missions, in and out of government, have suggested all manner of expedients during the past 2 years.

May I repeat, Mr. Chairman: The bill before your committee is designed to do, and would do, just one thing-it would unify Federal supervision of banking. But simply by doing this, it would accomplish much more. It would end much friction and conflict among banks and bank supervisors. It would eliminate wasteful duplication and overlapping among agencies. It would abolish the existing "triple standard" and enable the banking industry to operate under a single, consistent set of rules, as far as Federal supervision is concerned. It would do away with a dangerous tendency toward a "race of laxity" in bank supervision that will lead, at an accelerating rate, to deterioration of the standards of sound banking which it is a function of bank supervision to maintain. And it would enable the Federal Reserve Board, of which I am a member, to devote its time and attention exclusively to its most vital-and increasingly difficult-function: The formulation and execution of monetary policy for the leading industrial nation of the world.

I do not wish to give the impression that, by escaping from the chamber of horrors in which we find ourselves, we shall automatically emerge into a brave new world when the pending bill is enacted. If one were to say that, of course it would be a misleading oversimplification. H.R. 5874 would not solve all questions of banking-its laws and regulations and its supervision. The bill does not purport to do anything of the sort. It would not chnage the substantive laws and regulations under which the American banking system operates. It would not-it could not-solve the complex problems of accommodation that are inherent in a dual banking system. It would simply set in order the house of Federal bank supervision so that more fundamental problems could thereafter be dealt with in an effective and constructive way.

In view of the foregoing, how are we to account for the absence of universal enthusiasm for this bill? For lukewarm acceptance in some quarters, and downright opposition in others?

In my opinion, it is due principally to lack of complete understanding of the bill and its effects. Everyone has more jobs to do than he can get done-immediate jobs, more exigent than reading and analyzing a document that looks as formidable as H.R. 5874. And unless a proposal is comprehended, there is an understandable fear of the unknown, and an inclination to support the status quo. But since last week, when the excellent analysis prepared by the staff of this committee became available, there is no longer any excuse for such lack of understanding and fear of the unknown.

I hope it is realistic, rather than unduly cynical, to say also that it is easier, especially for one who has not read this bill, to take a negative stand. When one supports a measure, he may be asked to explain its provisions, but that burden is seldom imposed on the "disinterested observer" or the opponent. This is particularly true, it seems, if opposition is based on one of the accepted cliches. I should like to mention a few of these, and to comment on them: (1) "The bill would create a Federal super agency in the banking field." (2) "H.R. 5874 would jeopardize the dual banking system." (3) "This proposal would result in a dangerous concentration of power over banking," or swing

ing around 180 degrees, (4) "A unified Federal agency would soon become the spokesman for the banking industry rather than its supervisor." And finally, (5) "If there is one thing we don't need it's another Federal commission."

As applied to H.R. 5874, all of these cliches are superficial and erroneous. Some, I regret to say, seem to be red herrings drawn across the trial by persons who are opposed to improvement in Federal bank supervision for reasons that are not in the public interest. Neither this problem nor any other will be solved if we defer to wellworn catch phrases. Charges of the kind I have described must be examined in the light of the facts, the realities, and when so examined they prove to be without substance.

The pending bill simply does not "create a Federal superagency." The proposed Commission would have no new powers over the banking industry, but only those that are now exercised by one or more of the three agencies. This is not quite true; it would have one new and important power-the power to administer the Federal banking laws in a consistent, equitable, and efficient manner, to establish uniform ground rules that would aid, rather than impede, the progress of the entire banking industry and equalize competitive opportunities within it.

What of the charge that H.R. 5874 would jeopardize the dual banking system? Again, it is difficult to say more than "It simply isn't so." If the charge was made that, by holding these hearings, this committee was threatening freedom of the press or of religion, you would find it difficult to formulate a "refutation," other than by asking, "How on earth are we doing that?" Equally groundless is the charge that the pending bill would jeopardize the dual banking system; it sounds less absurd only because we have grown accustomed to hearing that charge leveled at many proposals. On the contrary, enactment of this bill would tend to strengthen the dual banking system. State bank supervisors and their association would find it possible, for the first time, to solve problems common to State and national banks, member banks of the Federal Reserve System and nonmembers, by working with a single Federal agency. Again and again such problems have failed of solution because Federal authority was divided among three organizations, each with its own views.

