Mr. KILBURN. No, Mr. Chairman. I don't think you should recognize me. These people are on the subcommittee ahead of me, in my judgment. And I think you should recognize them instead of

me.

If you have time, I think you should recognize me at the very end. Mr. MULTER. Very well. Mr. Brock?

Mr. BROCK. Mr. Šaxon, I gather from your testimony that you feel that the Comptroller should not be a member of the Board of FDIC. Mr. SAXON. I think, sir, the best solution to that would be to convert the FDIC to a single administrator as it originally was in the time of its foundation. And this would automatically resolve the problem.

If this should not be done, Mr. Brock, this raises a problem there is very strong reaction throughout the country from national banks against the removal of the Comptroller of the Currency from the FDIC Board. I think this goes primarily to the matter of the determination by the FDIC of the assessment base affecting the cost of FDIC membership. Since I have been there, we have not attempted to participate in decisions, to influence decisions in any way on a case-by-case basis.

But the interests of national banks in the determination of the assessment base and the cost of insurance is of material concern to them.

Mr. BROCK. I was the reason I brought up the FDIC is because I am somewhat confused by your testimony here. You mention, it seems to me, at least the implication in reference to the State banks and their responsibilities under national control under the FDIC and other agencies today, is that you would recommend a far lesser degree of Federal control over State banks.

Mr. SAXON. Yes, sir; that is correct.

Mr. BROCK. You specifically mention that the FDIC perhaps might be required to automatically insure applicants which are approved by the States.

Mr. SAXON. It should be in accord with the principle there suggested that there is a minimum excessive regulation in the Federal area of State-chartered banks, in my opinion, Mr. Brock.

Mr. BROCK. In effect, then, this would make the FDIC as far as State banks are concerned, a pure depositor for the premiums which are received; is that not true?

Mr. SAXON. Well, more than that, it would exercise its insuring function of paying out in the case of receiverships or insolvency in the case of such banks.

Mr. BROCK. That is true.

But it would then be comparable to a normal insurance company which does very little controlling and regulation, and issues the policy and then pays off.

Mr. SAXON. I would say, for example, it would be expected that instead of examining the State banks, the FDIC should have access to reports of examination, perhaps for a fee, to reimburse the States for the costs of undertaking or making these examinations, they must have access to the financial status.

But this can be accomplished by access to these reports of examination rather than by direct examination. And, similarly, being in

formed otherwise of the developments in these banks-much as I would expect that the Federal Reserve Board would be kept advised of developments in the State and National systems so far as related to the exercise of monetary functions if it were stripped of the nonmonetary functions.

There would necessarily be a vehicle for providing the FDIC with the flow of information as to the status of these banks. But I think, basically, the answer to the question you raise is yes, it would restore it more to the insuring agency.

Actually, we have $2 billion in the reserve fund. It would be a reliance basically on the $3 billion draw on the U.S. Treasury, as the ultimate safeguard.

Mr. BROCK. Well, that is true. But then I get a little confused over why, then, you would take it and merge all the other regulatory powers relating to State banks under that agency if you are trying to relieve it of State powers, and then you want to merge it under a central administrator. It seems to me there is sort of a basic conflict there.

Mr. SAXON. Well, as we stated, this should be done to the extent that the Congress, in its judgment, retains these Federal powers over State banks.

Mr. BROCK. Thank you, sir.

Mr. MULTER. May I suggest that the alternative to permitting FDIC, or requiring FDIC to insure every new national bank that is chartered by the Comptroller is to give FDIC discretion to use its own judgment as to whether to insure a new bank chartered by the Comptroller or by a State agency-it might be better to do it the other way, require the insuring agency to use its discretion in each instance, and not automatically insure, whether it be a National or State bank. Wouldn't that be a better procedure?

