Mr. CULLOM. That is what I am worrying about. Mr. BROCK. The rationale behind it is an effort to indicate our willingness to accept State examinations and to strengthen the State supervisory function by saying that within 2, 3, or 4 years, that the supervision and examination shall be done of State member and nonmember banks by the State itself. That is a part of this bill; is that not correct? Mr. CULLOM. I think that is a very good part of the bill. We like that part of the bill but we think that our proposal accomplishes that and accomplishes some other purposes which would also be helpful, sir. Mr. BROCK. Thank you, Mr. Chairman. My time is up. Mr. MULTER. Mr. Moorhead? Mr. MOORHEAD. Thank you, Mr. Chairman. Under the present Federal system of regulation we have three regulatory agencies which sometimes have different regulations on the same subject. Mr. CULLOM. Correct. Mr. MOORHEAD. And your proposal which is incorporated in my bill reduces the three agencies to two regulatory agencies; is that correct? Mr. CULLOM. That is correct. Mr. MOORHEAD. The FDIC and the Comptroller. Mr. CULLOM. That is right. There is not quite equality there, but you recognize the difference. Mr. MOORHEAD. And in certain instances at least under the proposal the FDIC would have the final say for purposes of insurance over both the Comptroller of the Currency with respect to national banks and over the State supervising agencies in the case of State-chartered banks. Is that correct, sir? Mr. CULLOM. That is definitely correct and we think that is very important. Mr. MOORHEAD. Suppose that legislation were changed to, in effect, abolish the Office of the Comptroller and transfer his functions into the FDIC. Would you still support this proposal? Mr. CULLOM. No, sir. I don't think we could support that proposal. Mr. MOORHEAD. If it came to the final choice and you had to have either this new banking commission or a transfer of all of the functions of the Comptroller and of the Federal Reserve to the FDIC, would you prefer the FDIC proposal or would you prefer the commission? In other words, if we couldn't get the committee to adopt your proposal, would you prefer this to be centered in the FDIC? Mr. CULLOM. Mr. Moorhead, we think that the FDIC has more risk interest in the banks of this country than any other agency or all of the agencies put together. We don't think that you can eliminate their importance and the importance of insurance in the banking industry. And we, therefore, think that they should be uppermost in any resultant system. However, we think that the supervision of banks must extend beyond the determination of insurance risk. We think that the fact that we have 50 States, all of which charter banks, necessitates that the supervision be maintained at local levels. We are glad to cooperate with all agencies. But remember, we come more directly in contact with the Federal Deposit Insurance Corporation than any of the others. While this may not be a specific answer to your question I would hope that it would tend to be responsive. Mr. MOORHEAD. I would like to refer you now to pages 7 and 8 of your testimony. You have a paragraph which you call first, which involves the Comptroller of the Currency on the FDIC Board. That would be cured by both H.R. 107 and your proposal, H.R. 7133; is that correct, sir? Mr. CULLOM. That is correct. Mr. MOORHEAD. Going over to page 8, you have the third competitive advantage to national banks. That would be cured by either H.R. 107 or by H.R. 7133; would it not, sir? Mr. CULLOM. Yes. We think it would. Mr. MOORHEAD. But if we go back to page 7, the last paragraph, that objection would not be cured by H.R. 107 but would be cured by H.R. 7133; is that correct, sir? Mr. CULLOM. That is correct. Mr. MOORHEAD. Yesterday we had Governor Robertson before this committee and on page 29 of the typewritten transcript, Governor Robertson said, and I would like you to comment after I read this section: Under H.R. 107 the dual banking system would be actually strengthened because it would be contemplated under that proposal that after a 3-year period during which State supervisory authority could build up their staffs to the point where they can conduct supervision and examination by themselves and there is a hope one day they can do it by themselves, then the Federal Commission would fall back and utilize and rely upon the reports by that State supervisory authority. Would you care to comment on that, sir? Mr. CULLOM. That is a good part of the bill but we would certainly like to have more assurance that such was going to be the effect, and normally when there is concentration, rarely does the tide recede. Mr. MOORHEAD. If we could in some way write that into the legislation, would that cause your association to support H.R. 107? Mr. CULLOM. Mr. Moorhead, we think we have pretty well written that in H.R. 7133 now, without eliminating any of the good effects that the very capable member of the Federal Reserve Board has presented in his views. Mr. MOORHEAD. Do you believe that we can avoid these conflicts that exist under the present system by the enactment of H.R. 7133? Mr. CULLOM. We think that you will set the pattern which will minimize it. However, I am not sure in my own mind, and I do not say this with association backing, I am not sure that any legislation is going to resolve