Furthermore, H.R. 5874 provides that the costs of supervision of all insured banks, State and National, shall be met out of deposit insurance assessments. In a number of States, because of insufficient funds, bank supervisors have been unable to maintain a staff adequate to carry on the work of their departments, and have had to rely on assistance from Federal examiners. The arrangement provided by the pending bill, by relieving this situation, would enable those States to raise the quality of their own supervision to a satisfactory level. As this is accomplished, it is contemplated, Federal examination of banks in those States would become less necessary and gradually would be terminated. If this plan succeeds, within a relatively few years we would have a dual banking system in which State banks ordinarily would be examined only by the State authorities, and national banks by the Federal.

As I said before, it is not easy to grapple with the statements of those who oppose the pending bill. For example, how does one deal

with the charge that the proposed Commission would have too much power or too little power? Is it unreasonable to place the burden on those who make these claims, to ask them to show, by chapter and verse, by facts and reasoning rather than unsupported conclusions, how the plan embodied in this bill would produce any of the evils they describe?

The last of the cliches I mentioned is that rarity, a fallacious argument that can be refuted by arithmetic. The objection that the bill would create another Federal agency simply has the facts backward; the bill actually would result in one less.

No doubt the members of this committee have read the recent report of the President's Committee on Financial Institutions. I read the chapter on "Supervision and Examination" with particular interest. That chapter took up some of the adverse arguments I have mentioned, and, it seemed to me, demonstrated their unsoundness in polite but pointed words. Regrettably, however, but perhaps understandably in view of its composition, the President's Committee, when it reached the time for conclusion, backed most of the way down the hill it had so successfully mounted. Although recognizing the defects of the present supervisory arrangement on the Federal level and that these defects could be corrected along the lines of the bill now before you, the report temporized by recommending that "existing agencies should strive to achieve greater cooperation and coordination" and that only after the present unsatisfactory system is tried for a while longer should "consideration *** be given" to "consolidation of bank supervision." I feel sure that this committee and the Congress are in a position to act more decisively.

If we were now setting up, for the first time, a system of Federal bank supervision, no one would be so foolish, or dare to be so disingenuous, as to suggest dividing the authority among multiple agencies. By historical accident, however, we find ourselves saddled with such a system, with defects that no witness before your committee can successfully deny. Before you is a measure which can end the present confusion, duplication, inconsistencies, inequities, and waste by creating a unified system of Federal bank supervision that could not fail to be more efficient, economical, fair, and constructive.

The objections that have been advanced are found to be lacking in substance, when they are scrutinized and analyzed realistically. Quite apart from opposition due to plain lack of understanding of the proposal, there may be some who oppose it for reasons other than concern for the public welfare; for example, fear of loss of jobs, power or prestige, or of opportunities to play off one supervisor against another by shifting (or threatening to shift) from the jurisdiction of one Federal agency to another that may be more lenient. Aside from these, we find that most of the alternatives that have been offered, in lieu of action along the lines embodied in this bill, are to struggle along with the present setup, admittedly unsatisfactory, for a while. longer, or to adopt some halfway measure that is only another patch, or a palliative. But there is no valid reason for delaying the needed change; the sooner the structure of bank supervision is strengthened, the sooner will the benefits be realized. This committee and the Congress have an immediate opportunity, by enacting the pending bill, to make a fundamental improvement, long overdue, in the supervision

of the American banking system and, thereby, to aid in promoting our country's economic welfare.

I feel compelled to make one further comment. Of course, unification of the supervisory functions is more important than the administrative locus of the combined functions. Instead of a separate Commission such as is provided in this bill, the consolidated functions could be vested, for example, in the Federal Reserve System, as was suggested by the Commission on Money and Credit of the Committee for Economic Development. In my judgment, however, this would be a decidedly inferior solution.

In the first place, the Board of Governors of the Federal Reserve System is fully burdened with functions relating to domestic and international monetary matters. It hardly has enough time, over and above that which is needed to deal effectively with this principal responsibility, to carry on supervisory activities with respect to the 1,600 State member banks alone. How it would find time to discharge, effectively, supervisory functions covering over 13,000 insured banks is beyond my imagination!

