Corporation. The Reconstruction Finance Corporation held preferred stock, debentures, or capital notes in 263 of the 420 banks in which the Federal Deposit Corporation made disbursements to protect depositors. The retirable value of these holdings totaled $44.5 million, excluding accrued dividends or interest.

Table 7. ESTIMATED CUMULATIVE LOSSES TO THE CORPORATION ON PRINCIPAL DISBURSEMENTS FOR PROTECTION OF DEPOSITORS, COMPARED WITH DISBURSEMENTS, BY YEAR OF ESTIMATE, 1944-1952

1 Principal disbursements. Figures revised from similar tables previously published to eliminate excess collections paid to banks as additional purchase price in 65 absorption cases. See note 4 to Table 4. ? Losses on principal disbursements. See note 3 to Table 4.

In connection with the mergers of 15 of the banks in which it held preferred stock, the Reconstruction Finance Corporation furnished the new capital in the continuing banks. To its previous investment in these 15 banks, amounting to almost $28 million, was added the new capital, giving the Reconstruction Finance Corporation preferred stock in the continuing banks with a total retirable value at the dates of merger of over $52 million. This amount is gradually being reduced as the banks retire the stock.

In banks aided by the Federal Deposit Insurance Corporation other than the 15 discussed above, the Reconstruction Finance Corporation's investment was $16 million, of which it recovered $2 million.

SUPERVISORY ACTIVITIES

Bank examinations. Since the establishment of the Corporation, it has been the policy to examine at least once annually each insured State bank which is not a member of the Federal Reserve System. In addition to the regular examination program, the Corporation also conducts special examinations of those insured State nonmember banks in which problems are believed to exist.

The Corporation during 1952 conducted 6,836 regular examinations, thus completing its regular examination program. In addition, it made 82 reexaminations, and 50 entrance examinations of operating noninsured

banks. New bank investigations totaling 102 and new branch investigations totaling 108 were also made during the year. In addition to the above figures, examinations of 1,359 branches of insured nonmember State banks and 978 trust departments were conducted.

The Corporation's information with regard to national banks is obtained mainly by its review of reports of examination made by the Office of the Comptroller of the Currency. Similarly, information relating to State banks which are members of the Federal Reserve System is obtained by a review of reports of examination made by the twelve Federal Reserve banks. In 1952 the Corporation reviewed and analyzed, with special attention to their bearing upon deposit insurance, 4,613 reports of examination made by the Office of the Comptroller of the Currency and 1,588 reports of examination made by the Federal Reserve banks.

Citations for unsafe and unsound banking practices. The primary purposes of bank examinations are to ascertain if banks are conducting their business in a safe and sound manner, to appraise their assets, and to determine whether violations of law or regulations have occurred. Such examinations, when necessary, are followed by conferences with directors and officers of banks and usually result in correction of any objectionable practices.

Section 8(a) of the Federal Deposit Insurance Act provides that whenever the Board of Directors finds that a bank has continued to engage in unsafe or unsound practices or violations of law or regulations, the Board is required to give to the appropriate supervisory authority a statement with respect to such practices for the purpose of obtaining the necessary corrections. In securing such corrections the Corporation cooperates with the supervisory authority.

A bank which has been formally charged with unsafe or unsound practices and which nevertheless persists in these practices may be deprived by the Corporation of its insured status. Such charges are initiated by the Corporation only after careful deliberation and after every effort to obtain the observance of sound and lawful procedures through the cooperation of the bank involved. On the other hand, the Corporation is determined to fulfill its obligation of taking action against any insured bank which persistently violates law, regulations, or the tenets of sound banking, and thereby endangers the deposit insurance fund and undermines the confidence of depositors in the integrity of our banking system.

During 1952 proceedings were initiated under Section 8(a) of the Federal Deposit Insurance Act against two banks. The alleged unsound practices and violations of law in the two cases differed in detail but were

fundamentally the same. Each of the two banks was cited for weak and hazardous management, for negligent supervision by the bank's board of directors, and for lax lending and collection policies, attested by such evidence as inadequate credit information, large volumes of overdue or inadequately secured loans, and undue amounts of assets adversely classified by examiners. The capital accounts of both of these banks were regarded as inadequate. In one case the common stock was being impaired by asset losses, and in the other case the capital funds were not only reduced by asset losses but were also being dissipated by unwarranted dividends. Each bank was also charged with violating banking laws and regulations and with failure to comply with corrective recommendations made by its supervisory authority.

Further action in the cases of the two banks against which proceedings were initiated in 1952 was being deferred at the end of the year pending reexamination of these banks. Of two other banks whose cases were pending at the beginning of 1952, one case was closed during the year when satisfactory corrections were made. The other remained in deferred status on December 31, 1952, pending analysis of its reexamination.

There were thus three cases pending at the end of the year. In two of these cases some improvement was known to have been made since the proceedings were instituted. In the third case the time allowed for making corrections extended into December, 1952, and in view of changes made in the management of the bank additional time was being allowed before reexamination.

