10642 factor be the same for all peoples, namely, within the quota limitations, the qualifi- cations the person has or has not as an individual. It would admit, if every single quota member were taken up by an oriental, only about 1,200 a year, that is, it would cost us nothing; it could save us tens of thousands of lives before we get through. Someone has just said we must for- get about everything except winning the war. Mr. Chairman, that is not enough, that is what we have done twice already this century. We must win the war for our ideals if it is to stay won. We are in trouble today because we did not win our objectives in the last war; we just de- feated the enemy, that is not the same as victory. Because the problem {is still the same as then, may I quote from a speech I made in this chamber on March 15, 1945, when I feared we were in danger of losing that war before the fighting was ended: We have only one objective in Asia, and that is to defeat Japan, but some other na- tions have two objectives. The second one is to defeat Japan, the first Is to restore their empires or to block out new spheres of in- fluence. We want only to make Japan lose so we can come home; but there are others who want to win the war so they can stay on in control of the resources, manpower, bases, industry, and markets of Asia. I tell you, the American people have to get down to bedrock and also see that it is not enough to beat Japan, if we would have peace. We have to win the war so it will stay won, and for freedom, or we will have to do it over again under infinitely more dif« ficult circumstances. And again, at the end of the speech: The only thing that saved us this time, Mr. Chairman, was a great moral decision on the part of Chiang Kal-shek and of the Chinese people to fight, not on the basis of blood and color but on the basis of prin- ciple; a decision to fight against those of their own race and with us of an alien race because they believed it was a war for hu- man freedom. But if after they have held the line so valiantly, they are let down and our commitments are not fulfilled, then there is no place they can go next time except to the Communists and a world class war, or to Japan and a world race war. * * * We can win all the battles, but we will still lose that war because they can outwork and undereat the white man, thoy will out- suffer him, they will outwait him, and they will outbreed him. This is the tissue that we have got to understand if our children would be free and at peace. The decision that is being ham- mered out in Asia these critical days is not one for 4 years, but one for 40 years or even 400 years. Are the Chinese, the most numerous and incomparably the strongest of the colored people, to stay on the side of the democracies, or are they to be driven in despair to the other side? The answer to that is still in our own hands. Well, we failed to understand it: and so within 5 years we are again not at peace. We are compelled to try again, Will we understand it this time? Surely before this Congress can ad- journ, it must get this stigma removed, or else we are not doing the things neces- sary to win the war. Men and money and mobilization here at home are not enough without this great moral act of justice and decency. CONG ESSIONAL RECORD—HOUSE The CHAIRMAN. The gentleman from Connecticut (Mr. Lopce] is rec. ognized. Mr. LODGE. Mr. Chairman, I strong- ly favor the legislation before us. It is vital that we extend the Mutual Defense Assistance Act of 1949. I favored this measure when it was inaugurated a year ago. I favored the full amount. You will recall that the House approved the so-called Richards amendment which eliminated the lan- guage of the amendment which I had introduced in committee and which the committee had passed. I thought that this body made a mistake in cutting that amount in half. I was pleased that it was restored by the other body and that the full amount was eventually author- ized. But it is most disturbing to learn that although the Congress finally provided legislation for $814,010,000 in appropria- tions and $500,000,000 in contract au- thorizations the daily statement of the United States Treasury for June 30, 1950, gives as “expenditure,” $44,342,025.51. I understand that the total quantity de- livered is in the amount of $70,000,000 in cost to the program. This is a small proportion of the amount authorized. More distressing still is the fact that since the inception of this program not one additional soldier has been added to the armed forces of the countries con- cerned. Now I am not interested in as- signing the blame for this condition. I am interested solely in curing this grave situation, We in Congress can only pro- vide the necessary legislation. If that legislation is not implemented obviously it will not serve its purpose. It goes without saying that it must be imple- mented not only by the appropriate au- thorities in the United States but also by the member nations of the Atlantic Treaty. I regret that no military aid to Spain is provided. Certainly this is hard to explain, especially since we are helping the Communist government in Yugo- slavia. AS an example of the inadequacy of this program it is interesting to note that the equipment and military aid which we are providing to Italy is not nearly enough to allow her to arm up to the limits set by the Italian peace treaty. I believe that this limit should be reached within the shortest possible time. I believe also that because of the engineering, mechanical, and electrical skills of the Italian workers, Italian industry, particularly in the north of Italy, can be used as a vast repair shop for military equipment and weapons, thereby increasing employment in Italy and also adding