Senator COUZENS. You do not take that seriously, do you?

Senator GLASS. I do not think that percentage of banks was sound, because the Secretary of the Treasury admitted to me that he had licensed at least 1,000 unsound national banks or insolvent national banks. But what I mean, is, banks that were properly conductedand there were many thousands of banks that were properly conducted and would not have been very much affected by the failure of banks that were improperly conducted, for the reason that individual banks failed to create consternation among the depositors of the country anyhow. It was my theory-it is not particularly pertinent here-it was my theory that every rotten bank in the country should have been permitted to fail at the time we were having bank failures, and then we would not have any trouble now. Mr. Crowley, I believe I understood you to say that you were a member of what was called this committee of experts to prepare banking legislation. You were a member of that committee? Mr. CROWLEY. I was a member of the loan committee, if that is what you mean, Senator.

Senator GLASS. Yes. And, as I recall, you said you had nothing to do with any provision of this bill except title I?

Mr. CROWLEY. Our board of directors and the legal department drafted title I and submitted it to the committee.

Senator GLASS. Yes. And you hoped that would be acted upon separately from any other provision in the bill?

Mr. CROWLEY. Well, that was decided; that was our original thought, Senator, but the President decided that he wanted it kept together, and told us so.

Senator GLASS. Yes; and he afterwards decided that he was willing to have them separated, and then again decided that he would like to have them kept together.

How did you propose to eliminate the unsound and uneconomical banks hereafter?

Mr. CROWLEY. I think what has got to happen, Senator, on that is that the Corporation will have to make a survey of each State and try to determine the banks that, by their size, or for other reasons, cannot operate soundly, and try to bring about eliminations by the purchasing of assets and consolidations, and then, of course, by having power to restrict the rechartering of that same type of bank in the future.

Senator COUZENS. You mean the Federal Deposit Insurance Corporation has the power to charter?

Mr. CROWLEY. No; I mean that we have the power, Senator, with the banks that come into our fund. We have no power to charter a State bank.

Senator COUZENS. Or any national bank?

Mr. CROWLEY. That is right. But we ask for the power that if a State commissioner should charter a bank that we think is economically unsound, that we may not have to admit it to our fund. That is the protection we are asking for.

Senator GLASS. That is the protection the Corporation is seeking against the chartering of a lot of small and uneconomic banks hereafter?

Mr. CROWLEY. Well, the experience in the past, Senator, has been this: That not only in small banks, but in lots of communities they

have had 2 or 3 or 5 banks where really the community could only support 2 banks, and it is a question of the banks having an earning capacity that they may keep themselves sound.

Senator GLASS. What has been your experience with State bank commissioners on the examination of State banks? Have they cooperated with you?

Mr. CROWLEY. May I answer that off the record for the time being? Senator GLASS. Yes; off the record.

(There was discussion off the record.)

Senator GLASS. Now, then, what provision have you for the dismissal of banks from the membership of the fund that seem to your Board to be unworthy of insurance?

Mr. CROWLEY. I believe I have already outlined the procedure we desire, namely, the giving of notice to the bank and supervising authority.

Senator GLASS. What percentage of the State banks that are now in your fund could qualify for membership in the Federal Reserve Banking System, do you think?

Mr. CROWLEY. You mean the capital requirement, Senator?

Senator GLASS. Well, I mean the capital requirement-perhaps that is the only point upon which you are informed. But there are other requirements as well.

Mr. CROWLEY. There are 5,387, Senator, on June 30 that could have qualified; and 2,134 that could not.

Senator GLASS. They have from now until July 1, 1937, to be placed in position to qualify?

Mr. CROWLEY. For those 2,134 banks to qualify, it will take $55,583,000 to put them in condition to qualify. The deposits in those 2,134 banks are $502,000,000.

Senator GLASS. Well, do you think your fund would be entirely safe unless they should qualify and become members of the Federal Reserve System?

Mr. CROWLEY. Well, I think it all depends, Senator, on what power you give our corporation.

Senator TOWNSEND. You mean, whether or not we give you the power as designated in this bill?

Mr. CROWLEY. Well, I think you have got a problem all the way through your whole banking system that you have got to consider in the next few years, and that is how to give these communities banking service. There are a great many communities now that need banking service; they have none, and yet they are not able to raise sufficient capital. I think the whole principle of this thing goes back to a correction of your whole banking system and making certain changes that are going to give to your corporation better protection, and strengthening of the banking system.

