EXTENSION OF TEMPORARY PLAN FOR DEPOSIT

INSURANCE

TUESDAY, MAY 15, 1934

COMMITTEE ON BANKING AND CURRENCY,

HOUSE OF REPRESENTATIVES,

Washington, D.C.

The committee met at 10:30 a.m., Hon. Henry B. Steagall (chairman) presiding.

The CHAIRMAN. The committee will be in order. We have with us the Comptroller of the Currency, who will discuss the bill providing for the extension of the temporary provisions of the act relating to deposits insurance.

STATEMENT OF J. F. T. O'CONNOR, COMPTROLLER OF THE

CURRENCY

Mr. O'CONNOR. There has been so much said about this particular feature of the Glass-Steagall Act of 1933, and so many inquiries have come into my office about it, in view of the fact that the committee has just about completed its hearings on this matter, I thought possibly I might like to make a brief statement to the committee giving whatever little information I have generally about this particular provision of the Glass-Steagall Act of 1933. May I just go back a little? The CHAIRMAN. Proceed in your own way.

Mr. O'CONNOR. I will go back a little before the passage of the bill. I think that the people in the country are largely forgetting just exactly what Congress did and what problems they had here about a year ago. We are getting rather remarkable recovery and getting out of it so fast, particularly with the legislation that this committee gave to the country, that I think they have overlooked the crisis that was met by Congress and by you gentlemen, and I do not feel that that ought to be overlooked. You know of this bill that we were all told. that it was dead-the chairman will bear it out-a short time before it was passed, and then at the insistence of you gentlemen and some others who were friends particularly of this provision of this bill, with some day and night work we were able to get this bill passed. Frankly, I think that this bill did more to save the country than anything that was done.

Perhaps I am closer to it, or possibly because I do not know what the other bills have done, but I do want to say that is the way I feel about the insurance of bank deposits, and not only did we get the bill through-and I do not want to take much credit except that I am tremendously interested to get it done-not only did we get the bill through against the opposition of some powerful opinion in t country, but after it was actually passed it was necessary th

establish a confidence in it and to show the people that we had actually done something that was a great piece of work. I received some information along the latter part of August 1933 that the American bankers, who were going to have their meeting on the 7th, the first week of September, in Chicago, were going to make a severe attack on this bill, and particularly on the insurance features of it. I had accepted an invitation earlier in the summer to talk to the American bankers, which, I believe, is the general invitation extended to the Controller of the Currency-not to myself but to the office and I had prepared some notes and memorandum for consideration of the convention, when I learned that they were going to make this attack upon the insurance provisions of the act. I then had my speech and went up there with a speech entirely in defense of what Congress had done and what this committee had done in writing into this act the insurance provisions with reference to bank deposits. I have a copy of that here. As you know, the day before you do not know, probably but the day before I got to Chicago the bankers passed a resolution asking the President to postpone the operation of this fund for a year or until the next Congress met, and rather severely condemned the legislation, and among other things said that we could not examine the number of banks.

The CHAIRMAN. Let me interrupt you one moment. What really happened was that the banks in their national convention passed a resolution calling upon the President of the United States to disregard and set aside this enactment of Congress.

Mr. O'CONNOR. That is exactly what they did.
The CHAIRMAN. I want the record to show that.

Mr. O'CONNOR. That is exactly what they did. The papers of that day carried this denunciation of the act, every paper in the United States, I suppose, and I saw on my way up there that I could justify the action of this committee and of this Congress and make a defense of this act, which I did. I want to say in justice to some of these men, there were a number of letters written to the President, which he was kind enough to send me, in which they stated that if my address had been made the day before it might have had some effect on the passage of that resolution. I am just trying to tell you of the fight and the struggle and opposition that they had in getting this to where it is today. I came back from Minneapolis after speaking to the State bankers there in the early part of June and stopped off at Columbus, Ohio. The State bankers of that State had just adjourned and the headlines in all the papers said the bankers condemn the GlassSteagall Banking Act and asked the President to veto it. That was the resolution. That was in all the morning paper. I called the newspaper men in and justified the passage of this act and stated that in my opinion the President would not veto it, but would sign it because of the demand of the people of this country and particularly of Congress. I stated that anyone who was in favor of the banking conditions as they existed for the past 5 years or more ought to oppose the Glass-Steagall bill of 1933, and anyone who was not satisfied with banking conditions as they existed in this country ought to favor it. That was published in the papers, in the 11 o'clock editions, and then my telephone rang incessantly from the bankers of the city and those who remained in the city and wanted to see me. I am giving you this, gentlemen, because I am trying to give you an accurate

