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CONTENTS

ment of

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on. John W. Pole, Comptroller of the Currency.

6

r. A. P. Frierson, president East Tennessee National Bank..

57

Ir. McLane Tilton, Charlottesville, Va.--

85

on. Ashton C. Shallenberger, Member of Congress.

101

Hon. John L. Cable, Member of Congress...

112

on. Edgar Howard, Member of Congress

116

fon. Robert L. Owen, former Senator from Oklahoma..

117

on. William W. Hastings, Member of Congress..

135

Prof. Irving Fisher, Yale University, New Haven, Conn..

143

rof. Albert Mehrback, East Orange, N. J.--.

155

Ir. Ronald Ransom, president, Georgia Bankers Association, Atlanta,

Ga..

169

fr. William S. Elliott, vice president Bank of Canton, Canton, Ga., also

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0 PROVIDE A GUARANTY FUND FOR DEPOSITORS

IN BANKS

MONDAY, MARCH 14, 1932

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE OF THE COMMITTEE ON

BANKING AND CURRENCY,
Washington, D. C.

he subcommittee met this day at 10.30 o'clock a. m., Hon. Henry Steagall (chairman) presiding.

resent: Messrs. Steagall (chairman), Stevenson, Brand, and Fadden.

he CHAIRMAN: Gentlemen, the subcommittee on H. R. 10241 been called for the purpose of beginning hearings. The purof this bill is to revive independent banks, to encourage investit in the capital of independent banks, and to restore confidence anks by providing for the guaranty of deposits.

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The bill amends existing law so as to require national_banks after organized to have a minimum capital of $50,000. Section rovides that no association shall be organized without an initial plus amounting to 10 per cent of its capital stock. An excepis made in the case of an association formed for the purpose ucceeding to the business of an existing bank, which is permitto be organized with a capital of not less than $25,000 in the retion of the Comptroller of the Currency. These provisions ing the minimum capital and surplus requirement seem to be erally accepted as constructive and desirable. The report of Comptroller of the Currency discloses that near 60 per cent of ures for the past 10 years have been of banks with capital of 000 and less. It can not be fairly contended that all the failures hese banks are due to inadequate capital structure but unquesably it is not wise to permit a bank with such a minimum of ital stock to accept deposits from the public in unlimited unts. When initial expenses and overhead costs are absorbed little is left as margin to safeguard deposits. The requirement larger capital stock and surplus would be highly advantageous he stockholders themselves as well as to the public at large. The bill amends existing law by striking out the provision which ders shareholders of national banking associations liable to assessits in amounts equal to the shares held by them in addition to amount invested in such shares. The provision for assessment liability upon shareholders of national banking associations is nded to operate as an additional protection for deposits. al practice it has been found that this protection is of little prac

In

tical value. Only 16 per cent of the liability is collected in cases of insolvent banks liquidated. These collections are usually made upon shareholders of national banking associations not directly connected with the operation of banks but in many cases citizens who merely invested their money to aid in promoting the interest of the community. Many instances are disclosed of heirs inheriting investments in bank stock that turned out to be liabilities entailing hardship and injustice. This has happened so often that the public no longer looks with favor upon investment in bank stock. Citizens no longer care to incur the risk of assessment in addition to money subscribed. The amendment removing that liability will encourage the organization of banks in communities where banking facilities have been destroyed without depriving depositors of any very substantial protection. The amendments apply to banks hereafter organized.

The bill amends the Federal reserve act by providing that Federal reserve banks shall pay one-half of net earnings to member banks to be prorated on a basis of capital stock held by member banks in Federal reserve banks and the other half of net earnings to a fund for the guaranty of deposits. Existing law provides that member banks shall be paid 6 per cent cumulative dividends on their capital stock and that Federal reserve banks shall set aside 10 per cent of earnings to surplus account. Under the bill this will be continued but any remaining earnings will be divided between member banks and a fund for the guaranty of deposits.

One provision would require Federal reserve banks to give immediate credit to member banks upon checks received. It is now the practice of Federal reserve banks to defer payment of checks received from member banks until actually collected or for the period which is estimated to cover the time required for making collection. Federal reserve banks are permitted to charge current rate of interest to cover the time of collection. This charge would be of considerable aid to member banks in maintaining necessary balances and would be especially help at seasonal periods when cash requirements are accentuated on account of marketing of crops.

The bill provides that member banks shall be permitted to charge at a rate not exceeding $0.10 on a hundred dollars for the remittance of checks. This provision embodies what was known as the Hardwick amendment, which was voted on favorably by the Senate and which the House instructed conferees to accept in conference. There was a record vote on the proposition in the House and the bill we are considering adopts the language of the Hardwick amendment upon which the House voted affirmatively on an aye-no vote. I shall not trace the history of the legislation further than this. Many Members will remember what took place. The conferees followed the instructions of the House, but added a provision to the Hardwick amendment which limited and defeated the operation of the amendment as contemplated by the House. We are advised that banks coul learn amounts equal to a reasonable dividend on capital stock if permitted to charge for this service, which they are now required to perform for nothing. In my judgment, this has played a large part in bringing on the difficulties in which many banks have foun 1 themselves in recent years and which caused the failure of many small banks. This provision of the bill would enable banks

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