I appreciate this opportunity to respond further to your question, and respectfully request my comments be submitted for the record.

Sincerely,

J. CHARLES PARTEE.

The CHAIRMAN. I think you have given us the best answer of all for a banking commission; we are totally at sea, we need a raft. Thank you very much. The committee will stand adjourned. [Thereupon, at 12:05 p.m. the hearing was concluded.]

FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St. N.W., Washington, D.C. 20429

202-389-4221

I. INTRODUCTION

This report summarizes some of the results of the special survey

of loans secured primarily by the stock of other banks and bank holding companies; loans to executive officers, directors and major stockholders of other banks; loans to executive officers, directors and major stockholders of the reporting bank, their business interests and their immediate families; and overdrafts to insiders of the reporting bank, insiders of other banks, and to public officials. In response to the express request of this Committee, the Federal Deposit Insurance Corporation, in cooperation with the Comptroller of the Currency and the Board of Governors of the Federal Reserve System, surveyed all insured commercial banks. The initial Committee request was transmitted by Chairman Proxmire in his August 1, 1977 letter (Appendix A) and later amplified and modified during the September 26, 27, and 28, 1977 oversight hearings and in discussions among the staffs of the three agencies and the Committee.

By late September, a preliminary survey form was developed. However, as a result of further Committee requests made during the September oversight hearings, it was necessary to do considerable additional work. The final draft of the survey form was submitted to the Committee on October 17, 1977. A few minor changes were made in response to Chairman Proxmire's October 19, 1977 letter and the final forms were sent to the printer. Distribution of the forms to the banks commenced on October 28, 1977 and was completed within one week (Appendix B). To assist bankers in completing the forms, toll-free telephones were established at the FDIC.

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Because of the Committee's desire to have information as soon as

possible, every effort was made to expedite design and distribution of the survey forms. Despite the careful scrutiny many persons gave to the survey forms, severe problems developed; this was due to the pressure to distribute the forms quickly leaving no time for customary field testing of the forms. Many banks misinterpreted questions on Schedules II, III and IV of the survey. The FDIC sent follow-up letters to all insured commercial banks on November 29, 1977 alerting them to the difficulties (Appendix C). Subsequently, it was determined that the only way to assure good quality data was to telephone each bank where errors were suspected. After keypunching and editing of the data were substantially completed, the telephoning commenced. Approximately 10,000 banks were contacted by a team of 30 examiners and financial analysts supplied by the three agencies. As a result of these efforts, several sets of tables summarizing the survey results have been transmitted to the Committee over the last two weeks. Although the data contained in these tables reflect efforts to obtain the highest possible degree of accuracy, the editing process was difficult because reported data could not be verified easily or quickly in terms of individual bank records. Because of time constraints, the editing process concentrated on major problem areas and did not address systematically a variety of possible problems.

Data reported in the accompanying tables (Appendix D) cover 14, 137 of the 14,436 banks in operation on September 30, 1977. The current data file includes 99.5 percent of the banks with more than $300 million in assets, 97.4 percent

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with $100 to $300 million in assets, and 97.9 percent with less than $100 million

in assets. Of the 299 banks not included in the current data file, 70 have

failed to respond to the survey, and the remaining 229 banks are still undergoing

editing.

Results of each of the survey parts are summarized in the four following sections of this report: (1) bank and bank holding company stock loans; (2) loans to insiders of other banks; (3) loans to insiders of reporting bank; and (4) overdrafts. This summary and analysis of results is limited to the highlights. Copies of the survey forms and instructions are included in Appendix B and can be examined for specific details concerning the scope and nature of the survey. The reported data are also being used by the agencies to assist them in discharging their supervisory responsibilities.

As of March 15, 1978, the three agencies' total estimated expense connected with the survey exceeded $850,000. More than half of this amount was out-of-pocket expenditures for data processing, telephones, printing and postage. The remaining expenses were primarily for personnel. Furthermore, based on a sample of banks called by the FDIC, it is estimated that banks spent more than $3,000,000 on the survey.

II. BANK AND BANK HOLDING COMPANY STOCK LOANS

A. Introduction

In Schedule I of the survey form, each bank was required to provide detailed information on loans secured primarily by stock of other banks or bank holding companies. In addition, the reporting bank was required to submit information for every loan secured by stock that had a balance of