republican form of government, and strikes at the very duality which comprises the genius of the dual banking system as we know it. Indeed, such a system raises a substantial question why there should be any dual banking system at all.

In our view we are perilously close to this point at the present time, and anything which would nudge the banking system just a little further toward centralized Federal control would spell the end of the dual banking system. In our view, H.R. 107 or H.R. 6885 would do just that, as I shall explain in more detail later.

A second problem occasioned by the growth of Federal control over State banks has been the competitive advantages to national banks which have developed due to the manner in which Federal control over State banks has developed. These advantages have been threefold:

First, the Comptroller of the Currency, the supervisor of national banks, serves as one of the three members of the Board of Federal Deposit Insurance Corporation, where he passes upon applications of State nonmember banks. This service, we believe, creates a direct conflict of interest when he is called upon to pass upon competitive applications of State and National banks for branch authority. We do not think it is reasonable to expect any Comptroller of the Currency to exercise an unbiased judgment when he studies a national bank application, and then crosses the street to vote as one of the three men on a competitive State bank application.

A second competitive advantage to national banks flowing from Federal control over State banks is the obvious fact that national banks need only secure one approval of a new bank charter or branch from the Comptroller, whereas most State banks must secure two such approvals-one from the supervisor and the other from the Federal Reserve Board or the FDIC depending upon whether it is a member or nonmember insured bank. Particularly in the case of competitive applications of National and State banks for branches this advantage becomes particularly significant.

A third competitive advantage which to national banks flowing from Federal control over State banks has resulted from the conflicts of policy between the three Federal banking supervisory agencies. Obviously if the Comptroller construes the law in a more "relaxed" manner with regard to national banks, than the Federal Reserve or FDIC do toward the State banks which they regulate, a serious competitive disadvantage accrues to State banks. Or, on the other hand, if the Comptroller develops a dramatically more liberal philosophy toward the chartering of new branches, for example, State banks held to the more conservative approach of the other agencies suffer. It seems to us unhealthy to have a situation wherein one Federal agency, the Comptroller, can approve a branch, but another Federal agency, the FDIC or Federal Reserve, can disapprove a branch in the same location.

2. Standard of State law

A second principle which underlies the dual banking system is the "policy of equalization" which, as Mr. Justice Brandeis pointed out in Lewis v. Fidelity & Deposit Co., 292 U.S. 559, 564, 565 (1934), underlies the National Bank Act. That policy reflects the simple fact that in order for the dual banking system to survive, there must be competitive equality in at least the most important areas of com

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petition between the two systems. If one or the other class of banks in a particular State have far more liberal rights and privileges than the other in such important areas as the right to branch, to perform trust functions, to pay interest on deposits, or charge interest on loans, etc., the underprivileged banks would quickly convert to the other system leaving the dual banking system an empty shell. Such being the case, and because it is far more practical for the National Bank Act to incorporate State law as the standard for national banks, than for 50 State legislatures to change their law every time the National Bank Act is amended, Congress decided upon the "policy of equalization" between National and State banks by adopting State law as the standard for national banks in most of the important competitive areas of banking.

Furthermore, Congress did not seek to occupy the field so as to preclude the application of State laws to national banks which do not conflict with Federal law.

This policy of equalization does two things: First, it preserves, even within the framework of Federal regulation, an application of State law to banking. Second, it recognizes that certain fundamental decisions regarding banking are to be made by State legislatures which are knowledgeable of local conditions. One can honestly state that if States are not more capable than the Federal Government of deciding, for example, the question of whether branches of banks should be permitted in cities and towns of their States reflecting the variant economy embraced in this country, one wonders why the States should exist at all.

Now having the appropriate standards of judgment-duality and the standard of State law for all banking-it is possible to move to a formulation of legislation to cure the ills of the present Federal supervisory banking structure within the framework of the dual banking system.

The NASSB proposal embodied in Mr. Moorhead's bill, H.R. 7133, requires both National- and State-insured banks to secure approvals for both branches and the initial insurance of new banks from the FDIC, as well as from the Comptroller or State supervisor, as the case may be. Simultaneous with passage of H.R. 7133, the NASSB would urge the elimination of the Comptroller of the Currency from the Board of FDIC.