Senator GLASS. Do you think a branch banking system, Statewide, would do that?

Mr. CROWLEY. It might. There are something like 17 States that have no branch banking, whereas 30 or 31 do permit it. In my opinion there must eventually be a thorough study of our entire banking system made, at which time the subject of branch banking ought to be impartially discussed.

Senator GLASS. Of course, that is an essential feature of branch banking, you have to determine those matters.

What provision have you in this bill to protect your Corporation against a reduction of capital in the banks which are now insured?

Mr. CROWLEY. We are asking for the authority, Senator, that no bank will reduce its capital without the consent of our Corporation. We are asking for that after some experience of going out and getting these banks to come into the R. F. C. to take some aid, only to find that in some of them we just get their capital rebuilt and they go out and confuse liquidity with capital and want to repay the R. F. C. before they are in position to do so.

Senator GLASS. Well, what provision have you against an insured bank merging with a noninsured bank?

Mr. CROWLEY. We are asking for the prevention of mergers, that where they are attempting to merge with a noninsured bank, that they will not do it without our consent. The reason we are asking that is this: We have permitted them to come in on occasions, and then they have merged without our consent. In other words, we took the liability that we formerly had refused.

Senator GLASS. I believe you provide in your title I that the temporary clause of the existing law as to the limitation upon insurance shall be permanent; that is to say, $5.000 insurance?

Mr. CROWLEY. Yes, Senator; we de.

Senator GLASS. Gentlemen, do you have any questions?
Senator BYRNES. I would like to ask him one question.

Mr. CROWLEY. Yes; Senator.

Senator BYRNES. What power is contained in this bill as to the determination of admission to the system of State banks? Exactly what power is contained in this bill?

Mr. CROWLEY. You mean admission to our fund, Senator?
Senator BYRNES. Yes.

Mr. CROWLEY. All the banks that are now members, Senator, we wash right into the permanent fund. They do not have to go through any formality to come in at all. Now, on a bank that is duly licensed-and there are some 1,100 outside our fund-we are asking that those banks have more than just enough capital and surplus to meet the solvency test. They must have a reasonable capital to provide a protective cushion for the deposits.

Senator BYRNES. You make an examination of those banks, do you not?

Mr. CROWLEY. Well, Senator, under the temporary law we have only the authority to determine whether they have sufficient to pay the deposits. We cannot ask that they have an excess. Do you get the point?

Senator BYRNES. Yes.

Mr. CROWLEY. Now, what we are asking for in this bill is that, in addition to the meeting of the deposits, that they also have sufficient capital to protect their depositors; and also, in the case of a new bank, that they be an economic necessity to that community.

Senator BYRNES. Do you remember the number of the section in which that is provided?

Mr. BIRDZELL. I will give you that reference, Senator.
Senator BYRNES. I do not want to read it at this time.

May I ask another question: You gave the number of banks that have bought preferred stock of the R. F. C.?

Mr. CROWLEY. Yes, Senator.

Senator BYRNES. Will you give me that figure again, of the total number of banks?

Mr. CROWLEY. Five thousand four hundred and twelve banks, Senator.

Mr. BIRDZELL. That reference you asked for, Senator, is on page 9 of the bill, paragraph 7.

Senator BYRNES. That number of banks, Mr. Crowley, is the number in which preferred stock was purchased?

Mr. CROWLEY. And debentures.

Senator BYRNES. Out of how many banks?

Mr. CROWLEY. Out of 14,200 insured banks, Senator, and the amount of money is $821,000,000.

Senator GLASS. You said to Senator Byrnes that you are washing in all of the banks that you have now insured; but you have a provision in here under which you could wash some of them out, have you not?

Mr. CROWLEY. If they do not conduct themselves properly, Senator.

Senator GLASS. Yes.

Mr. CROWLEY. In other words, they will not have to go through the qualifying stages again. They are already members of the fund and they stay members as long as they stay in good standing.

Mr. BIRDZELL. May I add one observation there. Under the terms of the existing law every bank that came in under the temporary fund was made eligible to subscribe for class A stock, so they would be automatically qualified for class A stock anyhow.

Senator GLASS. I understand, but they might very easily become disqualified.

Mr. BIRDZELL. Yes, sir.

Senator GLASS. Mr. Crowley, we are very much obliged to you. Senator BYRNES. May I ask one other question?

Senator GLASS. Certainly.