to Europe’s military po- tential within the terms of the Italian peace treaty. It is important also that the standard- ization of weapons within the limitations required by competitive research should proceed at great speed in order that we should not be faced with the same diffi- culties which confronted us during the recent war, I believe that the nations of Europe should be encouraged to participate to the extent of their ability in this mutual JULY 19 venture. History shows that people are more willing to make great sacrifices than small ones. This is essentially a collective, a mutual proposition, The nations of Europe have a right to shoul- der their share of these weighty respon- sibilities. There is no time to lose in expediting the defense of western Europe. It should be noted that the assault on Korea is probably directed at the nations of western Europe. If the Russians were to be successful in Korea, which God forbid, this would in all probability have a@ number of calamitous effects, In the first place, we should suffer a serious loss of face in the Orient. This I believe to be significant in spite of the fact that the Secretary of State has ridiculed the importance of loss of face. It would also seriously threaten, if indeed it would not encompass the destruction of, the anti- Communist forces in Formosa, Indo- china, Hong Kong, and Malaya. It would render our position in Japan and the Philippines almost untenable. But over and beyond this, it would seriously threaten the people of western Europe by involving us in a two-front war, some- thing we have always sought to avoid, something which our self-styled enemies now seem determined to accomplish. The meetings of the foreign ministers of the Atlantic Pact countries in London some 2 months ago have been shown by subsequent events to have been fully jus- tified. Unfortunately, to date little or nothing has been done to bring the plans agreed upon at that time into action. The events in Korea make additional aid to the nations of Europe essential. It is my view, based on the recommendations of competent authorities, that this pro- gram should be stepped up so as to pro- vide at the earliest possible date 35 full- strength divisions for the integrated de- fense of western Europe. I do not know how large a sum is needed, but I am glad that the President has referred to the necessity for further aid. I express the fervent hope that the National Defense Establishment and the Department of State will shortly provide the Congress with the necessary information on which to increase military assistance, particu- larly to the Atlantic Treaty nations. I am happy also that the President has finally made at least a partial call on industry. Surely to draft our young men without a call on industry was an indefensible policy. It is only right that those who are not in the Armed Forces should be asked to participate, especially since our people have always shown their willingness to make sacrifices at home in order to sustain those who are in combat, It is quite obvious that time is not on our side. It was not on our side before the events in Korea. There was, it seemed to me, no advantage in waiting until 1952, when the Russians, it was es< timated, would have a capacity to deliver the atom bomb which they probably now possess. Certainly there is no advantage now. Certainly also we cannot indefi- nitely feed one half of the world while we fight the other half. Certainly there is no time to be lost in integrating this whole vast effort in order that we and our friends shall act as a unit in meeting the great challenge of our generation,
1950 It is because of this concept of unity that I strongly favor the provision for an additional $75,000,000 for military aid to the general area of China. It was be- cause of this concept that, together with the distinguished gentleman from Penn- sylvania, Congressman Francis WALTER, I introduced an amendment on the floor last year to provide for aid in this area and in China itself. It was fortunate that after this amount had been defeated on the floor of the House by administra- tion-controlled votes, it was passed by the Senate and was enacted into law. But it was most unfortunate that this law was not immediately translated into ef- fective action, It was most unfortunate that the military and economic aid au- thorized for Korea last year was not put into effect. I mention a few of these dis- tressing facts not in order to recriminate over what has happened but because I be- lieve that it is necessary to inspect the past in order to rescue the future. Yes- terday our distinguished colleague, WAL~ TER Jupp, delivered an inspired and com- prehensive address on the crisis in the Far East. His documented utterance was not made in a spirit of recrimination. It constitutes a constructive review of these lamentable events and a useful guide for the future. Surely it must be our constant effort to counteract the tragic results of the gross miscalculations of the year 1945. It must be our persistent aitempt to cure these difficulties, to neutralize these fail- ures to deal with realities. I hope that, having reversed its policy in Korea, the administration will now abandon the practice of attempting to justify its mis- takes while the Communists continue their rélentless advance. There is no time for such luxuries. There is, it may be hoped, some time for correction, al- though now these corrections will require a tragic loss of life and great expense to the people of our country. I trust that this change in policy indicates that the administration is determined to combat the Communist menace with vigor and determination, What we need now, particularly in high places, are men and women of de- termination, men