deterioration of the bank's assets. This is a pattern which, if allowed to continue, could have serious consequences in the banking community. It is possible that the arious Federal banking agencies may be able by regulation to obtain reports containing some of the information which would be required by these bills. However, the question is not free from doubt. It is our view that the authority of the Federal banking agencies in this field should be by clear congressional mandate. We should not lose sight of the fact that these bills are designed to curb misuse of our banks. Those who would misuse our banks are likely to resolve any doubts which may exist against notification and in favor of a program of personal profit. They should not have this opportunity. In order to make certain that our Federal banking agencies are in a position to prevent possible misuse of our banks, the Treasury Department supports the enactment of this proposed legislation. I have been advised by the Pureau of the Pudget that this proposed legislation is consistent with the administration's objectives. I should also note that the Federal Home Loan Bank Board has also forwarded legislation to the Congress which would give it similar authority over savings and loan associations as these bills would provide over banking institutions. The same reasons which lead us to support enactment of these bills apply to such proposed legislation in the savings and loan field. The Department has been advised by the Pureau of the Budget that there is no objection from the standpoint of the administration's program to the submission of this report to your committee. The CHAIRMAN. The entire statement will be placed in the record, Mr. Barr. (The letter referred to from the Secretary of the Treasury follows:) THE SECRETARY OF THE TREASURY, Washington, August 11, 1964. Hon. WRIGHT PATMAN, U.S. House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: This letter is in response to your request for the views of the Treasury Department concerning H.R. 12267 and H.R. 12268, identical bills to provide for notice of change in control of management of insured banks, and for other purposes. These bills would require the president or other chief executive officer of any bank insured by the Federal Deposit Insurance Corporation to report promptly to the appropriate Federal banking agency facts concerning any changes which occur in the outstanding voting stock of the bank and which will result in a change in control of the bank. The term "control" is defined as "the power to directly or indirectly direct or cause the direction of the management or policies of the bank." Reports of changes in control would be made by national banks to the Comptroller of the Currency, by State banks which are members of the Federal Reserve System to the Federal Reserve Board, and by insured, nonmember State banks to the Federal Deposit Insurance Corporation. The bills also require a prompt report in the event of a loan or loans by any insured bank which loan or loans are secured by 25 percent or more of the voting stock of the bank. These reports would be made by the lending bank to the appropriate Federal banking agency supervising the activities of the bank whose stock is pledged. No report is required where such a loan is secured by stock where the borrower has been the owner of record for 1 year or more or where the stock is that of a newly organized bank prior to its opening. The bills require reports to the appropriate Federal banking agency of any changes in the chief executive officer or directors in the 12-month period following any change in control. The bills set forth the information to be included in all the required reports. Exchange of information among the Federal banking agencies is also required. Present law does not require that Federal supervisory agencies be informed of changes in control of the banks which they supervise. It is therefore possible that a change of control could occur shortly after a bank had been examined, and in the period prior to the next examination of the bank, unprincipled or inexperienced new owners could drastically change the bank's assets and bring about its insolvency. Without notice of the change, no Federal agency would be on guard against such an eventuality, and the result could be grave damage to the community, the bank's depositors, its customers and minority stockholders. This Department has been informed by the Chairman of the Federal Deposit Insurance Corporation that in the last 4 months five banks have failed shortly -after changes in control or management. It appears that at least in some of the cases, the new owners or management may have been responsible for the sudden deterioration of the bank's sassets. This is a pattern which, if allowed to continue, could have serious consequences in the banking community. It is possible that the various Federal banking agencies may be able by regulation to obtain reports containing some of the information which would be required by these bills. However, the question is not free from doubt. It is our view that the authority of the Federal banking agencies in this field should be by clear congressional mandate. We should not lose sight of the fact that these bills are designed to curb misuse of our banks. Those who would misuse our banks are likely to resolve any doubts which may exist against notification and in favor of a program of personal profit. They should not have this opportunity. In order to make certain that our Federal banking agencies are in a position to prevent possible misuse of our banks, the Treasury Department supports the enactment of this proposed legislation. I have been advised by the Bureau of the Budget that this proposed legislation is consistent with the administration's objectives. I should also note that the Federal Home Loan Bank Board has also forwarded legislation to the Congress which would give it similar authority over savings and loan associations as these bills would provide over banking institutions. The same reasons which lead us to support