picture of what we were facing and what happened and what we at least tried to do. I invited all of these bankers into my room in the hotel and told them I thought it was a great mistake to have done that. I said, you gentlemen are not in the best favor in the country, and I do not see why you would incur more disfavor of the people by a resolution of this kind against a measure that was passed in the interest of the people; I said a number of very erroneous statements were made on the floor or your convention yesterday that have been reported to me since I came to the city but I will not take the time to go into them; I said this:

Congress is not trying to destroy the banking business of this country, but the men up on the hill are trying to save the great banking industry of this country as a business if you will let them save it. There is a demand on the part of a considerable number of people in this country that the postal savings limit be increased from $2,500 to permit people to put in more money.

I told them it already had $1,200,000,000 approximately of postalsavings accounts in this country. I said the people have put their money there because they believed it was safe. It has increased 675 percent in a few years. If Congress should take the limit off the postal savings, I would like to have you gentlemen consider how high those deposits would run, and if you do you will not have to have a State convention. I said, I think you will see the seriousness of that side of the problem. If we can make banking just as safe, deposits just as safe as they are in the postal savings, you will have an opportunity to attract a considerable amount of this money back into the banks. In addition to that, I said, Congress has also tried to help your banks by taking off the interest on demand deposits, which amounts to annually about $230,000,000 a year.

The CHAIRMAN. You are speaking now of member banks? Mr. O'CONNOR. Yes; which are the only figures I have. That money that we threw out of the window. Frankly, I think that we can go along with the basket and pick that up and put that into the insurance fund to protect these depositors. I said, gentlemen, I wish you would answer this question, because I would like to take it up later, because I have been very much interested in this banking legislation and very much interested in trying to correct the situation, which should never happen again in this country. Here are old men and old women who have accumulated enough money to watch the closing out of their lives with some happiness. They are not asking for a pension, for a dole; they do not want anything from their Government except a place to put their money that will be safe, and those people are entitled to that from their Government. They know nothing about bank statements and could not read one and they know nothing about investments. I said, please tell me that so that I can go back and tell the men down there just how it should be handled.

I am just giving you gentlemen the discussion with these men there. They said to me, much to my surprise, they said, we think we have made a mistake. If there is any gentleman here from Columbus or from Ohio, they can check the newspapers to verify what I am saying. They said, we will make an effort to have an editorial appear tomorrow in the paper stating that the resolution passed by the bankers was not the proper thing to do. I said, I hope that will be done, because t legislation is so sound.

I hurried on back to Washington and the next day, or the day later, the President signed the Glass-Steagall bill with this insurance. Criticism was made by the bankers that we could not examine these banks. I have taken up that matter in the first few pages of my report to you gentlemen. I am required to make an annual report; I will not go into it now, but just show the groundwork that was laid out. We have an excellent start in this insurance matter, and I want to say this about the fund. I think I have demonstrated how I feel toward it and how intensely interested I am in it. I have not as much technical information as I should have, because I am not a banker and I have no stock in any bank, but I have just tried to work out this thing in the best way along with you gentlemen and you have been good enough to come to my office, to write to me, and talk to me about it, to cooperate in getting this started, so that the people would understand what a great piece of work you have done, and we do not want to minimize the good it has done, but to clear the way so that we can go ahead here.

I talked to the President yesterday and he told me to say this to you gentlemen, that the insurance of bank deposits, as far as he was concerned, was a permanent part of this Administration, and it would never be repealed, and he asked me to pass that on to you. I did not need it because I knew from conversations I had with him of the assurances that we had.