and women who can- not be dissuaded from the main goal, men and women who understand that agreements with the Soviet Union have been shown to be mere scraps of paper which are disowned by the godless in- mates of the Krtmlin whenever it suits their convenience. We need now in high places men and women who under- stand that there is no easy way out of this dilemma, that we cannot buy our way to a less precarious peace, that we must curtail our domestic expenditures in order to insure our own survival in a dangerous world. We need men and women of vision and courage who will not be sucked in by Communist attempts to achieve a dishonorable compromise in Korea which will simply multiply the hazards of war. We have such men and women in this country. I hope that they will be placed in positions of responsi- bility, Life is good in America. We are truly & blessed land. It is perhaps natural that we should in the past 5 years have CONGRESSIONAL RECORD—HOUSE allowed the pleasant distractions pre- served for us by the blood of our fighting men to furn us away from the main goal, The dark and godless clouds of oppres- sion which brood over all our doings is now crowding down upon us with re- morseless speed. There is no time left for quarter measures or half measures, There is no time for excessive caution. There is no time for us to ponder and thrash about while the Communist hordes are overrunning vast sections of the globe. There is no division along party lines as to the necessity of backing up our fighting men; there must be no hesita- tion about the necessities of the present hour. But it would be a great mistake to think that Korea is the only problem which we confront. Communism is a world-wide movement. The Russians, as Winston Churchill has said, aim to get the spoils of war without war. The war in Korea is merely the one-eighth of the iceberg which protrudes above the surface. The mass, the bulk of this bar- baric threat is concealed beneath the waves. We must fight communism as it is presented to us in all its facets and on all fronts and not simply when it resorts to open warfare. We should have been doing this for years. We must, of course, fight it with such under- takings as the Marshall Plan and other forms of economic aid in order to help create in these countries a political cli- mate propitious for the preservation of freedom, We must fight it with an ade- quate psychological warfare program in which we seek not merely to recite the facts about America but to tell the truth. I favor a vast and rapid expansion and reorientation of the so-called Voice of America program. I have favored this for years. I have made numerous rec- ommendations on this aspect of our for- eign affairs. I hope that now, at long last, these will be carried out. Yet, although this is a battle for men's minds it must be remembered that the Communist ideology has nowhere been contagious enough to capsize any gov- ernment without the use of force. This force in Korea is open aggression. Elsewhere it is in a twilight zone; inter- nal force, subversion, intimidation, brib- ery, corruption and coercion. We and our friends must fight this force in those areas too. We must also fight the subversive war at home. We must fight it effectively. We can do this without on the one hand smearing the innocent or on the other hand whitewashing the gullty. We can do all these things, we and our friends. We must do them. We must do them now. “There is a tide in the affairs of men which taken at the flood, leads on to for- tune.” Make no mistake about it—this is it. This is the tide. It is at the flood. The rest is up to us. Like Abraham Lincoln, let us prepare for the worst even while we work for the est. Mr. VORYS. Mr. Chairman, will the gentleman yield? Mr. LODGE, I yield to the gentleman from Ohio 10643 Mr. VORYS. The gentleman is mak- ing a masterful summary of the situa- tion, In view of the statesmanlike fore.’ sight he has demonstrated time and again, his views should be weighed with’ care. For instance, the gentleman's far-' sighted amendment of last fall, the Lodge’ amendment to the original Mutual De- fense Assistance Act, would have author- ized $100,000,000 and assigned up to 500 officers and men to the forces of China and southeast Asia, following the pattern of Greek-Turkish aid. At that time there were 150,000,000 Chinese on the mainland still outside the clutches of the Communists, with substantial military forces that needed more arms, tactical leadership, and some encouragement, The amendment was defeated. If it had been adopted and implemented, the whole tragic story of this year might have been different. Mr. LODGE. I thank the gentleman. The CHAIRMAN. The Chair recog- nizes the gentleman from West Virginia (Mr. Ker]. Mr. KEE. Mr. Chairman, I wish to assure the gentleman from Michigan (Mr. Crawronp] and any others who had in mind the cffering of amendments to this bill, that we appreciate their action very much in foregoing that privilege at this time. If and when legislation comes up in accordance with the Presi- dent’s message bearing upon this same subject or any like legislation initiated in the House, we will be very happy to af- ford the gentlemen every opportunity to be heard by the Committee on For- eign Affairs. I now wish to express again to the membership of my committee, 2 com- mittee I consider a great committee, re- gardless of their political affiliations, my thanks and my appreciation for the unanimous and splendid support they have given me during the consideration of this bill from the time it was intro- duced down to its final passage. Mr. DONDERO. Mr. Chairman, I ask unanimous consent to extend my re- marks at this point in the Recorp. The CHAIRMAN. Is there objection to the request