very substantial increase in volume of deposits, it would appear that this corporation should be better protected, or at least an opportunity given to endeavor to secure better protection.

Only three States (Arkansas, California, and Oregon) have adopted laws of a sufficiently specific and comprehensive nature to be said to authorize without question appointment of this Corporation as receiver. These acts were passed in 1933. Vermont, by an act of 1933, probably has granted the authority, but not with as clear and unquestioned wording. Alabama, Maine, Michigan, Rhode Island, and Virginia have laws with provisions relative to the appointment of receivers of a general nature that might possibly be susceptible of an interpretation that would authorize the appointment of this Corporation. The statutes of the remainder of the States, according to the latest data available to this Corporation, require amendment to give this authorization.

3. Clarify the right of the Corporation to act as receiver under the temporary fund.

The Banking Act of 1933 states that the Corporation may act as Receiver of "a class-A stockholder of the Corporation. S. 2789 contains an amendment extending this to "members of the Temporary Federal Deposit Insurance Fund. 4. Provide for the guarantee by the United States Government of such obligations of the Corporation issued with the approval of the Secretary of the Treasury, provide that the Treasury may purchase and sell such obligations, that the Federal Reserve banks may do likewise, and that such obligations may be rediscounted by Federal Reserve member banks with the Federal Reserve banks. The obligations as provided under the present law are not guaranteed by the United States Government, are not eligible for purchase by the United States Treasury, and would be difficult to market. Under the present law such obligations are exempt from all taxation except estate and inheritance taxes. The attached amendment would make the guaranteed obligations exempt from all taxation except surtaxes, estate, inheritance, and gift taxes.

The combined subscriptions of the Treasury and the Federal Reserve banks to the temporary insurance fund amount to 290 million dollars. As members of the insurance fund suspend, the Corporation must estimate the loss incurred in assuming the deposit liability and that estimated loss must be charged against the subscriptions made by the member banks until the limit of such subscriptions has been reached. The capital subscribed by the Treasury and the Federal Reserve banks would, until that time, only be available for carrying the asset value of the deposit liability. A fund of $290,000,000 against insured deposit liability amounting to $15,482,000,000 provides very small relative margin for this purpose and the Banking Act of 1933 authorizes additional funds to be raised by the sale of debentures of the Corporation in an amount not to exceed three times the amount of its capital.

It is the opinion of the Board of this Corporation that the debentures as present authorized would not at this time be marketable and that the entire deposit insurance operation is left open to too great a danger without adequate provision as to proper marketability of such debentures.

5. Provided that banks not giving notice of withdrawal 30 days prior to July 1, 1934, continue in the fund for the extended period, and give the Board power to regulate the terms which withdrawing members must meet.

The legal counsel of the Federal Reserve Board and of this Corporation are of the opinion that all Federal Reserve member banks must automatically continue with the temporary fund for the extended period. Banks not member of the Federal Reserve System may withdraw either prior to the inauguration of the permanent fund or the beginning of any extended period that may be arranged for the temporary fund. It is desired that such nonmember banks as shall not give notice of withdrawal 30 days prior to July 1, 1934, shall be required to continue in the temporary fund for such extended period and that the Corporation may so regulate. Further, that the Board shall have the power to regulate the manner in which the proportionate share of any estimated balance to which withdrawing banks would be entitled July 1, 1934, shall be determined.

6. Provide that capital notes or debentures of the character sold by banks to the Reconstruction Finance Corporation, and which are subordinated to the claims of depositors and all other creditors, shall be considered as a part of the capital structure of such institutions.

There is grave question as to whether the first paragraph of section 9 of the Federal Reserve Act as amended (U.S.C., title 12, sec. 321) would permit the inclusion of capital notes or debentures just referred to, in the capital structure of a bank for Federal Reserve membership purposes. This presented a difficult

situation with nonmember State banks in States where preferred stock cannot be issued. The Federal Reserve Board, to meet the serious practical situation involved, proceeded to accept such capital notes or debentures as capital structure in the expectation that Congress would at first opportunity clarify the situ ation so that said section 9 would unquestionably be in conformity with the act, providing for the purchase by the Reconstruction Finance Corporation of capital notes or debentures issued by banks.

The amendments proposed in S. 2789 are confined to essentials required in extending the life of the temporary fund for another year without affecting any provisions of the permanent fund except its postponement for a like period.

Very truly yours,

Hon. HENRY B. STEAGALL,

E. G. BENNETT, Acting Chairman.

Chairman Committee on Banking and Currency,

House of Representatives.

The CHAIRMAN. Without objection, we will adjourn until 10:30 o'clock tomorrow morning.

(Thereupon, the committee adjourned until 10:30 o'clock a.m., Tuesday, Apr. 24, 1934.)

EXTENSION OF TEMPORARY PLANS FOR DEPOSIT

INSURANCE

TUESDAY, APRIL 24, 1934

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

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

The CHAIRMAN. Gentlemen, this is a continuation of our hearings on Senate 3025.

Mr. HANCOCK. Mr. Chairman, I understood there were several gentlemen here from New York interested in the mutual savings banks, who would like to be heard first, if there is no objection.

The CHAIRMAN. Mr. Bennett has agreed that they may be heard first. I am going to ask those gentlemen, whoever are present, to come forward and be heard.

STATEMENT OF PHILIP A. BENSON, REPRESENTING NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS, BROOKLYN, N.Y.

The CHAIRMAN. Mr. Benson, you may proceed in your own way. We are glad to hear you.

Mr. BENSON. Mr. Chairman and gentlemen, I represent the National Association of Mutual Savings Banks, an association of over 500 mutual savings banks located in 18 States. There are altogether 567 mutual savings banks in the country in these 18 States.

