comparative figures, whether the bank is making progress or whether it is slipping back, or not.

So, in their effect, these reports published at the request of the Comptroller, are absolutely useless, except for the benefit of the newspaper publishers. And I do not see the benefit of requiring them, unless a more thorough analysis of the bank's condition is required when the report is published.

Senator GLASS. Would you stop all publications of reports, just because the newspaper gets an inconsequential fee out of the advertising charge?