Preface E conomic historians have devoted a substantial amount of research time to the study of financial institutions, public and private. Yet for reasons to be indicated they have never taken a good, hard look at the Office of the Comptroller of the Currency. Because no one paid academic attention to the Office, its history and functions have remained obscure to the greater part of the academic and financial communities. This book, commissioned in 1965 by former Comptroller James J. Saxon, attempts in small compass to remove that obscurity. I have tried to make the book attractive to a readership that will approach it at different levels of economic knowledge. It should be particularly useful to college undergraduates. At the same time I hope that my professional colleagues will find it informative and interesting and that members of the business community, especially commercial bankers, may find this an appealing subject. Like every author, I am indebted to many people, not only for their help but for their kindness. Comptroller William B. Camp, the Deputy Comptrollers, and the executive staff went out of their way to assist me, patiently explaining technical points and even searching for elusive material. Former Comptroller Saxon gave generously of his time and knowledge, both during his tenure and after his retirement from the Office, and former Comptroller Ray M. Gidney responded thoughtfully and candidly to my queries. To my immediate co-workers I am deeply indebted. I particularly wish to thank Miss Abby Gilbert and Miss Amy Millen. Miss Gilbert, my research assistant these past two years, helped greatly with the basic research work, reading enormous quantities of manuscript material and honing it down to manageable proportions. She assisted in the editorial process, compiled the bibliography, and meticulously checked facts and data for accuracy. Miss Millen was editorially responsible for the book's production. With taste and good humor she helped me to clarify parts of the manuscript that might otherwise have been incomprehensible to lay readers, and she saw the work through every pitfall from copy editing to the reading of final proofs. In the last stages of production, Miss Millen served spendidly as coordinator of all our forces. Allen Smeltz and Miss Catherine Berrett assisted me at crucial points, and Mrs. Lucille Leiher prepared the manuscript and gave me the benefit of her years of experience on many questions of usage. Mrs. Nancy MacClintock prepared the index. William Ingram of the McCall Printing Company served as liaison officer for production, and George Lohr contributed his artistry and long experience to the design of both pages and cover. Officials of national banks and of the other two federal bank supervisory agencies, the Federal Reserve and the Federal Deposit Insurance Corporation, were uniformly cooperative and responsive. In particular, I wish to thank Merritt Sherman, Secretary of the Board of Governors of the Federal Reserve System, who made key historical records available to me. Dr. Hope Holdcamper, Albert Blair, and Donald King of the National Archives were patient and imaginative in servicing the Office archives, and various librarians in the Manuscript Division of the Library of Congress and The Historical Society of Pennsylvania served beyond the call of duty. Dr. Elfrieda Lang and her associates in the Lilly Library of Indiana University, and Miss Marion Wells, archivist of the First National Bank of Chicago, gave unselfishly of their time. To fellow students of financial history I am indebted for unstinting aid in unraveling many historical perplexities. Professor Edwin L. Harper of Rutgers University, Professor Irwin Unger of New York University, Dean Ira O. Scott, Jr. of Long Island University and my colleagues at Indiana University, Professors Joseph A. Batchelor and David D. Martin, devoted many hours to helping me keep the historical record straight; and Gerald T. Dunne of the Federal Reserve Bank of St. Louis elucidated for me the legal and political environment in which many institutional changes occurred. Professor Gerald C. Fischer of Temple University made his notes and his then unpublished manuscripts freely available and in long conversations helped me more than he knew. And to Victor Abramson, formerly Director of the Banking and Economic Research Division of the Office of the Comptroller, I must express my gratitude for his perceptive suggestions for substantive changes and felicitous turns of phrase. I can only add that my teaching colleagues at Indiana University bore with good grace the imposition of having on occasion to pinch hit for me during nearly two years of commuting to Washington, just as my family altered cherished plans to accommodate my work away from home. I hope that they will be pleased; I do thank them. Bloomington, Indiana Ross M. ROBERTSON Bank Regulatory Agencies Even the most casual visitor to Washington is likely to notice the build ings that house the three federal agencies charged with regulating the nation's commercial banks. The Federal Reserve is notable for its lovely marble structure, partly hidden in summer by the verdure of Constitution Avenue. On 17th Street rises the contemporary building of the Federal Deposit Insurance Corporation, its architecture testifying to the brusque, no-nonsense attitudes of the agency. And no one could miss the Treasury, the massive, classic building that encloses the Office of the Comptroller of the Currency from public view. In a vague sort of way, the citizen who passes these buildings has a sense of what goes on inside. The Federal Reserve is responsible for managing the nation's money supply. The Federal Deposit Insurance Corporation administers the program whereby each depositor of a commercial bank is insured against failure of the bank up to $15,000. But the role of the Comptroller of the Currency is probably