Senator BYRNES. Really, the discretion that you seek in section 7 is practically the same discretion that is exercised by the Comptroller in chartering a national bank?

Mr. CROWLEY. That is right, Senator.

Senator BYRNES. Almost the same thing?

Mr. CROWLEY. That is right. Back in 1920 you had 30,000 banks. Now you are down to about 15,000 banks. And when you had 30,000 banks, you had too many for your country, and what we are trying to save is the growth back to the 30,000.

Is that all, Senator?

Senator GLASS. That is all.

Mr. CROWLEY. Thank you very much.

Senator GLASS. Thank you very much, Mr. Crowley.

(Supplemental data submitted by Leo T. Crowley is as follows:)

Hon. DUNCAN U. FLETCHER,

FEDERAL DEPOSIT INSURANCE CORPORATION,

Washington, D. C., April 12, 1985.

United States Senate, Washington, D. C.

MY DEAR SENATOR: The attached summary of public opinion concerning the Federal Deposit Insurance Corporation has been submitted by the National

Emergency Council. We are calling it to your attention, feeling that you will share our pleasure in the almost universally favorable reaction it mirrors.

The report is based on current interviews conducted by State directors of the emergency council among banking, industrial, and businessmen so that it presents an accurate and concise estimate of the national opinion of deposit insurance.

Very truly yours,

LEO T. CROWLEY, Chairman.

SUMMARY OF PUBLIC OPINION CONCERNING FEDERAL DEPOSIT INSURANCE

CORPORATION

Alabama.-Never any criticism of this activity. Stands highest in public opinion of all emergency measures; has restored confidence in banks and resulted in greatly increased deposits.

Arizona.-Apparently public very favorable to Federal Deposit Insurance Corporation. This agency has restored confidence in all banks and undoubtedly exerted considerable influence in abolishing hoarding on the part of the people who had previously felt that banks were unsafe and that they should keep their money in cash at home. Every bank in this State except one is a member. Information at hand indicates that the citizens of the district where this bank is located are very dissatisfied and are not depositing their funds in this bank due to the fact that it does not have deposit insurance. Considerable interest expressed by public in the announcement that deposits in building and loan associations might be insured. General summary would be that the public is very much interested in continuation of deposit insurance and that it is a very determining factor in restoring and maintaining confidence in the banking institutions.

Arkansas. Representative bankers advise that public reaction to Federal Deposit Insurance Corporation is 100 percent favorable. Great majority of bankers also favorable, but believe present limit might wisely be reduced to $2,500. Two bankers state they are strongly opposed to plan in principle. None interviewed has ever heard criticism of insured deposits by customers. California.-Public opinion strongly back of Federal Deposit Insurance Corporation, despite objections of some larger banks to paying premiums.

Colorado.-Public opinion here practically unanimous in favor of Federal Deposit Insurance Corporation.

Connecticut. Public seems entirely indifferent to present Federal Deposit Insurance law. Some 12 or 13 banks in Connecticut have not subscribed to plan and their deposits have not been affected. Some depositors inquired of their banks about this insurance when it became effective, but none has mentioned it to the Hartford banks in months. There is no demand here for increasing amount of insurance above $5,000 as 95 percent of all accounts are fully protected under present law. No Connecticut savings banks subscribed to plan because of adverse opinion of State attorney general. I can find no objection by savings-bank depositors. State director personally feels that the present $5,000 limit is sufficient in Connecticut. This State has been particularly fortunate in having very few bank failures.

Delaware. Due to fact that no bank failures occurred in Delaware, the public has shown little interest in Federal Deposit Insurance Corporation. Contacts made are all favorable.

Florida. Have contacted 20 various business houses. Everyone heartily endorses the Federal Deposit Insurance Corporation. Believes this sentiment universal in Florida.

Georgia. Federal Deposit Insurance Corporation was welcomed by great mass of people. Has been important factor in restoring confidence in banks, particularly smaller institutions. Regarded by many as one of most constructive steps in present national administration. Increased savings deposits in many banks believed traceable to insurance plan. While activities not subject to general discussion now, individuals and business, especially smaller business, finding satisfaction in safety provided by its operation.

Idaho.-Deposit insurance remains the cornerstone of public confidence in banks. Bankers admit Federal Deposit Insurance Corporation has produced solid public confidence in banks. Public opinion overwhelmingly favorable and confidence in banks remains solid with deposits increasing.

Illinois. Report not received up to April 12, 1935.
Indiana.-Has restored confidence in banks.