of the gentleman from Michigan? There was no objection. Mr. DONDERO. Mr. Chairman, the President’s message to which we have just listened indicates clearly the price we must pay in blood and treasure for the appeasement of communism at home and abroad. We are reaping the whirl- wind from the conferences at Yalta, Tehran, and Potsdam by the Roosevelt and Truman administrations. Russia was given a free hand to enslave and dominate small, defenseless nations and peoples. China was sold and betrayed when she was not present at the con- ference table. In 5 years the Soviets have increased their enslavement of the earth’s population from 200,000,000 to 800,000,000. One act of aggression after another has taken place without protest. We consented and even abetted the xyavaging of China, a peaceful people and the friend of the United States. With nearly every strategic position in her grasp in the Far East, Russia now
10644 resorts to a cruel and unprovoked at- tack on an unarmed people in Korea. The bungling leadership of the admin- istration, and especially the State De- partment with some personnel of ques- tioned loyalty to the United States, has caused this Nation to lose face and pres- tige before the world. It was only when North Korean Com- munists attacked that the pro-Commu- nist policy of our administration in China was compelled to completely re- verse its position. The American people had to be sold on the idea, declared the Secretary of State, that Formosa was of no strategic importance to the United States. Within 10 days our Navy had to be dispatched to protect it. The astounding revelations of lack of preparedness, information, coherent policy, wrong planning, military and economic, and utter lack of statesman- ship on the part of this administration have shocked the American people and the world. Small wonder that some members of the United Nations hesitate sending troops to support Americans in Korea, Government by political payoff stands naked and revealed, at last, utter failure to assess world conditions with respect to Communist expansion which we all hope will not prove fatal, but thus far has revealed its stark tragedy. Thou- sands of young Americans must die be- cause of our failure to support nation- alist China. Billions in tax money will be the cost which our taxpayers can ill afford to pay. During the past 5 years, Congress has appropriated, and the Truman admin- istration has spent, nearly $70,000,000,- 000 for national defense. And now where is that defense? Last April, Defense Secretary Louis A. Johnson, in public statements and some roaringly boastful speeches, told the world that even then we were getting military equipment superior to any pro- duced anywhere else in the world. He boasted that the Kremlin dictator could not start anything anywhere without overwhelming reprisals from the United States within the hour. Well, more than a month ago the * Kremlin started something in Korea, and today American reprisals have been feeble, indeed. Even today, American strength has not arrived in Korea. A month after the event, we are still try- ing to build up enough supplies and manpower in South Korea even to stem the Communist advance. Over the past year, we have been told by the Truman administration that the §00-man military mission to South Korea was doing a wonderful job. We have been told that the South Korean Army was well enough trained, and suf- ficiently armed, to meet any Communist threat from the north. Now we see it revealed that the mili- tary mission did not do a job at all, be- cause it was not provided with the means of doing so. While $400,000,000 was spent for economic aid to the South Korean Republic, almost nothing at all was spent for military aid. It seems that only about $42,000 worth of copper wire was all that was sent. About 140,000 rifles, a third of them obsolete, were left CONGRESSIONAL RECORD—HOUSE when American occupation troops with- drew. Rifles alone, as everyone knows, are not worth much against 60-ton tanks, ma- chine guns, and long-range artillery. And in this connection, it should be stated that American military experts now are ready to concede that our best tanks are inferior to those supplied the North Koreans by the Kremlin. It is strange that these falsehoods should have been told to the American people. But there is an explanation for them. It now stands revealed that the State Department—the same State De- partment which defeated the will of Con- gress and refused to send aid to Chiang Kai-shek—sabotaged military aid to the South Korean republic. The State De- partment now is quoted as saying that to build the military strength of South Korea would be merely to encourage South Korean aggression against the North Korean Communists. Thus we have a situation unparalleled in American history. In some countries, if an administration failed as the Tru- man administration has failed, the mem- bers of the administration would he forced to flee the country to avoid the anger of the populace. But not here. In this country, today, the administra- tion and its supporters are all accepting mutual congratulation on their prompt and decisive action in going to the aid of the beleagured South Koreans. They sent the country unprepared into what looks like the beginning of world war III. Now we are asked to approve an ap- propriation of $1,220,000,000 for the mili- tary aid program, whereby our allies may receive the arms and munitions they should have received long ago. I shall give this appropriation my support. I do so with fear and trembling, because I do not know what use may be made of it. I trust that it will be used to good effect, even though $70,000,000,000 already has been wasted. I shall vote for this bill, S. 3809, because I, and