enactment of these bills apply to such proposed legislation in the savings and loan field. The Department has been advised by the Bureau of the Budget that there is no objection from the standpoint of the administration's program to the submission of this report to your committee. Sincerely yours, DOUGLAS Dillon. The CHAIRMAN. Since we have another witness, a representative of Mr. Saxon's office, I will ask him to come up and bring his statement now. After conferring with Mr. Kilburn, we believe this would be more orderly, and we can ask any questions of either Mr. Barr or him. Mr. Camp, will you come forward please? Will you identify yourself to the reporter? Do you have a prepared statement? Mr. CAMP. I do, sir. STATEMENT OF HON. JAMES J. SAXON, COMPTROLLER OF THE CURRENCY, PRESENTED BY WILLIAM B. CAMP, FIRST DEPUTY COMPTROLLER OF THE CURRENCY; ACCOMPANIED BY ROBERT BLOOM, AND A. V. ABRAMSON Mr. CAMP. Mr. Chairman, members of the committee, my name is William B. Camp. I am First Deputy Comptroller of the Currency, and in Mr. Saxon's absence I am the Acting Comptroller of the Currency. It is in this capacity that I am presenting Mr. Saxon's statement on H.R. 12267 which is now under consideration by this committee. We fully support the principle of required disclosure of changes in the ownership control of banks. Indeed, we have been following this practice since December 1962. No additional powers are required to enable this Office to meet the purposes of the bill so far as national banks are concerned. The bill, in our view, has one serious administrative weakness, and raises a fundamental question concerning the proper function of the insuring agency in the pattern of bank regulation. The administrative weakness of the bill is the requirement for duplicate reporting by national banks. This duplication is explicitly set forth in the bill in a sentence which appears at the end of paragraph 3: The reports requirements in this subsection shall be in addition to any reports that may be required pursuant to other provisions of law. Since this Office does require substantially similar reports, the effect of that section would clearly be to provide for duplicate reporting. The fundamental question of public policy concerns the provision of the bill which requires the Comptroller of the Currency and the Federal Reserve Board to furnish to the FDIC copies of the reports called for under the bill. We do not see that any valid purpose could be served through such centralization of these reports. They are useful only for regulatory purposes, and the FDIC is not a regulatory agency. The appropriate place for such reports is the Comptroller of the Currency in the case of national banks, and the State authorities in the case of State-chartered banks. Any regulatory action which would be required in response to these reports would properly be taken by those agencies under our dual banking system. The question we raise here is not merely a jurisdictional one. It reaches to the basic issue of the proper role of deposit insurance in the pattern of bank regulation. The essential point to be borne in mind is that deposit insurance plays a subordinate role in that pattern, and properly so. Banks are regulated in order to sustain public confidence in the banking system. But since banking serves the industry and commerce of the Nation, there must be scope for private initiative in meeting the changing needs of the public. Because of this fact, banking cannot be a riskless enterprise, and it is not the purpose of bank regulation to eliminate risk. The function of deposit insurance is to provide an ancillary safeguard in those occasional circumstances in which bank supervision does not provide the necessary protection to depositors. That deposit insurance is subordinate to the broader public purposes of bank regulation is evident from the fact that bank supervisory powers rest with the chartering agencies, and that the insurance fund may be supplemented, where necessary, through access to public funds. This policy is in clear contrast with what would be likely to occur if bank regulatory powers were assigned to the insuring agency. If that were done, there would be a natural tendency to fashion banking controls so as to protect the deposit insurance fund. Every new entry of competition, and every banking transaction involving risk, would tend to be viewed with suspicion because of the possible hazard it posed for the insurance fund. The effect would be to place the protection of the insurance fund above the performance of the banking system-thus reversing the proper roles of bank regulation and deposit insurance. These thoughts on the relation of deposit insurance to bank regulation were developed more fully in an address by Mr. Saxon before the Texas Bankers Association on February 22, 1963, and I should like to enter that address in the record. The CHAIRMAN. It will be entered at the end of your statement without objection. Mr. CAMP. There is no urgent need which would require immediate action by the Congress on this bill. The five receiverships which have occurred in recent months following changes in ownership have involved only very small institutions. In view of this lack of urgency, and the possible implications of the bill for the powers and functions of the FDIC, it would appear desirable for the committee to examine more fully certain of the past practices of the FDIC. There are several which appear to be of special importance. We have conducted some preliminary studies of the costs of administration being charged against the assets of insolvent banks. From the information we now have, some of these administrative costs appear to be excessively high. We should like to enter into the record the preliminary data which we have collected. The CHAIRMAN. Without objection, so ordered. It is entitled "Comparison of FDIC Recoveries on Receiverships to the Estimated Loss to Other General Creditors." (The document referred to follows:) Comparison of FDIC recoveries on receiverships to the estimated loss to other general |