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Under plan No. 1, the Secretary of the Treasury would be given full power over funds of the Comptroller's office, its records, property, and personnel. Fees now paid by national banks for efficient supervision and examination, would be available to the Secretary of the Treasury for whatever use he might decide to make of them. In my opinion, the approval of Recorganization Plan No. 1 would be the forerunner of another proposal which would attempt to transfer to the Board of Governors of the Federal Reserve System or the Federal Deposit Insurance Corporation all the supervisory, regulatory, and other necessary functions of the Comptroller of the Currency.

I might say further in this connection that a plan similar to this might be offered to take over both the FDIC and the Federal Reserve Board and to combine them all under the Secretary of the Treasury.

Any move which might lead to the monopolistic control of all banking in the United States by one Federal agency, must eventually destroy the dual banking system and invade States' rights in the supervision of State-chartered institutions by the respective State banking supervisory authorities.

Our association believes that every member of the banking profession, State and national alike, is unalterably opposed to Reorganization Plan No. 1. In the interests of preserving our strong dual banking system and the efficient, nonpolitical and independent supervision of national banks, we urge the members of this committee to approve the resolutions presented to the committee requesting that this proposal be defeated.

I wish to thank the members of the committee for affording me an opportunity to present the views of the National Association of Supervisors of State Banks on such an important and vital proposal affecting our sound American dual system of banking.

The CHAIRMAN. Mr. Brumbaugh, you express a fear that this plan may harm or weaken the dual banking system. How could it so operate?

Mr. BRUMBAUGH. By the elimination of the Comptroller's office and placing the examinations in the Federal Reserve and the FDIC. Most of the State banks now are members of the FDIC, and there would be the possibility of the examinations being transferred to those various agencies.

The CHAIRMAN. Do you think this plan gives to the Secretary of the Treasury such powers as would permit him to abolish the Office of the Comptroller of the Currency?

Mr. BRUMBAUGH. Personally I would see no reason why he could not have that power under this bill.

The CHAIRMAN. How would he obtain those powers? The plan is not that specific.

Mr. BRUMBAUGH. The plan gives him the power, though, to take charge of the supervision of the banks when he takes over the duties of the Comptroller of the Currency.

The CHAIRMAN. You mean he might in effect abolish the office by transferring all of the functions that the Comptroller now performs to other offices or to other agencies within the Treasury Department?

Mr. BRUMBAUGH. At the present time the Federal Reserve examines the member banks. The FDIC also examines banks that it has insured, except the national banks. It would be very easy to abolish the Comptroller's office and place the examining power in those two agencies.

The CHAIRMAN. Do you mean you think this plan would vest in the Secretary of the Treasury power to transfer to another agency functions of the Comptroller of the Currency as now provided by law and statute?

Mr. BRUMBAUGH. I think it could bring that about, upon recommendation of the Secretary of the Treasury to the Congress to give him that permission.

The CHAIRMAN. How would it destroy the effectiveness of our dual banking system? You have used that expression destroying the effectiveness of our dual banking system. How would it destroy it? How would it impair it in any way?

Mr. BRUMBAUGH. The Secretary of the Treasury, who is naturally a political appointee, would have the power to regulate the national banking system through the Office of the Comptroller of the Currency, which now is independent. Naturally, with that power, he could bring about such competition within the State banks that it would practically eliminate them.

The CHAIRMAN. You further state in your testimony that fees now paid by national banks for efficient supervision and examination would be available to the Secretary of the Treasury for whatever use he might decide to make of them. You were present a few moments ago when the Director of the Budget testified that that would be impossible under existing law, that he could not take those funds and transfer them or divert them to other functions or expenses of the Department. Do you feel now that you are mistaken in that statement that the fees derived from the banks, which now go to the Comptroller of the Currency and pay the expenses of that Office, could be used for other purposes? Do you feel now that'

you were mistaken in that view and that the Secretary is without power to use those funds for other purposes?

Mr. BRUMBAUGH. I wouldn't be qualified to say that they could be used for other purposes without further study of the present act.

The CHAIRMAN. In other words, you stated your first impression about it in your statement.

Mr. BRUMBAUGH. That is correct.

The CHAIRMAN. I just observe that the Director of the Budget testified that under the present law, even if this reorganization plan went into effect, the Secretary could not take these funds and use them for some other purpose. Now you are not quite sure about it.

Mr. BRUMBAUGH. I am not as sure since he made that statement.

Senator O'CONOR. Mr. Chairman, may I just amplify your statement by a reference to the law which I think specifically prohibits any such use, which confirms of course the chairman's statement. I read from subsection 4, which, after indicating just what use shall be made of unexpended balances, has this final clause:

But such unexpended balances so transferred shall be used only for the purposes for which such appropriation was originally made.

The CHAIRMAN. That is in the Reorganization Act itself. Of course, my opinion is just the opinion of one member of this committee or one man's opinion, but I believe under the Reorganization Act that the transfer of funds only goes with the agency, the transfer

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of the agency or the functions of the agency, to be used for the purpose for which they were appropriated by Congress, and are not subject to diversion to some other purpose. I think that is correct. I think that is a safeguard that was placed in the Reorganization Act.