a mystery. To be sure, most people know that the Treasury's main job is to collect taxes, make disbursements, and manage the public debt. But what does the Comptroller of the Currency do? The Office of the Comptroller of the Currency is a bureau within the Treasury that operates almost apart from that Department. The very name of the Office, descriptive when it was founded in 1863, no longer has meaning. For in modern times the relationship of the Comptroller to the currency is purely legalistic and ministerial, his main function now being to provide administrative regulation and supervision of the country's national banks. The Office considers applications for charters, approving or rejecting them after detailed and lengthy investigation. It grants permits for the formation of new branches of existing banks. It exercises broad administrative controls over bank mergers and consolidations. And it carries on, among other duties, supervision of the operations of national banks, conducting periodic examinations of their activities and continually issuing and reinterpreting rules and regulations under existing laws. But the Office of the Comptroller of the Currency regulates only about 5,000 nationally chartered commercial banks. What of the approximately 9,000 commercial banks organized under the laws of the 50 states? Approximately 1,350 state-chartered banks have elected to join all national banks as members of the Federal Reserve System; these state member banks, as they are called, are subject to the administrative supervision of the Federal Reserve. Nearly all the rest of the state-chartered banks (7,385 at the end of 1966) are insured, nonmember banks. Because they are insured, and at the same time not members of the Federal Reserve System, they are subject to administrative regulation by the Federal Deposit Insurance Corporation; moreover, they are subject also to regulation by state authorities. Finally, a handful of state-chartered banks, 236 at last count, are noninsured and so fall entirely within the jurisdiction of state authorities. To beginner and initiated alike, these interrelationships are puzzling. Table 1-1 helps to keep things straight, but the intellectually curious are likely to ask why the division of authority developed among the federal administrative triumvirate. For example, if three agencies have theoretical jurisdiction over national banks, how did the Comptroller of the Cur rency become in fact the administrator of national banks? Why did the Board of Governors of the Federal Reserve System assume the chief examining and supervisory authority over state member banks? Under what circumstances did the Federal Deposit Insurance Corporation acquire extensive regulatory functions when the other two agencies had been in business for many years at the time of the FDIC's inception? 1 National banks must be members of the Federal Reserve System; all member banks are insured by the FDIC. 2 State banks are also subject to the jurisdiction of state supervisory agencies; the small number of noninsured banks are exclusively so. Answers to these questions abundantly prove Justice Oliver Wendell Holmes' observation that a page of history tells us more than a book of logic. They begin far back in the story of American financial institutions. And they are very important answers, for the present fact is that a few agency heads, among the top public officials in America, influence materially the allocation of the financial resources of the country. In these agencies, to say nothing of the 50 lesser but important state bodies, is substantial authority to determine the number and location of commercial banks and their branches, the size of the individual institutions, the variety of services they provide, and the conditions under which they provide them. These authorities largely determine the structure and competitive environment of the commercial banking industry and so indirectly affect the use of financial services by business firms and households. In banking, as in the rest of the business world, prices play their part in determining the amount and variety of the industry's output. The rate of interest—the price paid for the use of borrowed funds-is one of the most significant prices in the economy, for it largely determines in what proportions funds are channeled into different markets. Moreover, it drastically affects the competition of commercial banks with nonbank financial institutions like savings and loan associations, mutual savings banks, credit unions, and life insurance companies. Yet the price system is less useful as an allocator of resources in banking than it is in unregulated industries. For on the one hand, the total supply of commercial banks' stock in trade-money-is determined by the central bank. On the other hand, the amount and kinds of investment in banking are largely circumscribed by the regulatory authorities. The Aim of the Book This book will examine the emerging roles of these regulatory authorities. It will trace the evolution of the complex pattern of administrative and supervisory regulations and provide a brief analysis of the changing economic effects of these regulations on banks in particular and on the financial community in general. Books about money and banking crowd the shelves of libraries large and small, yet none of them attempts to sketch the history of commercial bank regulation in the United States. It is the purpose of this book to do just that. Our topic is thus narrower than the reader might have supposed. For the most part, it leaves out of account the subject of stabilization policy, the strategy by which modern governments try to reduce the magnitude of swings in production, prices, and the level of unemployment. So it largely excludes the fascinating subject of regulation of the money supply and interest rates by the Federal Reserve, the American central bank. It omits |