existing conflicts at the Federal level, and I say this considering the time when the President sent a directive down asking for cooperation. It wasn't very effective, gentlemen. Mr. MOORHEAD. Thank you, Mr. Chairman. Mr. MULTER. Mr. Talcott. Mr. TALCOTT. I have no questions now. I defer to Mr. Clawson. Mr. MINISH. Thank you, Mr. Chairman. Mr. Cullom, on page 1 of your testimony, where you say the National Association of Supervisors of State Banks agree that there are fundamental weakneses present in Federal supervising setups, that there are errors and overlapping and confusion. Would you tell us exactly what you are referring to? Mr. CULLOM. Yes. I think that I can probably point you out many, Mr. Minish, if you wil give a moment and if you will pardon my reference to memorandums that I have. I want to be as factual as I can in my answer to you, sir. I am happy that most of the disputes are between the three Federal agencies and do not involve that segment of the banking industry which I represent today. But No. 1 among the disputes is one referred to as the revenue bonds dispute. That is one in which the Comptroller's office has authorized banks to underwrite revenue bonds, and the other agencies have not permitted that to be done among banks they supervise. There is a dispute about the handling of Federal funds which is somewhat new in the banking business. Under certain of the Comptroller's rulings his banks are permitted to handle them in one way while the Federal Reserve has a contrary ruling. There is a dispute over corporate savings accounts. This is one, gentlemen, that I think hits at the core of banking. The Comptroller has authorized banks that he supervises to accept and pay interest on corporate savings accounts. The Federal Reserve Board has stated that no Federal Reserve member shall do that. And I think I would be correct in quoting press releases to the effect that any member who did it would be subject to loss of membership-and all national banks have to be members of the Federal Reserve. The next one would be the dispute over capital debentures which I have heretofore referred to in some detail in answer to another question. The point is whether debentures shall be considered as capital and included in the base for computation of legal lending limits, branch banking, and all of the other factors tied to that capital criteria. The Federal Reserve has taken the contrary position. An exten sion Mr. MINISH. Mr. Chairman, may I suggest we put that in the record so that we can proceed. Mr. MULTER. Yes, of course. Without objection, it will be made a part of the record. Mr. CULLOM. I will be very happy to. It is not my own compilation but I think it is true and factual. (The information referred to follows:) The following list of disputes between the Comptroller of the Currency and/or the FDIC or the Federal Reserve was cited by Mr. Cullom in his testimony. This list was prepared from a banking publication. The National Association of Supervisors of State Banks, representing the respective State bank supervisors, feels that since these alleged disputes involve relationships between the Federal bank supervisory agencies it is our association's appropriate concern to comment upon them. The committee has asked this association to list areas of conflict between State supervisory officials and one or more of the Federal bank supervisory agencies. This material accompanies the attached list as supplementary testimony. 1. Disputes over dealing in revenue bonds-Bond anticipation notes Comptroller's ruling involving the State of Washington revenue bonds. (See par. 6274, "Current" part; "Contra," see the Federal Reserve Board's ruling involving the same bonds at par. 6275, "Current" part; see also, Board's ruling on underwriting of public authority bonds at par. 6322, “Current" part.) Comptroller's ruling involving the State of California bond anticipation notes. (See par. 6284, "Current" part; "Contra," see the Federal Reserve Board's ruling involving the same notes at par. 6334, "Current" part.) 2. Dispute over Federal funds transactions Comptroller's manual ruling. (See par. 678.4, Federal Reserve Board's contrary ruling involving Federal funds transactions; see par. 6276, "Current" part.) 3. Dispute over corporate savings accounts Comptroller's manual ruling permitting corporate savings accounts. pars. 638.32 and 6293, "Current" part.) (See Federal Reserve Board's ruling prohibiting corporate savings accounts. (See par. 6294, "Current" part.) 4. Dispute over capital debentures-Notes as part of legal lending limits or legal capital surplus Comptroller's manual ruling permitting the inclusion of capital debentures and notes as part of the capital base fixing the legal lending limits of national banks. (See par. 678.0(b); see also pars. 6291 and 6331, "Current" part.) Federal Reserve Board's contrary position for purposes of the Federal Reserve Act. (See par. 6292, “Current" part.) 5. Dispute over use of undivided profits and reserves as capital or surplus Comptroller's manual ruling to the effect that undivided profits and certain specified reserves may be considered as unimpaired surplus in computing a borrower's lending limits. (See par. 678.0 (c).) Federal Reserve Board's contrary position. (See par. 6329, "Current" part.) 6. Dispute over direct acquisition of stock of foreign banks Comptroller's manual ruling permitting direct acquisition of stock of foreign banks by national banks. (See par. 3178.7.) Federal Reserve Board's contrary ruling. (See par. 3178.8.) NOTE. The Comptroller receded from his announced position seeking licensing powers over foreign branches. (See Federal Banking Law Report (FBLR) No. 1, vol. XI, p. 3. (The Comptroller's existing regulation over international operations of national banks appears at par. 637.11 et seq. Regulation M of the Federal Reserve Board regulating foreign branches of national banks appears at par. 3189.1 et seq.).) 