Senator O'Conor. Certainly a reading of this section, Mr. Chairman, would bear out what you have said.

The CHAIRMAN. I just mention that because, irrespective of other objections to the plan, I rather believe that that objection is not tenable. I may be mistaken in that.

Are there any questions?

Senator IVES. Yes; I have a question. I gathered from the fear which you expressed on page 2 of the statement which has already been referred to by the chairman

In my opinion the approval of Reorganization Plan No. 1 would be the forerunner of another proposal which would attempt to transfer to the Board of Governors of the Federal Reserve System or the Federal Deposit Insurance Corporation all the supervisory, regulatory, and other necessary functions of the Comptroller of the Currencythat you feel that by this transfer of authority, by the elimination of a certain amount of competition, you would be placing the State banks perhaps in a position where they couldn't compete, and that this is a step toward the nationalization of the banking system?

Mr. BRUMBAUGH. That is correct.
Senator Ives. Is that your fear?
Mr. BRUMBAUGH. Yes, sir.

Senator Ives. I wanted to drag it out of you because I suspected that is what you had in mind all the time.

Mr. BRUMBAUGH. You were correct, sir.

Senator Ives. In other words, this is a case where the camel sticks his head under the tent the first time.

Mr. BRUMBAUGH. That is correct.
Senator Ives. Thank you.
The CHAIRMAN. Senator Schoeppel.

Senator SCHOEPPEL. Mr. Brumbaugh, I know that you appreciate now the feeling on the part of the State as well as the National banks that there are certain independent characteristics of our present set-up.

Mr. BRUMBAUGH. Yes, sir.

Senator SCHOEPPEL. I want to ask you the same question I asked Mr. Lawton: Where have any glaring weaknesses developed in the present method of operation of our banking system in this country? Do you know of any?

Mr. BRUMBAUGH. I do not know of any at the present time.

Senator SCHOEPPEL. Then do you know of any instances where the public interest has suffered?

Mr. BRUMBAUGH. I think it has been well served, and I don't think the public has suffered any under the present set-up.

Senator SCHOEPPEL. That is all.
The CHAIRMAN. Senator Benton?

Senator BENTON. Mr. Brumbaugh, it is my impression that the Federal Reserve Board, the FDIC, and even the SEC were legislated by Congress to correct glaring weaknesses in the banking system. It is my recollection that the banks opposed these virtually with the

same unanimity which the banks are now opposing this reorganization. I am greatly taken with the chairman's phrase "first impression,” and I am wondering how much of the opposition here comes from what he has called first impressions. For instance, on this question of tight money against loose money and the political manipulation to which the banks now become subject under greater authority in the Secretary of the Treasury, is there not much more in the present control of the Federal Reserve Board than it could possibly become through anything that might happen to the Comptroller? I mean this whole subject that Senator Robertson dealt with. I only give that as an illustration of the powers now vested in the Federal Reserve Board.

Mr. BRUMBAUGH. If you place the Comptroller of the Currency in the position where he is subject to the wishes of the Secretary of the Treasury and you should get a politically minded Secretary of the Treasury who is more interested in the furtherance of the administration than in the soundness of the banking system within the Nation, you might have a tendency there to bring about inflation which would be disastrous to the country. At the present time, with the Comptroller of the Currency possessing independence, it certainly seems to me to be in the best interest of the country to keep that Office independent.

Senator BENTON. Do you want to comment on my specific question as to the control of the Federal Reserve Board over this particular area, such as our credit policy?

Mr. BRUMBAUGA. Having been the president of a national bank, I know that the Comptroller of the Currency can exercise a great deal of authority over the banks he supervises by requiring them to carry Government securities, to reduce their loans, and to really control through examinations the assets and liabilities of the bank. In other words, at the present time there is criticism on the ground that banks are not permitted to loan sufficient funds in their communities and that they are required to buy a certain amount of Government securities in order that they may be in good liquid condition, which is also the goal of State supervisors. There is no doubt that the Comptroller of the Currency exercises almost entire control over the national banks. If he had to follow the dictation of the Secretary of the Treasury and it was deemed necessary for the banks to buy more Government securities to finance the Government, he could so demand. That would naturally not be in the best interests of the banks or of the Nation as a whole, as I see it.

Senator BENTON. There may have been times in our history when it might have been in the best interests of the banks and of the Nation as a whole, but I will not go into the historic reference further.

Mr. BRUMBAUGH. Please understand that we all believe in the banks keeping absolutely liquid today. We certainly do not want them to get in an overloaned situation such as they were back in the 1930's. We are trying to avoid a repetition of that experience. With that objective in mind, all the State supervisors are working together with the Comptroller of the Currency. We have our joint meetings and have cooperated wholeheartedly with each other. I think the situation now is better than it has been for many years.

The CHAIRMAN. Any other questions? We thank you very much, Mr. Brumbaugh.

That concludes the witnesses scheduled to testify this morning. I note that we have eight witnesses scheduled for tomorrow. We will try to meet promptly at 10 o'clock and allow them 15 minutes each so that we may conclude by 12.

The committee will stand in recess until tomorrow morning at 10 o'clock.

(Whereupon, at 11:30 a. m., the committee recessed until 10 a. m. Wednesday, April 12, 1950.)

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