by bankers primarily for their employees. The average annual enrollment of the Corporation's examiners at Rutgers and Wisconsin is about 45 under the present schedule. More than 900 education courses were completed by personnel of the Corporation from 1946 to 1950, inclusive. Among those taking American Institute of Banking courses, 46 were awarded Pre-Standard Certificates, 38 received Standard Certificates, and 7 received Graduate Certificates from the Institute. Of the examiners with the Corporation at the close of 1950, 31 held diplomas from the two Graduate banking schools. A number of other examiners received college degrees for study completed in part under the evening residence program, bringing to 224 the total number of such degrees held by Corporation examiners. In addition, many of those examiners who left the Corporation to take positions in private banks or State banking departments have benefited from the educational program sponsored by the Corporation. The cost of the training program is paid by the Corporation, although those students who attend the Graduate summer schools must forego two weeks of their annual leave. The Corporation believes that it is to its own financial advantage and to the best interest of the dual banking system to keep its examiners abreast of the times and in step with the educational advancement of the bankers with whom they deal directly. The Corporation is proud of its pioneering efforts in the field of inservice training and education of bank examiners. The beneficial effects of such a program are being disseminated throughout the entire banking profession. Unsafe and unsound banking practices and violations of law or regulations. Section 8(a) of the Federal Deposit Insurance Act charges the Corporation with the responsibility of keeping insured banks within the channels of safe and sound banking. Whenever the Board of Directors finds that a bank has continued to engage in unsafe or unsound practices or violations of the law, it is required to give to the appropriate supervisory authority a statement with respect to such practices or violations for the purpose of obtaining necessary corrections. In situations of this sort the Corporation works jointly with the supervisory authority in the attempt to secure correction of the unsound practices or violations of law. If they are not corrected the Corporation has the authority to terminate the insured status of the bank. This power is used as an ultimate sanction only after every effort has been made to correct the difficulty. Where corrections do not appear to be feasible or likely, the Corporation prefers to have the bank absorbed by a sounder bank rather than to terminate the bank's insured status. Accordingly, formal action to terminate the insured status of banks has been taken in only a small number of cases. During 1950, proceedings were initiated in accordance with Section 8 of the Federal Deposit Insurance Act against three banks for engaging in unsafe and unsound banking practices and violations of law. The practices and violations of law with which these banks were charged are given in Table 7. In one of these cases, the period given the bank to make corrections had not expired by the end of the year; in another, hearings were held and the charges sustained, and plans worked out for rehabilitation of the bank and correction of the practices; in the other case, the bank was absorbed by another bank. Table 7. SUMMARY OF Unsafe or UNSOUND BANKING PRACTICES AND VIOLATIONS OF LAW CHARGED AGAINST THREE BANKS BY THE CORPORATION DURING 1950 Type of practice or violation Capital: Continued operation of the bank with inadequate capital.. Continued operation of the bank with surplus or common stock impaired.... Progressive dissipation of capital funds by losses. Management and general practices: Continued operation of the bank with weak and hazardous management Continued operation of the bank with incapable or self-serving management... Continued operation of the bank in an unsafe and extended financial condition.. Incompetency of the bank's board of directors. Failure of the bank's board of directors to perform duties and functions Preferential treatment of dealings with an affiliated finance company.. Failure to heed the criticisms and recommendations of the bank's Failure to maintain true and correct records. Failure to preserve the bank's assets. Failure to file claims for and to collect insurance on losses thus protected Loan and investment practices: Maintenance of lax lending and collection policies.. Large amount of assets classified as "substandard" and as "doubtful" or "loss", as those terms are defined in reports of examination. Large amount of past due loans. Continued making of improvident, or hazardous and improvident, Large amount of loans extended to borrowers heavily indebted to the Failure to restrict total loans to reasonable proportion of assets. Failure to give necessary attention to loans of questionable value to prevent them from developing into losses. Failure to obtain and maintain adequate credit information.. Failure to obtain and maintain insurance and evidences of title on properties held as security to loans... Failure to inspect and appraise chattels and real estate held as security for loans. Violations of law: Failure to observe and comply with, and violation of, State banking laws.. 8 Extensions of credit in excess of statutory limitations. Continued practice of bank's board of directors and officers of knowingly violating and permitting violations of law. Extension of credit to directors and officers and their interests not in conformity with legal requirements... a, b, c In four other cases, proceedings with respect to banking practic were pending at the beginning of the year. These were banks previou: charged with unsafe and unsound practices and violations of law, w final action by the Corporation deferred in view of proposed correcti programs. In one of these cases, corrections were made and the acti dismissed. In the other three, progress was made in the developme of corrective programs, and further action by the Corporation w deferred pending reexamination or completion of the rehabilitatio programs. Since 1935, when the Corporation was given authority to terminat the insurance of banks which continue to engage in unsafe or unsoun practices or violations of law or regulations, a total of 145 banks hav been charged with such practices and violations. The disposition these cases is given in Table 8. Table 8. ACTIONS TO TERMINATE INSURED STATUS OF BANKS CHARGED 1 No action to terminate the insured status of any bank was taken before 1936. In 5 cases where initial action was replaced by action based upon additional charges, only the later action is included. 