Mr. SAXON. No, sir. We would find that inappropriate. We think this would so expand the authority of the insuring agency as it, in effect, granted total power over the expansion and risk taking in the entire commercial banking system-determination of capital adequacy, management, risks taken if these standards are to be applied it would result in such a convergence of power in an insuring agency, it could have a very drastic impact upon the entire commercial system. Mr. MULTER. But if FDIC really is an independent agency, and all of its assets today come from the insured banks, why don't we set it up as an insurance company with independent judgment to determine whether or not this is a good insurable risk before they are compelled to take it.

Mr. SAXON. In the case of charters, for example, we make a determination, after intensive examination of the soundness, convenience, need, and the other factors-management capacity of the proposed new bank-these are Federal standards-as in the case of State banks joining the Federal Reserve System.

It is based on the assumption that the Federal Reserve in the case of State member banks and the Comptroller of the Currency in the case of national banks are exercising sound discretion in pursuing Federal standards which ought to be followed by another Federal agency so far as insurance is concerned.

Why the Congress has not seen fit to make the determinations by State bank supervisory authorities equally binding on the FDIC, I don't know.

Mr. MULTER. Would you suggest that we do that?

Mr. SAXON. Yes; I would. This would be a logical result, if we really want a dual banking system. Here we get back again to the essential question always. We are talking about mechanics, it seems to me. Whereas the essential question here is, if we wish a dual bankin system, what kind should it be and how should it function.

To what extent can we have a dual banking system in this country if the States exercise, as they do today, very substantial authority over national banks, and if on the other side the effect of regulation of the State banks today is either in the hands of the Federal Reserve or the FDIC!

Do we, in effect, today have in this sense a dual banking system? Mr. MULTER. Well, let's pursue this a step further.

Suppose we have a State that is very liberal in the granting of State bank charters. Anybody who comes in gets a State bank charter-with a thousand dollars' capital or any sum whatsoever. It has no real supervisory personnel; it does not do a real job as to examining; it has few, if any, examiners; and it just doesn't care how the banks operate there.

Would you say FDIC then should be required to insure in that State, too, just because the State supervisor charters a new bank?

Mr. SAXON. Mr. Chairman, what we suggested in the statement is that the Congress consider whether it wishes to equate, in the interests of preserving a dual banking system, the status of State banks with National banks.

Now, the extent and quality of State regulation and supervision is a matter which the Congress should judge in making this determination.

I am not in a position to make a judgement as to whether in the case of the State of Utah, Rhode Island, or New York-I would not wish to state those authorities are not being appointed according to law, are not exercising their authority with sound discretion and with regard to the public interest.

Mr. MULTER. I wouldn't for one minute suggest that the Congress should tell a State how to run its banking department or any other department-I don't care how loose or how bad it may be.

I think if the State wants to run it that way, it is up to the State and its people.

But should we then have the Federal insuring agency required to nsure that!

Mr. HANNA. Would the gentleman yield on that point?

Mr. MULTER. Yes, Mr. Hanna; surely.

Mr. HANNA. I am wondering why a resolution of that particular matter could not be achieved in a way in which we have met the same problem in other fields.

If, as I understand your testimony-if you determine that a charter should be granted under Federal standards, then the insuring agency would have to accept your determination, because they would be bound by the same standards; correct?

Mr. SAXON. Yes, sir.

Mr. HANNA. All right.

Now, it would seem to me that in other areas of the law we have established that if the Federal Government sets minimum standards,

those will be the floor. Any State could thereafter take over the function and stand in the same position if, No. 1, they adopted those minimum standards or something greater. So that in a sense we would be bound, then, by whatever the State determined-once they were ready to lift themselves up to the minimum standard or something above that.

In nearly every occasion this has been done, it seems to me, it has encouraged the States to move ahead, because they would prefer to have the situation in their hands.

Now, would the Comptroller tell us whether or not this might be an approach?

Mr. SAXON. I think this is precisely our view, Mr. Hanna-that a great contribution by the Congress could be made to encouraging and stimulating the most advanced and effective bank regulation and supervision by the States, and by this means of setting standards as to capital and other requirements, in the organization of new banks, and other respects, and setting them in the statute, describing them by statutes. Yes, sir.

