Mr. BARR. May I point out that there is a simple method of doing this? The Comptroller can rescind his regulation and there would be no problem. Mr. REUSS. In the current state of mere coexistence between the Comptroller and the FDIC I think it would be better to fix up the law. Mr. BARR. I would accept that. Mr. REUSS. One additional question. I do not want to go over my time. Rather than answering it, please submit it for the record. You state, Mr. Barr, that you have no purpose to control or veto changes of ownership and management as the result of this bill? Mr. BARR. That is correct. Mr. REUSS. However, I would like to have you state for the record exactly what controls under the law and under those circumstances in which you now exercise over management before there is any change in ownership, when, in effect, do you now refuse insurance to a bank on the grounds that you do not like the cut of the jib of the management. And then that is point 1-point 2 is, if those controls are good for issuing insurance in the first instance, why are they not equally apropos under a change of ownership? My time is up so I would appreciate your answering that. Mr. BARR. Yes, sir. (The information referred to follows:) Hon. HENRY S. REUSS, FEDERAL DEPOSIT INSURANCE CORPORATION, House of Representatives, Washington, D.C. OFFICE OF THE CHAIRMAN, MY DEAR CONGRESSMAN: During the course of the hearings yesterday on the bill which would provide for notice of change in control of management of insured banks you expressed interest in and requested information concerning what controls under the law and what practices are now exercised over bank manage ment before there is a change in ownership. You asked if these controls are good for passing upon insurance applications in the first instance, why are they not equally applicable under a change of ownership. Under the provisions of the Federal Deposit Insurance Act whenever a bank applies to this Corporation for deposit insurance the Board of Directors in acting upon the application must take into consideration certain factors prescribed in section 6 of the Federal Deposit Insurance Act. These factors are (1) the financial history and condition of the bank, (2) the adequacy of the bank's capital structure, (3) its future earnings prospects, (4) the general character of the bank's management, (5) the convenience and needs of the community to be served by the bank, and (6) whether the bank's corporate powers are consistent with the purposes of the Federal Deposit Insurance Act. In the process of chartering national banks or admitting State banks to membership in the Federal Reserve System both the Comptroller and the Board of Governors of the Federal Reserve System must take into consideration the abovementioned factors. The Corporation must also give consideration to these factors in passing upon applications from insured State banks which are not members of the Federal Reserve System to establish and operate new branches or to change the locations of their main office or branches. Under these provisions of law the Corporation is afforded an adequate opportunity to make a thorough and complete study and analysis of the caliber of a new bank's management. It is also able to give consideration to the caliber of the existing management of a bank when a bank applies for consent to change its office or to establish or change the location of a branch. There is no other statutory means except periodic examinations whereby the Corporation is able to appraise the caliber of insured banks' management. It would be virtually impossible to continuously survey all insured banks in order to determine whether the people who are serving as officers and directors of the banks are competent and honest bankers. Accordingly, neither the above statutory provisions nor the Corporation's examining authority could be employed as a device for continually determin ing whether the management of an insured bank is the same or maintains the same standards of integrity and capability as those required by the Corporation when a bank is admitted to Federal deposit insurance. The notice required by the bill now pending before the committee would, in our opinion, be an effective tool for the Corporation to learn of management changes between examinations to investigate the caliber of the new management of the bank and to determine what corrective action, if any, is necessary. Sincerely yours, The CHAIRMAN. Mrs. Dwyer? The CHAIRMAN. Mr. Ashley? JOSEPH W. BARR, Chairman. Mr. ASHLEY. What is the problem, Mr. Camp, with duplication? Why is duplication a bad thing? Are there not instances where duplication is actually efficient? Mr. CAMP. I do not believe that the banks would agree to that. They have a great reporting burden on them now, sir. Mr. ASHLEY. But this bill calls for copies, does it not? Copies of reports-not new reports, but copies of reports. Mr. BLOOM. If I could address myself to that, Mr. Ashley. The duplication referred to in Mr. Camp's statement was a duplication between the report which the national bank would be required to file with the Comptroller and the report which would be required by the bill would not be the same report. The bill requires certain information which is