'One of these suspended 4 months after its insured status was terminated. Back data: See the Annual Report of the Corporation for 1949, p. 13, and earlier reports. Approval of banks for insurance. During 1950 the Corporation approved the applications of 102 banks for admission to insurance. Of these, 56 were new banks, 38 were operating as noninsured banks at the beginning of the year or were successors to such banks, 1 was a financial institution which had not been engaged previously in deposit banking, and 7 were insured banks which obtained new charters or withdrew from the Federal Reserve System. Five applications for admission to insurance were disapproved because the conditions enumerated in the deposit insurance law were not met. The number of applications for admission to insurance acted on by the Corporation in prior years is given in the Annual Report of the Corporation for 1949, page 14. For the number of banks which became insured during 1950-a figure which differs from the number approved for insurance by the Board of Directors-see page 216 of this report. Approval of actions by insured banks. During 1950 the Corporation approved the establishment of 87 branches by insured banks not members of the Federal Reserve System. Of these, 76 were for the establishment of new banking offices, and 11 were banks to be absorbed and converted into branches. The Corporation also approved continuation of operation of 38 branches previously operated by absorbed banks, and the sale of one branch to another bank with assumption of the deposits of the branch. The Corporation disapproved three applications for permission to establish branches. For Corporation actions regarding establishment of branches in prior years, see the Annual Report of the Corporation for 1949, page 15. During 1950 the Corporation approved the applications of 10 insured banks for permission to exercise trust powers, and disapproved one such application. The Corporation approved one bank's application for permission to change the business of a paying and receiving station to that of a regular branch. The Corporation approved in ten cases the assumption of deposit liabilities of one bank by another bank. In five of these cases, deposits of a noninsured bank were assumed by an insured bank; in three cases deposits of one insured bank were assumed by another insured bank; and in one case time deposits of an insured bank were assumed by a noninsured bank. In the other case, the Corporation approved the assumption of deposit liabilities of an insured bank by a noninsured institution, with simultaneous assumption of those deposit liabilities from the noninsured institution by another insured bank. Reports from banks. Insured State banks not members of the Federal Reserve System, other than those in the District of Columbia, were required by the Corporation to report their assets, liabilities, and capital accounts as of June 30 and December 30, 1950, and their earnings, expenses, and disposition of profits for the calendar year 1950. Summaries of corresponding data for other insured banks have been furnished to the Corporation by the agencies to which those banks make reports. Tabulations from the reports of assets, liabilities, and capital accounts, for the nation and for each State, are given in the pamphlets published by the Corporation, "Report No. 33, Operating Insured Commercial and Mutual Savings Banks, Assets and Liabilities, June 30, 1950," and "Report No. 34, Assets, Liabilities, and Capital Accounts, Capital and other Ratios, Commercial and Mutual Savings Banks, December 30, 1950." Summary tabulations are given in Table 107 of this report, pages 236-39. Summaries of the reports of earnings, expenses, and disposition of profits are given in Tables 113-119, pages 254-75 of this report. Through the cooperation of State banking authorities and of officials of banking institutions not under State or Federal supervision, mostly unincorporated banks, the Corporation obtained, as of June 30 and December 30, reports of assets and liabilities of noninsured banks and trust companies which do not file reports with a Federal agency. Tabulations from these reports, and tabulations for all banks and trust companies obtained by combining the data for insured and noninsured banks, are given in Tables 103-106, pages 226-35, of this report. Similar tabulations by State for December 30 are given in the pamphlet, "Report No. 34," referred to above. LEGAL DEVELOPMENTS The Federal Deposit Insurance Act. For several months during 1949 the Board of Directors and members of the staff studied the need for amendments to the law creating the Corporation with a view of re-casting it into an entirely new Act to be known as the Federal Deposit Insurance Act. Proposals were drafted. Conferences with outstanding bankers, bank representatives and others were held and in January, 1950, the proposals were submitted to Congress in S.2822. The banking and currency committees of both houses held hearings on the bill. The important changes in the old law recommended by the Corporation were adopted by Congress. The old statute was withdrawn from the Federal Reserve Act and the new one, to be known as The Federal Deposit Insurance Act, was passed by the Congress and approved by the President on September 21, 1950. (Public Law 797, 81st Congress; 64 Stat. 873; 12 U.S.C. 1811-1831). The important changes made by the new Act are discussed on pages 1-7 and the text of the Act is given on pages 105-32. National Bank Conversion Act. Congress authorized a national bank to convert into, or merge or consolidate with a State bank in the same State under a State charter, where under the State law, State banks may without approval by any State authority convert into and merge or consolidate with national banks as provided by Federal law (Public Law 706, 81st Congress; 64 Stat. 455; 12 U.S.C. 214, 214a-214c). This law gives control over the diminution of capital and surplus in assumption, merger, consolidation, and conversion transactions to the Federal banking agency having jurisdiction over the resulting banks. It also provides for continuance of insurance when a national bank converts to a State bank, or when a State bank results from the merger or consolidation of an insured bank with any other bank or banks. The text of this Act is given on pages 153-57. |