7. Disagreement with FDIC over insurability of certificates of deposit (CD's) FDIC has filed lawsuits to determine the insurability of certificates of deposit held by certain savings and loans issued by closed banks, and the status of brokerage fees paid in excess of the maximum allowable interest rate. FBLR No. 4, vol. XI, p. 3; see also FBLR No. 20, vol. X, pp. 3-4.) (See Comptroller's ruling holding that a certificate of deposit represents a deposit liability subject to Federal deposit insurance, and that the payment of a finder's fee to a third party in connection with such CD would not constitute a payment of interest subject to any interest limitations. (See FBLR No. 5, vol. XI, p. 1.) 8. State opposition to debt cancellation contracts by national banks Comptroller's manual ruling permitting national banks to enter into debt cancellation contracts or credit life insurance. (See par. 638.30; see also questions and answers at par. 6318, "Current" part.) Opposition by various States to national banks engaging in this type of transaction and procedures or penalties prescribed. (See FBLR No. 2, vol. XI, p. 8.) 9. Differing views over use of unsecured notes to obtain funds Comptroller's ruling permitting the sale of commercial paper by national banks. (See par. 6340, "Current" part.) Federal Reserve Board's differing ruling on the use of unsecured negotiable notes by State member banks to obtain funds. (See par. 6341, "Current" part.) 10. Applicability of investment securities regulation Comptroller's regulation (pt. 1) governing investment securities. (See par. 641.11 et seq.) Federal Reserve Board's cautionary statement as to the applicability of the Comptroller's regulation to State member banks. (See par. 6280, "Current" part.) Miscellaneous In addition to the above major areas of controversy, there are other potential trouble spots or areas of criticism, prospective difficulty, etc., that are pointed out below: Loans to executive officers.-*** the Comptroller has issued a ruling defining "executive officer" for purposes of the law governing loans to such officers. (See par. 6295, "Current" part.) NOTE. This is an area presently regulated by law by the Federal Reserve Board.-Editor. Lease financing.- -*** (See Comptroller's manual ruling at pars. 666.2 and 6299, "Current" part, for supplementary information.) NOTE.-Legislation was introduced, but not passed, in the last session of Congress to prohibit lease financing.-Editor. National bank real estate loans with private mortgage guarantee insurance coverage.-* -*** (See Comptroller's manual ruling at par. 670.14 (c).) NOTE. A great deal of banker criticism was evoked when this ruling was initially announced.-Editor. Notice: Two recent rulings of the Comptroller of the Currency, while not the subject of open or public conflict with other banking agencies, should be watched as trouble areas * * *. 1. National bank loans secured by coins: *** (See letter opinion of the Comptroller at par. 6336, "Current" part.) 2. National bank investments and community industrial projects aimed at providing more jobs-* * * (See letter opinion of the Comptroller at par. 6323, "Current" part.) Mr. MINISH. Mr. Cullom, I am interested in knowing whether or not you consider the creation by the Federal Government of the FDIC to which a State member bank can apply for membership to be an encroachment by the Federal Government. Mr. CULLOM. Anything but, sir. I think, as I have stated earlier, that that was one of the finest things that has ever happened to banks in this country. However, I think it must be noted that to be insured is elective on the part of the bank and, therefore, it could not be an encroachment. Mr. MINISH. On page 6 you indicate that any system wherein the Federal Government is given the major role in the supervision and regulation of the State banks is inconsistent with the conditions of separation of power in the Federal and State Governments inherent in our republican form of government. I understand that statement to mean you don't mind having the insurance but you are against any regulation. Mr. CULLOM. I am sorry. I missed the last sentence. Mr. MINISH. The way I understand your statement to read is that you are for the Government insurance but you are against any regulation by the Government. Mr. CULLOM. No, sir. As a matter of fact, we have advocated regulation by the Federal Deposit Insurance Corporation which definitely has a stake in every bank, regardless of which segment. Provided it elects to be insured. Mr. MINISH. That is all, Mr. Chairman. Mr. MULTER. May I at this point direct your attention to the very sentence before the one read by Mr. Minish which says: "This encroachment of Federal authority over State banks has created two serious problems." |