different in form than the information required by our regulation. Without the amendments suggested by Mr. Reuss, you couldn't use the same piece of paper. This would be two reports. Mr. ASHLEY. You require a report from national banks that are changing ownership and control? Mr. CAMP. That is right. Mr. ASHLEY. Could you not duplicate that and fire it off to Mr. Barr? Mr. BLOOM. It wouldn't comply with this bill because you have that line in there that the report under the bill shall be in addition to other reports required by law. Now, of course, if that were satisfactory to the FDIC, this could be done as an administrative matter. But, Mr. Ashley, our objection to this bill is much more than the administrative difficulty. We have a basic objection to this bill. Mr. ASHLEY. Your statement starts with a criticism of the bill's administrative weakness. Then, on page 2, you state that your objection is not concerned merely with the jurisdictional question. Mr. BLOOM. We could not characterize it as that. Mr. ASHLEY. If it is not administrative and not jurisdictional, what would it be? Mr. BLOOM. There is a basic philosophical government policy question involved in this. Mr. ASHLEY. Now we get to Mr. Reuss' arena, do we not? Mr. ASHLEY. What philosophy? Mr. BLOOм. I would like to have Mr. Abramson of our office address himself to that. The CHAIRMAN. Please identify the witness. Mr. CAMP. This is Dr. Victor Abramson who is the head of the Department of Economics in the Office of the Comptroller of the Currency. Dr. ABRAMSON. The philosophical point that is referred to in the statement, Mr. Ashley, is the question of whether or not any regulatory powers should reside with the insuring agency. The view that is expressed here is that there wouldn't be any point in centralizing these reports in the hands of the FDIC unless they had some regulatory power, and without taking up the matter of what powers they have with respect to State-chartered banks, we don't believe they have any with respect to the national banks. Mr. ASHLEY. The information that is sought happens to be useful for several purposes, is that not what we are getting at here? Dr. ABRAMSON. I don't believe that Mr. Barr feels that he could take any action as the result of receiving these reports as far as national banks are concerned. Mr. ASHLEY. Let's get back to the Marlin case for half a second. Mr. BARR. May I comment on that? Mr. ASHLEY. Why was it that your shop did not inform Mr. Barr's shop in May? Mr. CAMP. I think we did inform Mr. Barr. Mr. Barr sent us a letter of commendation on the alertness that we displayed there. I do not have it with me. Mr. ASHLEY. Do you have a “duplicate," if I may use the word, of that letter? Mr. CAMP. I do, but I don't have it with me. I will be pleased to enter it in the record. Mr. ASHLEY. That may be interesting. Could we have that? I would like to have that letter in which you informed Mr. Barr of the Marlin change of control. Mr. CAMP. I am saying we have a letter from Mr. Barr complimenting the Comptroller's Office on the alertness which was shown by our examiners in the Marlin case and keeping the FDIC advised at all times. I believe that is the tone of the letter. (The information referred to has been submitted and is as follows:) Hon. WRIGHT PATMAN, Chairman, House of Representatives, Committee on Banking and Currency, Long‐ worth House Office Building, Washington, D.C. DEAR MR. CHAIRMAN: During the course of the hearing this morning on H.R. 12267, reference was made to the letter from Mr. Joseph W. Barr to Mr. Saxon in connection with the Marlin Tex., insolvency. During this exchange, we were requested to supply for the record a copy of this letter. We are pleased to submit herewith a copy of this letter which is dated March 12, 1964, as it was released to the press by Mr. Barr. The letter indicates that the Federal Deposit Insurance Corporation was kept "fully informed of all the facts as they developed in the Marlin situation. Consequently, your action in closing this bank came as no surprise to this Corporation and we had all our plans made to move quickly into Marlin." Sincerely, WILLIAM B. CAMP, Acting Comptroller of the Currency. The Honorable Joseph W. Barr, Chairman of the Board of Directors of the Federal Deposit Insurance Corporation, today released the attached letter: FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, March 12, 1964. Hon. JAMES J. SAXON, Treasury Department, Washington, D.C. DEAR JIMMY: In connection with the insolvent First National Bank of Marlin, Marlin, Tex., I want to advise you that the cooperation this Corporation and received from your Regional Comptroller of the Currency Norman R. Dunn, and your national bank examiner Thomas L. Cook, was all that I could possibly ask. Mr. Lloyd Thomas, FDIC supervising examiner in Dallas, and I drove to Marlin on Tuesday night (March 10) and immediately began conferences with Mr. Dunn. Mr. Thomas, Mr. Dunn, Mr. Cook, and I went to the bank together at 8 o'clock on Wednesday morning (March 11). We talked to the press together. Mr. Dunn and Mr. Cook helped us begin our payout process. I was deeply impressed with the competence and intelligence of both your representatives. I want to repeat that they could not