Mr. HANNA. Thank you.

Mr. MULTER. Mr. St Germain ?

Mr. ST GERMAIN. Nothing, Mr. Chairman.

Mr. MULTER. Mr. Gonzalez?

Mr. GONZALEZ. No specific questions-just merely a congratulatory note to the Comptroller for what I consider a very explicit statement here that will be most helpful, at least to me personally, in gaging my own reaction to this proposed measure now pending.

I want to thank you very much.

Mr. SAXON. Thank you, sir.

Mr. MULTER. Mr. Lloyd?

Mr. LLOYD. Mr. Saxon, during the course of this hearing we have had some interesting proposals.

I note some years ago the task force of the Hoover Commission recommended coordination under the Federal Reserve System. The Commission did not accept the report of its task force.

We have had witnesses here who have proposed the coordination of these supervisory functions in the FDIC. And if I understand your testimony correctly today, you are proposing a coordination of the national bank supervisory functions under the Office of Comptroller, and a shifting of the FDIC functions to the Treasury Department, which would result in the coordination actually under the Treasury Department.

I note with interest your statement that

the proposal of the present legislation would create an independent commission to add to the proliferation and expansion of Government outside of the executive branch.

So that what I am left with, after listening to the hearings, is that the coordination and the case for coordination probably is accepted br most informed critics, but it is a question of method by which to do it.

The present bill would eliminate the Office of the Comptroller, of

And we have had some testimony here that would indicate there isn't very good coordination, or at least not the coordinathat some of the State banking authorities would recommend.

Specifically, the State banking supervisor-I think that is his titleof New York, made the statement that your Office had approved mergers in his State without advising the State agency in New York concerning it, and he felt that that was an inherent weakness in the present system.

Would you comment on that?

Mr. SAXON. Yes, sir.

We have entered into a written exchange of correspondence with the New York State bank supervisor which we assumed was quite satisfactory, relating to the exchange of information on matters in New York, particularly chartering and branching authority.

Now, in the case of mergers, this was neither sought nor offered. We did, however, at the outset, for example, in connection with the First National City Bank, National Bank of Westchester, proposed merger-solicit the views of the New York authorities on this matter. Those authorities declined to offer any-this is a hot potato-we could well understand for that or other reasons the disinclination.

We would be only too happy to solicit the views of any State authority on any merger proposal.

I am not so sure we would see an enthusiastic response to submission of them. These things are not easily handled, and raise pretty difficult questions at times.

Mr. LLOYD. You feel that the policy of the Office of the Comptroller should be to consult with State banking authorities before approving a merger of national banks?

Mr. SAXON. We believe that they should be informed and invited to comment. We have tried this in numerous States and do receive in some cases comment.

But, on the whole, there is a reluctance to provide such comment. Now, in New York there used to be a policy which, in effect, in our opinion, amounted to allocation and definition of markets. This is what it came down to-between our man in New York and the New York supervisor.

Legally and otherwise, we do not think we can subscribe to any such thing. If by consultation or coordination one means the exchange of information and views, this is fine. But, beyond this, to the point of a policy based on a division of markets in terms of determination of cases "You take this one and we will take this one"-this, to me, would be unsound public policy and arbitrary. And this is what is involved-what one means really by consultation.

And, incidentally-this agreement was reached in my office, in the presence of Senator Javits, Senator Keating, Mr. Root, and one other individual, I think.

Now, at that time, I don't think, except for Mr. Root, there was any disagreement among any of the people present-in fact, it was quite the contrary expression that there must at no time be any policy which would result in a division of markets, in the terms in which I express it. Mr. LLOYD. Well, I think that is quite clear.

I think I have time for one more question.

As Comptroller, you are a member of the Board of Directors of the FDIC.

Mr. SAXON. That is correct.

Mr. LLOYD. In passing on the insurability, you use the same criteria, as I understand it, as you would in determining the qualifications for