We have over 13 million separate accounts and we have in resources over 10 billion dollars. We represent about one fourth of the banking resources of the country.

I would like to point out the remarkable record of these mutual savings banks. Over the last 20 years there has hardly been a failure. In the city of New York, which has the largest number of mutual savings banks, there have been no failures in over 20 years. I think there have been 1 or 2 small failures in other States in that period.

When the bill that became a law last year provided for deposit insurance, our mutual savings banks gave the subject very careful consideration. In 14 of the 18 States, some or all of the mutual savings banks joined the fund. In my own State of New York practically all of them joined the fund. There were only two exceptions in the whole State. We did that, as I said, after careful consideration, because we felt that deposit insurance was the thing provided by Congress to restore confidence in banks, and to promote

national recovery. We felt that we ought to go along with a plan

of that kind so that confidence in banks would be restored.

We represent the small depositor. Our average is only $800. We felt that these people were entitled to the protection of the insurance fund if we could give them that at a comparatively small contribution to the temporary fund and with a limited liability.

Our banks joined because of that, because of the object of the insurance and because we felt that it was distinctly worth the contribution which we would have to make to the temporary fund.

Mr. Chairman, it is quite possible that some of our banks would not continue under any circumstances. Many of them will. But we are quite sure, unless the temporary fund is extended, the large majority, perhaps nearly all of the banks that have come in, will withdraw rather than become members of a permanent fund.

Mr. GOLDSBOROUGH. You understand, do you not, that Congress can pass a law compelling them to come in or compelling them to go out of business?

Mr. BENSON. I do not understand that that applies to State banks.

Mr. GOLDSBOROUGH. They could, just the same.

Mr. BENSON. I cannot see that.

Mr. GOLDSBOROUGH. They can use the taxing power for that purpose and do it very easily.

Mr. BENSON. Well, they are not going to do it, then.

Mr. GOLDSBOROUGH. Of course, if you know what Congress is going to do, that is a different proposition. But you come here before this committee and threaten that you are going out of the system, which is not going to have the slightest effect in the world, except it will cause a reaction that will not be favorable to the people whom you represent.

Mr. BENSON. I am just telling you the facts, sir. We will not subject our deposits to the dangers of an unlimited assessment. persuaded, sir, that many of us will continue in the temporary fund, if it is extended. My object in coming here is to tell you who we are and whom we represent; they are the small people, the small depositors; not the large banks. We have no connection with them. We are asking that you continue the fund for another year-the temporary fund.

Mr. GOLDSBOROUGH. What are you going to do after that time? Are you going to move out after that time?

Mr. BENSON. We do not know. We think that will give us an opportunity for study and to get experience with the temporary fund. On that we will have a better basis on which to form a judgment, as to whether we shall go along or not.

Mr. HANCOCK. Do you think that a plan similar to the present temporary plan would meet the situation, if it were made permanent? Mr. BENSON. We think this fully satisfies our depositors-fully and completely satisfies every depositor who wants deposit insurance. Mr. HANCOCK. What would be your opinion if the amount were increased to $5,000?

Mr. BENSON. I do not think that is necessary, because 97 percent of our depositors are fully insured under the present plan and we would rather not make any further contribution to increase the

amount.

Mr. SISSON. Would it interrupt the continuity of your statement if I asked you a question right at that point?

Mr. BENSON. No, sir.

Mr. SISSON. Then do we understand you that if, as is proposed in some quarters, this present law is so amended as to extend the temporary insurance to July 1, 1935, and then the act is put into operation on July 1, 1935, as it now is, you would stay in or go out? What would be your position then?

Mr. BENSON. I believe that most of us would go out.

Mr. SISSON. Then there would not be any object in extending the time, would there, so far as we are concerned? The only proposition that has been made to this committee is to extend it 1 year longer upon the assumption that then the act substantially as now written, would go into effect.

Mr. GOLDSBOROUGH. They figure on destroying it within the next

year.

Mr. BENSON. We think you may modify some of its provisions regarding unlimited liability for assessment.

Mr. SISSON. Several of the members of this committee have asked the gentlemen from the board who have come here how they stand upon the proposition. It would not make any hit with this committee I agree with Mr. Goldsborough-if we believed, as it appears to us from your argument, that the object of asking for this extension is to destroy the act.

Mr. WILLIAMS. Let me ask you this question, if I may. How are you going to have insurance that is effective and of benefit to the depositors and have a limited liability?

Mr. BENSON. Why, the experience ought to show the contribution that will pay all losses, just as every other insurance scheme does. I cannot say that I have any plan to suggest in connection with that, at all.

Mr. WILLIAMS. But I am asking you the general question, how is it possible to have an insurance policy that is effective and will protect the depositors without having unlimited liability on the part of the banks to make that insurance good?

Mr. BENSON. Why, I would say that regular contributions even of a limited amount would create a fund that experience would show you would take care of all losses.

Mr. WILLIAMS. If that is true, that answers the question as to the matter of limited liability.

Mr. BENSON. Yes.

Mr. WILLIAMS. They are not going to levy an assessment more than is necessary to take care of their liability, are they?

Mr. BENSON. No, but how about a catastrophe?

Mr. WILLIAMS. What do you mean by that?

Mr. BENSON. Well, a world-wide depression, something that is beyond any ordinary experience. Then we have all got to pay.

Mr. GOLDSBOROUGH. When you needed it, you would not have it; that is what you mean?

The CHAIRMAN. Let me say a word right here. We have had a Nation-wide depression, have we not?

Mr. BENSON. Yes.

The CHAIRMAN. Thousands of small banks, community banks throughout the country, were destroyed. Certain communities were