have been more cooperative. Mr. Dunn kept Mr. Thomas fully informed of all the facts as they developed in the Marlin situation. Consequently, your action in closing this bank came as no surprise to this Corporation and we had all our plans made to move quickly into Marlin. I should like to state that it is my opinion that had it not been for the vigilance of your men, this Corporation and the citizens of Marlin could have taken a very heavy loss. Sincerely yours, JOSEPH W. BARR, Chairman. Mr. ASHLEY. You are testifying, are you, Mr. Camp, that Mr. Barr was notified in May by the Comptroller of the Currency by letter? Mr. CAMP. I couldn't say, sir, just when Mr. Barr was notified. Mr. ASHLEY. That is a matter of some importance. Mr. CAMP. It would go to the point here, that I think Dr. Abramson and Mr. Bloom have raised. Since the FDIC has no regulatory power, what action would they have taken had we notified them at any point, shall we say? Mr. ASHLEY. Mr. Barr, what is your comment to that? Mr. BARR. It would depend on the nature of the information, Mr. Ashley. If we seriously thought of this, and had indication that things were serious enough, we have the power to go in and examine a national bank. We do have the power to go in an examine the bank and submit our findings to the Comptroller and see what action we can get from him. Mr. ASHLEY. If you find that the situation is serious enough, can you withdraw your insurance? Mr. BARR. Not from a national bank. It is only the Comptroller who can do this. However, we do have the power to move in with our examination first. It has never been done. Frankly, I have considered it recently. I have decided not to do it. The only reason I have considered doing it recently is that we have had no information from the Comptroller. May I correct my statement? I made an error, Mr. Ashley. We do have the right to withdraw insurance from any bank, national as well as State. So we could move in if we felt the condition was serious enough. We could examine the bank and withdraw insurance. This Corporation has never done this to a national bank. But, prior to 1944, termination proceedings were commenced against national banks in a number of cases. Mr. ASHLEY. If you had the information on which to base it. Mr. BARR. We have never done so and I hope we never will. hope we can leave this to the Comptroller. The CHAIRMAN. Mr. Halpern? I Mr. HALPERN. I have no questions, but I believe strongly in the objective of this legislation. I am convinced, thoroughly convinced, that it is needed, and it has my full support. The CHAIRMAN. Mr. Vanik? Mr. VANIK. Mr. Chairman, Mr. Barr, how can you miss hearing about a change of ownership of bank stock? It would seem to me that the contested management would be pretty quick to cry all over the place, the FDIC, the Federal Reserve. You really know about bank changes pretty quickly there is an awfully good way of getting the word out. Can you improve on this by that legislation? Mr. BARR. You have a point. Where there is a contested change, I think this is true. Mr. VANIK. They cry all over the place. Mr. BARR. Many changes are not contested. Mr. VANIK. When management is contested, the other guys are always incompetent. They do not know anything about the banking business. What safeguards do we have in this bill that the legislation will not be used to perpetuate the control by management? Sometimes the displacing group has higher purposes than the group that was in control. What assurance do we have that this is not a device to provide a control of those who are vested with it? Mr. BARR. That is one reason, Mr. Vanik Mr. VANIK. This bill may be used to perpetuate the control rather than purify it. Mr. BARR. That is probably the main reason we did not ask for a veto or control power. Mr. VANIK. When you consider the case histories you talk about the young man who came into control. You know, that most of the Members of Congress who are here today or who have ever served have always displaced a more experienced man, have they not? Some of them have done a poorer job and some of them have done a better job. So you have that question about the unqualified person who is a fellow on the outside who is trying to get it. Sometimes the new management is far better than the management that was displaced. I am sympathetic to your effort to avoid losses to the FDIC, but I am also concerned about the control that this might perpetuate, because it would put everyone on notice that there is a change in management. Everyone is then liable to pry into the bank's affairs as a result people might be worried about the security of the bank and if you let this new crowd come into control, this bank will fail. It is always that threat that hangs over you. I think one of the things that makes our system good is this idea of competition and I want to preserve it insofar as it is practicable in the bank structure. Now, the thing that I am deeply concerned with is whether the medicine we prescribe here might deplete the highly competitive forces that are necessary to achieve real leadership in the financial industry? I have another question. Many bank managements today exercise their dominion over bank activities by the exercise of voting power |