I hesitate to go ahead into the controversial side of the matter because I think most of the legislation is largely for the committees, and they know more about it than any of us do. We can only help them by giving the facts that they ask us for. I think in view of the facts and I agree with the President-in view of the fact that the Senate has passed a bill for the extension for a year of the $2,500, that in view of that fact that we have insured 97 percent of the depositors, and of some complicated questions that we are facing in the different institutions in the country, I am inclined to say to you gentlemen that I would not like to see any chances taken to destroy or undermine in any way this bill; and frankly, I believe that if we could all go along for another year on the $2,500 extension exactly as passed by the Senate, so that we will not have to go into a long, drawn-out controversy with the Senate, that is the best thing, and we still have kept the confidence of the country in this bill, in this measure, and they have accepted it; and I believe that it would then pave the way in January, when you are going to make some amendments to the bill,probably a few that we have in mind, not necessary to be discussed now, to amend it then and at that time strengthen it; and I should be very glad at that time to present them to you gentlemen, because I am so interested in this great piece of legislation and have worked so hard with you men on it that, frankly, I do hope that we could get along with the Senate $2,500 bill. I am saying that also, gentlemen, because there is one provision in that bill that I suggested that, frankly, if I were to work on it again I would ask a change in it but I am not going to ask it because I do not want to jeopardize the bill itself and that is, the present law is not clear now, the temporary fund as to whether or not the Controller of the Currency or the Federal Deposit Insurance Corporation appoints receivers for banks that would become insolvent, national banks.

I suggested that inasmuch as I felt the whole structure was going into effect, that the earlier we cleared that the earlier the Federal Deposit Insurance Corporation could establish its department to take over that. If I had thought at the time that that was not going to go into effect at once, or thought it would have been better to have left the receivership in the Controller's office because of the fact that the $2,500 limitation would be just a claim the same as other assigned claims in banks, and that consequently it would eliminate duplication of expense of the Federal deposits in the Controller's office, then when the final bill-when you gentlemen have it in your final formcomes, then I think the question could be taken up. I will state that now because of the fact that I am willing to go along with that, and the only reason that I make that suggestion is that I think it would be saving the duplication of this for another year; and what we are all interested in is minimizing the expense, I think. We have about $15,000,000,000 insurance now, and we have 55,000,000 accounts; and into the fund, as you know, gentlemen, the total number of banks that have come in voluntarily has been 7,687, including 235 mutual savings. The story of mutual savings and their problem has been discussed with you, and they are quite concerned about it; in fact, so much concerned about it that, as you know, the State of New York, passed a law with a provision that the mutual savings banks of New York may form their own insurance companies-insure their own banks. I hope that we can keep them in the fund, because their deposits reach about 28 percent of our total liabilities, and that is a large amount. I hope we can keep them in the fund. They are concerned about same angles of it that I think are gradually being worked out. In addition to that, as you know, we are having difficulty in Connecticut, and I believe in Massachusetts and Rhode Island, with respect to the savings banks there.

I was just wondering if we have to concede that today or to set it down that you give us with this 97 percent almost a unanimous front, to say that we have got a unanimous front all over this country, when you consider that. We have a unanimous front behind this law. It has taken a tremendous work. You men have done it and made such a great effort that all the people are sold on it, especially your work last year, and you have done it. I am just wondering if it is not better than to again go out to the country and get into another long discussion, if we could not go along with it, and then in the meantime, with your judgment and whatever we can contribute, to make amendments that we think will tighten up this law and just make it become what I think is the greatest piece of legislation that has been passed, and I want to see that happen.

Mr. CROSS. Do you not think we will put ourselves in the position of yielding and backing off to the big bankers again, that they have run this country and this committee and this Congress in years past, their recommendations generally being swallowed by the Treasury Department, and now to go backing off because of the pressure they have put, the resolutions they have offered, the demands they have made for laws, telling the President and the Congress to suspend the rules and to pay no attention to the laws-will not that be encouraging to them to continue that pressure and telling us what to do, when the responsibility under the Constitution is on the Congress, and