Some witnesses may tell you that bank supervision is a necessary adjunct to the Federal Reserve's responsibilities in the field of money and credit. In response, I would say that bank supervision is too important in the public interest to be treated as an adjunct to any other function. But, even more important, the basic contention is fallacious. The Federal Reserve could function as a central bank at least equally well, in my judgment, better, if it were to devote its full time to the formulation and execution of monetary policy and were not engaged in bank supervision at all. It could get better statistical data concerning banks from the unified Federal Banking Commission than it can now get from the existing supervisory agencies, because the reporting system would be uniform for all insured banks and the long and wearisome debates on whether to call for this or that item of information would be ended. If it needed to supplement that material, it would have power to make a direct call upon member banks. And, of course, it would be obliged, as it is now, to get pertinent information concerning their operations from all banks that borrow from the Federal Reserve.

In my judgment, the views of those men who engage in the formulation of monetary policy are not affected in the slightest by the fact that the man who examines a given bank happens to be on the payroll of the Federal Reserve rather than some other agency.

Finally, the argument may be advanced that if unification takes place, the agency might become the captive of the industry. All I can say in rebuttal is that I have too much faith in responsible Government officials to think that risk should be given much weight; if the argument were sound, it would follow that the Interstate Commerce Commission, the Securities and Exchange Commission, the Federal Communications Commission, and so on, should each be split into two or three agencies. But if the risk does exist, its eventuation would be far more calamitous to the general welfare of the Nation if the captive agency also was responsible for the formulation of monetary policy, one of the most vital functions in a free enterprise economy such as ours. Hence, in my view, the plan of unification set forth in H.R. 5874 is markedly preferable.

I wish to assure the committee that as protagonist of the idea upon which this bill is based, I would welcome a return engagement, if you should so desire, for the purpose of responding to any arguments which may be advanced in opposition or to answer, as well as I can, questions that may occur later to members of the committee.

Mr. MULTER. Thank you, Governor.

Mr. MARTIN. I think next we will ask Governor Mills to present his paper, if that is agreeable, Mr. Chairman.

Mr. MULTER. Governor Mills, we shall be glad to hear you.

STATEMENT OF ABBOT L. MILLS, JR., MEMBER, BOARD OF GOVERNORS, FEDERAL RESERVE SYSTEM

Mr. MILLS. Mr. Chairman, I welcome the privilege of appearing before you and the members of your committee to comment on H.R. 5874. As you will discover, the line of my reasoning follows a very different path than that of my colleague, Governor Robertson.

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I am Abbot L. Mills, Jr., a member of the Board of Governors of the Federal Reserve System, on which I have served since February 18, 1952; first, under appointment by President Truman to complete the unexpired term of office of the Honorable Marriner S. Eccles, and since February 21, 1958, under reappointment by President Eisenhower to a full term of office. Prior to service on the Board of Governors, I was engaged in commercial banking in Portland, Oreg., for 32 years. the time of my appointment to the Board of Governors, I was first vice president and a director of the United States National Bank of Portland. My experience in the field of banking has afforded me the opportunity to observe the workings of commercial bank supervision and regulation, both from the point of view of the supervised and of the supervisor. In the light of my experience, I have come to the conclusion that enactment of H.R. 5874 would not be in the public interest.

The purpose of this bill is to create a single Federal banking commission that would absorb many of the powers now vested in three existing agencies; namely, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. The logic of the bill as regards unification and simplification of the activities of these three Federal bank supervisory and regulatory agencies has merit. In practice, however, it is open to serious criticism and objections. Objections to the proposed legislation center on fundamental principles which should be maintained inviolate.

Under the present scheme of Federal bank supervision and examination, the Board of Governors is primarily responsible for the supervision and examination of State member banks of the Federal Reserve System. The Federal Deposit Insurance Corporation is primarily responsible for the supervision and examination of all State-chartered insured banks with regard to their qualifications for insurance coverage; and the Comptroller of the Currency is primarily responsible for the supervision and examination of all national banks."

It is agreed universally that commercial banks are vested with a public interest. Therefore, the basic function of the three Federal bank supervisory agencies is to determine that the operations of the