34

1 vidual, shall be applicable to every nonmember insured bank

2 in the same manner and to the same extent as if such non

3 member insured bank were a State member bank.

4

5

"(3) Any nonmember insured bank which violates or

any officer, director, employee, agent, or other person partici6 pating in the conduct of the affairs of such nonmember in

7 sured bank who violates any provision of section 23A or 22

8

(h) of the Federal Reserve Act, as amended, or any lawful 9 regulation issued pursuant thereto, shall forfeit any pay a 10 civil penalty of not more than $1,000 per day for each day 11 during which such violation continues. The Corporation shall 12 have authority to assess such a civil penalty, after giving 13 notice and an opportunity to the nonmember insured bank 14 or other person to submit data, views, and arguments, and 15 after giving due consideration to the appropriateness of the 16 penalty with respect to the size of financial resources and 17 good faith of the bank or person charged, the gravity of the 18 violation, the history of previous violations, and any data, 19 views, and arguments submitted. The Corporation may col20 lect such civil penalty by agreement with the bank or other 21 person or by bringing an action in the appropriate United 22 States district court except that in any such action, the bank 23 or other person against whom the penalty has been assessed 24 shall have a right to a trial de novo. As used in this section, 25 the term 'violates' includes without limitation any action.

35

1 (alone or with another or others) for or toward causing, 2 bringing about, participating in, counseling, or aiding or 3 abetting a violation.".

4 SEC. 8. (a) Section 5240 of the Revised Statutes (12 5 U.S.C. 482) is amended by inserting after "The expense of 6 examinations herein provided or shall be assessed by the 7 Comptroller of the Currency upon national banks in pro8 portion to their assets and resources." the following new sen9 tence: "The expenditures by the Comptroller of the Currency 10 during any fiscal year beginning September 30, 1977, may 11 not exceed the limitation provided by such expenditures or 12 that year in an appropriation Act.".

13

(b) Section 10 (a) of the Federal Deposit Insurance 14 Act (12 U.S.C. 1820A) is amended by adding after the 15 second sentence thereof the following new sentence: "The 16 expenditures by the Board of Directors in any fiscal year 17 beginning after September 30, 1977, except expenditures of 18 the Corporation for loans to, the purchase of assets of, or 19 deposits in insured banks, or for the payment of insured 20 deposits, may not exceed the limitation provided for such 21 cxpenditures for that year in an appropriation Act.”.

222

(c) Section 120 (i) of the Federal Credit Union Act

23 is amended by adding at the end thereof the following flush

24 sentence:

36

1 "The expenditures by the Administration in any fiscal year 2 beginning after September 30, 1977, except in connection 3 with its functions as a liquidating agent under section 207 4 or in payments of insured accounts, may not exceed the 5 limitation provided for such expenditures for that year in 6 an appropriation Act.”.

7

SEC. 9. Any amendment made by this Act which pro8 vides for the imposition of civil penalties shall apply only 9 to violations occurring or continuing after the date of its 10 enactment.

11

SEC. 10. Section 22 (g) of the Federal Reserve Act, as 12 amended (12 U.S.C. 375a), is amended by inserting the 13 figure "$60,000" in lieu of the figure "$30,000" in para14 graph (2), and by inserting the figure "$20,000" in lieu of 15 the figure "$10,000" in paragraph (3); and by inserting 16 the figure "$10,000" in lieu of the figure "$5,000” in para17 graph (4).

FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, D. C. 20429

1377 MAR -4 F 3: 07

March 3, 1977

Honorable William Proxmire

Chairman

Committee on Banking, Housing

and Urban Affairs

United States Senate
Washington, D. C. 20510

Dear Mr. Chairman:

This responds to your request for a report on S. 71, 95th Congress, a bill "To strengthen the supervisory authority of the Federal banking agencies over financial institutions and their affiliates." One major difference between S. 71 and S. 2304, 94th Congress, which was a bill recommended by the banking agencies last year, is the addition of section 8 which would subject expenditures of the FDIC, the Comptroller of the Currency and the National Credit Union Administration to the appropriations process. This section was not a subject of the hearings held during the last Congress, and we had no opportunity to present our position before Committee action added it to the original S. 2304. As soon as we discovered what action the Committee had taken, we sent you a letter, a copy of which I attach hereto. We believe the arguments the letter makes are still valid and we therefore strongly oppose section 8 and urge its deletion from the bill.

As far as FDIC activities are concerned, we are presently subject to periodic financial audits by the General Accounting Office pursuant to section 17 of the Federal Deposit Insurance Act (12 U.S. C. 1827). While there has been a long-standing difference of opinion between the FDIC and the Comptroller General as to whether this statute requires the Corporation to permit the GAO general access to reports of examination of open banks, we have recently concluded as a matter of policy that the GAO will be granted access on a trial basis to open bank examination reports in accordance with the general guidelines agreed to in the context of the GAO's recent study of the Federal bank supervisory process. (See my attached January 26, 1977 letter to Comptroller General Staats.) We believe that such periodic GAO audits, coupled with periodic oversight hearings by the responsible Committees and Subcommittees of Congress, can

91-727 O 77 17

achieve the Congressional objective of holding the FDIC accountable for the efficient performance of its statutory duties, without incurring the substantial risks involved in subjecting the Corporation to the appropriations process.

The appropriations process, if it had been in place in the past several years, would have made public the FDIC's conclusion that a number of bank failures were likely during the recession because of the increase in the Corporation's Liquidation Division of one hundred new personnel versed in liquidating failed banks. It is difficult to imagine a more potentially dangerous circumstance: national recognition before the fact that the FDIC believed it needed to dramatically increase its liquidation staff. It is almost certain that erroneous speculation over the meaning of this conclusion, which no amount of reasoned explanation could have corrected, would have led an already very nervous public to erroneously question the safety of its bank deposits.

The Corporation's ability to debate and reach its conclusions about the direction of the nation's economy and to implement its contingency plans free of the publicity inherent in the appropriation process is of significant importance to the nation's economic health.

In debate on this same idea, Senator Vandenberg said in 1947:

"No one has yet had the temerity to propose that the Federal
Reserve System should be robbed of its independence and
subordinated to a political bureau of the Government. Yet,
[the FDIC] is an institution which is even more sensitive with
respect to the necessities for its independence. " (emphasis
added)

It is important to remember that the system of Federal deposit insurance was not established merely to protect individual bank depositors and to mitigate the consequences of specific bank failures. Rather the FDIC and its independent trust fund were conceived by Congress at the depths of the Great Depression as a means of restoring and maintaining confidence in the nation's banking system. Prior to the establishment