Since 1935, when the Corporation was given authority to terminate the insurance of banks which continue to engage in unsafe or unsound practices or violations of law or regulations, a total of 147 banks have been charged with such practices or violations. The disposition of these cases is given in Table 8.

Approval of banks for insurance. During 1952 the Corporation approved the applications of 69 banks for admission to insurance. This included approvals of 25 such applications from operating banks not insured at the beginning of the year, although one of these approvals was subsequently rescinded. It also included approval of 43 applications for insurance by new banks, and 1 application by a financial institution becoming a bank of deposit. Four applications from new banks were disapproved by the Board of Directors because, in its judgment, the conditions prescribed by the Federal Deposit Insurance Act were not fulfilled.

The number of banks approved for insurance in a year differs from the number actually admitted to insurance during that year. Some new banks approved for insurance are not opened, or the effective date of

insurance is delayed for other reasons, until the subsequent year. In a few cases banks alter their plans or do not meet conditions specified by the Corporation. Banks which are chartered as national banks, and State banks which are admitted to the Federal Reserve System, become insured without application to the Corporation. For changes in the number of insured banks during 1952 see Table 101, page 84.

Table 8. ACTIONS TO TERMINATE INSURED STATUS OF BANKS CHARGED WITH ENGAGING IN UNSAFE OR UNSOUND PRACTICES OR VIOLATIONS OF LAW OR REGULATIONS, 1936-1952

Disposition or status

1936-19521

Total banks against which action was taken..

Cases closed:

Corrections made...

Banks absorbed or succeeded by other banks.

With financial aid of the Corporation..

Without financial aid of the Corporation..

Banks suspended prior to setting of date of termination of insured status by Corporation Insured status terminated, or date for such termination set by Corporation, for failure to make corrections...

Banks suspended prior to or on date of termination of insured status.

Banks continued in operation3..

Cases not closed December 31, 1952: Action deferred pending reexamination or analysis of reexamination.......

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 latter 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 1951, p. 17, and earlier reports.

Approval of establishment of branches. During 1952 the Corporation approved the establishment of 111 branches by insured banks not members of the Federal Reserve System. Of these approvals, 99 were for the establishment of new banking offices, 10 were for banks to be absorbed and converted into branches, and 2 were for branches to be established at former locations of head offices after the relocation of such offices. The Corporation also approved continuation of operations of seven branches previously operated by absorbed banks or by banks admitted to insurance, or sold by one bank to another. Four applications for establishment of branches were disapproved by the Board of Directors during 1952; subsequently two of the banks met conditions warranting approval, and are included in the totals above.

The number of branches established by insured banks during a year differs from the number approved by the Corporation. Approval by the Corporation is not required for the establishment of branches by national banks or by State banks which are members of the Federal Reserve System. Some branches approved are opened in a subsequent year, and in a few cases the banks change their plans or fail to meet conditions specified. For changes in the number of branches of insured banks during 1952 see Table 101, page 85.

Approval of other applications from insured banks. The Corporation also approved during 1952 the applications for continuation of deposit insurance made by eleven State banks withdrawing from the Federal Reserve System and two State banks succeeding national banks. Approvals were also granted upon eight applications of insured banks for permission to exercise trust powers, three to engage in commercial banking, eight to assume deposit liabilities of another insured bank (one of which was rescinded later in the year when the bank abandoned its plan), and three to assume deposit liabilities of a noninsured bank. Two applications to exercise trust powers were disapproved by the Board of Directors during the year.

Seventy-one applications by insured banks to change their locations, and 21 for relocation of branches, were approved during the year.

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 31, 1952. Summaries of corresponding data for other insured banks were furnished to the Corporation by the agencies to which those banks made reports. 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 31, reports of assets and liabilities of noninsured banks and trust companies which do not file reports with a Federal agency. The insured banks also submitted to the respective Federal agencies statements of their earnings, expenses, and disposition of profits for the calendar year 1952.

The data on assets, liabilities, and capital, and those on earnings and expenses, are discussed in Part Two of this report. Detailed tabulations from the reports of assets, liabilities, and capital accounts, for insured and noninsured banks in the United States (continental U. S. and other areas) and for insured banks in each State, are given in the Corporation's publication, "Assets, Liabilities, and Capital Accounts, Capital and other Ratios, Commercial and Mutual Savings Banks", Reports No. 37 and 38. Summary tabulations are given in Tables 105-109 of this report, pages 98-111. Summaries of the reports of earnings, expenses, and disposition of profits are given in Tables 112-118, pages 118-137 of this report.

LEGAL DEVELOPMENTS

Federal legislation. A number of Federal laws were enacted during the year which concern Federal deposit insurance or relate closely to the work of the Corporation or the operations of insured banks. The nature of these laws is indicated below, and full texts are given in Part Four of this report, pages 75-78.