Implementation of this proposal would accomplish the following: (1) The NASSB proposal would eliminate many of the present conflicts by centering in the FDIC an ultimate approval over all new insured banks, whether National or State, as well as their branches.

(2) The NASSB proposal would center Federal control over State banks in the only Federal agency which has a legitimate interest in the regulation of State banks: the FDIC which, like any insurance company, should have the right to protect its insurance risk. Further, there is no compulsion involved in such Federal regulation. State banks assume it voluntarily in connection with their decision to acquire insurance. Finally, the concept of FDIC regulation of State banks is not duplicatory supervision which is, and must remain, the primary responsibility of the State bank supervisors. It is merely the exercise of those functions which are legitimate for an insurance company to exercise in protecting its insurance risk.

(3) The NASSB proposal would eliminate the Comptroller, the supervisor of national banks, from the Board of the FDIC where he passes on the matters affecting State-insured banks. His presence on the Board is historical anachronism creating a conflict of interest which should have been changed long ago.

(4) The NASSB proposal would begin to focus upon the proper relation of the Federal Reserve Board, whose duties lie primarily in the field of money and credit control, to State bank regulation. Thus, the proposal would remove the present authority of the Board to pass on branches of State member banks for it is, indeed, incongruous to think of the Board interrupting a debate on the appropriate manner in which to handle balance of payments to decide whether a new branch should be established at a new shopping center in Baton Rouge, La. Further, although not presently embraced in the NASSB proposal as embodied in H.R. 7133, considerable thought has been given to the possibility of transferring all other supervisory control over State member banks, including that of examinations, to the FDIC which, as noted above, has the only truly legitimate regulatory control over State banks by reason of its insurance function.

The foregoing proposal would meet most of the problems which H.R. 107 and H.R. 6885 are designed to solve without their adverse effect upon the dual banking system by the potential danger inherent in the concentration of power in a single Federal banking agency with all supervisory and regulatory power.

To place the problem in proper perspective, gentlemen, let me pose this hypothetical question: Suppose for a moment that the proposal before you this morning is to center all Federal banking regulation in the hands of the Comptroller of the Currency. Stated in this manner, can anyone disagree that such a move would mark the end of the dual banking system?

What possible difference is there in placing this power in the Comptroller's Office, or in a special Assistant Secretary for Bank Supervision and Regulation of the Department of the Treasury, or a Federal Banking Commission?

In each event, we would have come a full turn since the days of Jefferson and Jackson to a monolithic control over all banking centered in the hands of one agency of the Federal Government, and would thus be giving up the dual banking system, which has been one of the reasons for the economic growth of this country, to what would clearly develop into a central banking system. Whatever may be the problems arising out of the lack of cooperation in the present tripartite system of Federal supervisory banking control, the solution of H.R. 6885 to those problems would be like "using a sledge hammer to kill an ant." Governor Robertson's proposal in H.R. 107 does not have quite the massive impact on the dual banking system as that proposed in H.R. 6885, but it is still highly undesirable, particularly in view of the alternative approach embraced in the NASSB proposal outlined above which would achieve many of the same objectives desired by Governor Robertson without attendant disadvantages. A single Federal agency would have full supervisory control over national banks and the limited regulatory control over State banks voluntarily assumed by the State banks as the price for membership in the Federal Reserve System or for deposit insurance. To some extent, again, this program can be

compared to giving this limited regulatory control over State banks to the Comptroller of the Currency. Such a concentration of power in a single Federal banking agency would lay the groundwork for full Federal control over all banking and the ultimate end of the dual banking system.

To sum up, the National Association of Supervisors of State Banks opposes H.R. 107 and H.R. 6885, on two points:

(1) These proposals provide a framework for further centralization of bank supervisory powers in a Federal Government agency-a step which will continue leading us down the road toward elimination of our present dual system.

(2) There is a better answer. We have referred to it in our presentation above and will be happy to explore it further with your committee at your pleasure.

For these reasons, the National Association of Supervisors of State Banks respectfully requests this subcommittee not to favorably recommend H.R. 107 and H.R. 6885 but, rather, to recommend legislation along the lines of that which I have urged on behalf of the association. Thank you very much.

