Next I will briefly discuss matters included in the committee print bill which were not specifically covered by the report of the Advisory Committee. See for example, the last sentence of section 35 (a) at page 27 of the bill. There it is provided in the section dealing with interest which may be charged by a national bank, that the purchase of evidence of indebtedness from the owner shall not be deemed to be a loan or discount except to the extent that "they" may be construed as loans or discounts under the laws of the State in which the bank is located. I am informed that the purpose of this provision is to legislate away the holding of the old case of National Bank v. Johnson (104 U. S. 271). This has not been considered by the Advisory Committee. Speaking solely for myself, I believe that this is a fair provision for national banks if my understanding of its purpose is correct. For example, in my home State the Supreme Court of Missouri has held that where paper is purchased from the payee or other holder at a discount, usury is not present whatever amount the purchaser pays, as it is a purchase not a loan even though the holder endorses with recourse. (See Webster v. Sterling Finance, 195 S. W. 2d 509, 1. c. 514, Mo. Sup. 1946.) In any event, I suggest that the language be changed as suggested in the amendment which I will submit. In recommendation 44 the Comptroller suggested the need for a statute providing that reports of examinations of national banks, etc., shall be deemed confidential and privileged against disclosure to unauthorized persons except with the consent of the Comptroller. Recommendation 115E of the FDIC was comparable. Both were approved by our committee. Section 50 at page 41 of the bill implements the former and section 10 at page 153 of the bill the latter. I believe that a comparable provision should be inserted relating to the Federal Reserve Board. I mention these sections at this point because each adds a provided however clause to the effect that the privileged documents shall be made available to the committees of the Congress upon request. The Advisory Committee report at page 30 states that our committee by its approval did not intend to take a position for or against disclosure by the executive branch to the legislative branch. At page 183 of the bill, section 4 (d) of title IV makes it unlawful for any uninsured member of the Federal Home Loan Bank to advertise or represent that it is connected with the Home Loan Bank System except as may be authorized by regulation. While the advisory committee made no formal recommendation as to this, it was discussed informally and I feel certain that I properly sense the feeling of our committee when I express approval of its having been inserted in the committee print bill. In my discussion of recommendation 115b I alluded briefly to the criminal provisions which appear at pages 248 and 249 of the bill. As I have stated, these are new provisions which were not considered by the advisory committee, thus my remarks represent only my personal views. It seems to me that these provisions at pages 248 and 249 as they relate to employees of the supervisory agencies becoming employees of any institution which they may have examined is much too broad and if enacted will produce results of as serious a nature as are the results which the provisions were designed to prevent occurring. One of the big problems of banking today is the matter of obtaining qualified personnel. Without elaborating on the basic proposition, I want to say that the provisions of the bill I am referring to will for all practical purposes cut off one of the best sources of supply of qualified personnel for the banking system-the employees of the supervisory agencies. This of itself is not in the public interest, because for each instance which the provisions are designed to prevent occurring there are dozens of instances of honorable relationships which have arisen between banking institutions and former employees of the supervisory agencies. A great many leaders in banking are products of the examining agencies. There is another harmful aspect which I think merits your consideration. Means should be found and employed to strengthen the quality of bank supervision, not weaken it. I feel that these provisions will inevitably make it more difficult for the agencies themselves to obtain the services of younger qualified personnel and conceivably can result in the rapid decimation of their present complements. I therefore earnestly suggest that your committee find some way of achieving the purpose you have in mind without exposing both the banking system and its supervisors to the hazards I have mentioned. Prior to concluding, I will mention two recommendations which were made by the advisory committee which have not been implemented by the committee print- and properly so-but which our committee hopes that your committee will pass along with your favorable recommendation for action by the appropriate committees of the Congress. First, there is the matter of postal savings. Our committee believes that following the recommendations of the Comptroller General and the Hoover Commission, the Postal Savings System should be liquidated in an orderly fashion forthwith. It has outlived its original purpose and private enterprise provides adequate facilities for the savings of our people. Second, all banks, State-chartered as well as National, should by law be permitted to establish adequate and realistic bad-debt reserves under statutory formula. Our Reserves permitted by present Treasury regulations are inadequate on the basis of past experience and penalize prudent management. This inadequacy is even more pronounced if the banking system is to meet the huge and increasing demands for credit in a dynamic economy and protect the depositors. present economy requires the extension of many types of credit never before provided primarily by the banking system. As a result, the banking system must provide enormous amounts of consumer, mortgage, capital, and term credit, which types carry risks not present in banking in the historical sense. Accordingly, a new concept of the adequacy of reserves for losses for eligible loans outstanding in the banking system must be forthcoming. Consideration of the risks and the inadequacy of capital in the banking system forcibly demonstrates that any reserve less than 5 percent of eligible loans outstanding is wholly inadequate and unrealistic. The banking system should therefore be permitted to accumulate reserves in excess of this amount. Thus, the advisory committee recommends that commercial banks be permitted under the Internal Revenue Code to add to reserves for bad debts in any taxable year up to a percentage of not less than one-half of 1 percent and not more than 1 percent of eligible loans, provided that no addition under the formula to such reserves in any taxable year shall cause the aggregate thereof to exceed a percentage of not less than 5 percent and not more than 10 percent of the eligible loans. In conclusion the advisory committee again thanks you for this opportunity to be of service and trusts that its work has been of assistance to you. SCHEDULE 1 ATTACHED TO STATEMENT OF KENTON R. CRAVENS Here follows list of recommendations (by their numbers) which were approved by the report of the advisory committee and which are implemented in the committee print of bill cited as "Financial Institutions Act of 1957," which recom mendations are referred to in part I of testimony given by Kenton R. Cravens [Column A denotes number of recommendation; column B denotes page of bill where found] Senator ROBERTSON. For the benefit of the press and also of the On Wednesday, January 30, we will hear from Mr. Ben DuBois, On Friday, February 1, we will hear from Mr. James W. Grant and David R. Weinberg, representing the Credit Union National Association; from Mr. Henry H. Heimann, New York, N. Y., representing the National Association of Credit Men; from Mr. Donald E. Durick, Fort Wayne, Ind., representing the American Industrial Bankers Association; and from Mr. A. D. Shackelford, Wilson, N. C. We also have witnesses scheduled for the 2 following weeks, but they will be announced later. I have a number of letters sent in to the committee, and without objection they will be made a part of the record. (The letters referred to are as follows:) THE FIRST NATIONAL BANK, Hon. GORDON ALLOTT, United States Senate Chambers, Washington, D. C. DEAR SENATOR ALLOTT: At present a national bank is permitted to borrow on its note obligation from a correspondent bank the amount of its capital stock without consideration given to its surplus and reserves and undivided profits. In our particular case, as you can see from the December 31, 1956, statement attached, this would mean only $50,000, or about one-seventh of the total shareholder investment of $351,500. The current bulletin of A. S. Pratt & Sons, Inc., 815 15th Street, Washington, D. C., with the slogan "Serving bankers since 1867" states under proposed law revisions under recommendation of the advisory committee: "Increase in debt limit of a national bank. The committee proposes that the present limitation be increased to 100 percent of capital and surplus." The new banking code under consideration by the Colorado Legislature endorsed by the Colorado Bankers Association provides that Colorado banks operating under State charter shall be limited to "two times its capital and surplus" and, further, "or in such larger amount as the banking board approves." Under these circumstances, may I not kindly ask you to give this measure full support and to lend your influence with such Senate committee as may have it in charge? Thanking you kindly and with personal wishes, I am Very truly yours, O. A. GARRIS, President. THE FIRST NATIONAL BANK OF COLORADO SPRINGS, HON. JOHN CARROLL, SENATOR, Senate Office Building, Washington, D. C. DEAR SENATOR: This bank is greatly disturbed at the consequences should certain provisions of a bill to amend the statutes governing financial institutions and credit be enacted. The particular provision objected to concerns prohibitions and penalties levied in connection with bank examiners accepting employment in banks. The various bank supervisory agencies have for years been a training ground for bankers. Many of the heads of leading banks of the country have been bank examiners. As such an examiner, I can visualize the consequences of the rash legislation contained in the proposed amendments to section 803 (a) section 217 of title 18, United States Code, now before the Congress. The first effect of enactment of this legislation will be mass resignation of examiner personnel and a later effect will be an inability to enlist examiner personnel in the future. I trust your action in connection with this proposed legislation will be toward its rejection. Sincerely, J. F. ANGELL, Vice President. HON. JOHN CARROLL, THE FIRST NATIONAL BANK OF COLORADO SPRINGS, Senate Office Building, Washington, D. C. DEAR SENATOR: We call your attention to the bill to amend and revise the statutes governing financial institutions and credit. Under amendments to the Criminal Code we believe this new bill as written will be a strong deterrent to enlisting qualified men to serve as bank examiners and others entering the Government financial field. Where one's freedom of motion of employment is restricted, such as this bill does, we believe it immediately sets up a barrier of employment. You are aware of the general difficulty that now exists in the recruitment and development of qualified bank examiners by the Treasury Department, and this bill we feel will definitely further handicap their progress. Thanking you for your consideration in this matter, and with my very kindest regards. Sincerely, H. CHASE STONE, President. THE EXCHANGE NATIONAL BANK OF COLORADO SPRINGS, COLO., Colorado Springs, Colo., January 17, 1957. Senate Office Building, Washington, D. C. Senator JOHN CARROLL, DEAR SENATOR CARROLL: It is my understanding that you now have, or will soon have, before you a bill to amend section 803 (a) section 217 of title 18 of the United States Code governing financial institutions and credit. I would like to express my very firm opinion that present legislation on this matter has appeared to be quite adequate, with few violations. The amendment if passed, I am inclined to believe, would discourage good men from entering the Federal services named in the amendment and could easily be the means of present good, able, and conscientious servants terminating their employment in those divisions. One point specifically is that part making it unlawful to "employ or make an offer of employment to any officer or employee of the Comptroller of the Currency, etc. within a period of 2 years." Many good men go from the Federal services into banks. Many men go into the Federal service as a foundation for experience to qualify them for banking. If such a person cannot talk about a position within 2 years after he leaves the service, it might well be that he would not enter the Federal service for that very reason. I believe it is true that the Comptroller's office is having a hard time getting and keeping outstanding young The proposed amendment could very well aggravate that situation. Most sincerely, men. JASPER ACKERMAN, President. THE FULLERTON NATIONAL BANK, SENATE BANKING AND CURRENCY COMMITTEE, Washington, D. C. SIR: The text of the committee print bill has been reviewed by the writer and as a whole I believe the committee is to be commended for their sound views and proposals. There are some proposals, however, in which I do not concur and I am presenting my views and comments for your consideration: Section 22 (b) TITLE 1, NATIONAL BANK ACT My objections to this proposed section are: 1. Further intrusion upon the rights of proprietorship, with increasing bureaucratic power and control of private enterprise. 2. The legislation is admittedly for the control of a very nominal number of banks and could easily unduly penalize the smaller banking institutions who have built up a large capital account. Present legislation covering removal of officers because of "unsafe and unsound practices" would seem to be adequate to provide control of the cases which were presented at the hearings. 3. In my opinion, this legislation would tend to discourage the retention of profits in the capital account and would be conducive to the reduction of earnings by excessive salaries, fees, etc.-at the expense of the shareholders. |