Mr. MULTER. You have given us a very fine statement, Mr. Cullom. I am sure it will prove very helpful to the committee.

Mr. CULLOM. Thank you, sir.

Mr. MULTER. We will place Mr. Moorhead's bill, H.R. 7133, in the record at the very outset after H.R. 107 and H.R. 6885. We will ask all other witnesses to please address themselves to H.R. 7133 as well as the other two bills now before us. I will also request Mr. Robertson, who testified here on Monday, to give us his comments on H.R. 7133.

Mr. Cullom, so far as I know, there is no member of the full Banking and Currency Committee, or of this subcommittee, who wants to destroy the dual banking system.

Mr. CULLOM. I am sure that is true, sir.

Mr. MULTER. We are all in agreement that the dual banking system has served a good purpose and we want it to continue. At the same time, I think we are all in agreement, including your association, that we can improve the operation of the National banking system and we want to do it. If incidentally, that improves the operation of the State banking system, so much the better. Certainly none of us want to harm the State banking system by improving the National banking system.

I think it is much too late to argue the question whether the U.S. Constitution originally intended that we have a National commercial banking system.

Certainly it contemplated that a central bank be set up if and when the Government found it necessary, such as our Federal Reserve System; but with national commercial banks in operation for 124 years, it is too late to argue whether the Constitution permits it. This is a fact that we must accept. The question is: How do we accomplish the desired result of imposing what we have?

I would like to have you document for us-I don't think you can do it now but, before we close these hearings, please document the advantages and disadvantages which you referred to in your statement between the State and the National systems. We would prefer

that you do not name individual banks. Use letter or number designations. List the instances where a National bank switched to a State bank or a State bank switched to a National bank because of the advantages they believed one system would give them over the other. Indicate the advantages they sought to obtain by such conversion. Also, document if you can, without using names, instances where a national bank applied for a branch which was denied and it then converted into a State bank and then got the branch, and also document the opposite situation, where a State bank applied for a branch which was denied and it then converted into a national bank. If you will, please, furnish the same information with reference to applications for original charters and mergers, if you have the information available. That would be very helpful to this committee in arriving at a conclusion regarding these matters.

Mr. TALCOTT. Mr. Chairman

Mr. MULTER. Yes, Mr. Talcott.

Mr. TALCOTT. On this point, may I request that he point out the ill effects, if any. That is the main concern: What happened badly or wrongly from this interchange or switching.

Mr. MULTER. Yes.

Mr. TALCOTT. If all worked out to the advantage of the banks— shareholders, depositors, borrowers-I think there would be nothing wrong, but if there were any ill effects or bad consequences, I think we should know that.

Mr. MULTER. The ill effects on the banks and also on the public interest. If you can do it, Mr. Cullom, it would be helpful to point out if there was any advantage or disadvantage either to the individual banks concerned, or to the public interest. Was the public interest served or not served, as the case may be, by the conversion?

Mr. CULLOM. We will be very happy to do that, sir.

Mr. MULTER. Now do I understand, sir, that you would advocate the FDIC being made solely an insuring agency and that it would then devote itself to the initial granting of insurance for a new bank or to an existing bank that wanted to be insured by the Federal Deposit Insurance Corporation? It would also make insurance determinations in the case of branching or merging. The FDIC would devote itself solely to a determination of whether or not a bank is a good insurable risk. Do I understand that is what you would like to see done?

Mr. CULLOM. Mr. Chairman, we take the position that this is the prime and basic function of the Federal Deposit Insurance Corporation and any of its activities which might appear to be supervisory or regulatory are purely coincidental in arriving at the major purpose of that Corporation.

Mr. MULTER. To what extent, if any, do you believe that these bills would do away with FDIC's supervisory or regulatory functions? Mr. CULLOM. I think that it would involve a gradual reduction in the examining staff with most probably absorption by the various State banking departments with a minimum of disruption of the service or minimum of inconvenience to the public or to the banks. Mr. MULTER. Does the examiner for the insuring agency, in this case FDIC, use a different set of standards in his examinations and his recommendations than that used by examiners of the Comptroller's