all other patriotic Americans, must go all out in support of our war effort if this Nation is to survive, and if free men everywhere are to remain free. Mr. KEATING. Mr. Chairman, I ask unanimous consent to extend my re- marks at this point in the Rrecorp. The CHAIRMAN. Is there objection to the request of the gentleman from New York? There was no objection. Mr. KEATING. Mr. Chairman, by our support of the United Nations in Korea we have etched our declaration of in- tentions in words of fire and blood. They are there for all to see—including Rus- sia. By our action today we confirm what we said in Korea over 2 weeks ago— that there is a line beyond which free nations, acting in concert, will not per- mit the Red aggression to go. If we had said it earlier, probably fire and blood would have been avoided. But we must now look forward, not backward. Today, we continue the military-as- aistance program and by doing so pledge ourselves to a program of collective ac~ tion and planning with member nations in Europe. JULY 19 In doing so, we must be cautious. We cannot run the risk of brashly asserting our strength and our power. Nothing could be more foolhardy at the present time than to assume that we could do without the active participation and aid of other member nations. We must bear this fact in mind at all times in order to keep the action and the planning a united effort which will produce truly collective balanced forces. Just as we are today backing up the edict of the United Nations in Korea and have invited and welcomed all assistance from other United Nations members, so we should not impetuously assume the burden of defending all Europe without substan- tial and concrete aid from all participat- ing nations of the Atlantic Pact. The stark reality of the present world situation must dissuade us from any such egotistical, prima donna course of action, The truth its that we cannot alone de- fend freedom on both the Asiatic and the European fronts without very ma- terial assistance from the countries which are most immediately and vitally concerned. As I have insisted before, we must have a fully developed, coordi- nated plan of defense. The heretofore hazy outlines of the Communist master plan for world domi- nation are beginning to assume an ominously solid form. If, after we have sent sufficient men and material to drive back the northern Korean invaders, Russia should instigate another instance of unprovoked, armed aggression upon a nation friendly toward us, our supply of men and equipment would be stretched dangerously thin, while the Russians would not have sacrificed one man. These tactics should be sufficiently clear by now to make us realize that we cannot accomplish the enormous task of defending freedom alone, through our defense spending and our arms-aid pro- grams, unless these arms are made part of a well-formulated, well-integrated plan for defense of Europe in which all member nations would participate to the fullest extent possible. Our aid will be a very strong con- tributing factor to morale, but unless it is put to effective use in an over-all plan, we shall have drained our resources to no avail, We must be sure that we are strengthening our own defenses by assisting in the defense of Europe. In fact, we shall have weakened our own economic position and thus our very ability to wage a defensive war, unless @ mutual defense plan is formulated, Therefore, common sense dictates that we make certain that other member na- tions are not led to believe that we can do it all, since that would in turn lead to the bitterest type of disillustonment and resentment when we could not live up to their expectations in the event of war. What must be maintained tn Europe through joint action with sister nations is a sufficient number of troops, ready to join in the common defense, to deter any aggressor from thinking victory would, be swift and easy. Such a force wo have to be sufficieritly strong to fight the delaying action which would be necessary
1950 until we and other free nations could gear thelr economies and resources to a total war basis. Because of the almost fantastic costs involved, the member nations, including the United States, could not assume the financial burden of maintaining an army large enough to fight an all-out war, and this is not pro- poced under the military assistance pro- gram. What we can do by way of additional positive action is to integrate our share of MAP and our efforts in Korea into a world-wide campaign of combating com- munism through all the means at our command. We must fight Communist prcpaganda on all fronts by the truth about our intentions and actions. We cannot afford to let any Russian so-called peace offensive win potential allies from our cause. We must combine our mili- tary assistance for Europe with backing for farsighted political movements there and actively foster sympathetic causes. By doing these things, we shall do away with the risk of being called war-minded or imperialistic or of appearing to be interested only in the military welfare of Europe. We must forge through all possible means our common beliefs in the well- being and freedom of the individual into lasting bonds of friendship and trust which no Communist propaganda shall pierce and no Red arms tear apart. Mr, KENNEDY. Mr. Chairman, I think it unfortunate that Spain was not included in this bill. If my amendment were accepted, it would give to Spain $75,000,000 in mili- tary assistance It is obvious that we are facing a critical future—this bill is one indication of it. The purpose of this bill is to make it possible for countries that are threatened by the Communists to defend themselves until such time as assistance may come. I believe that the armies of Spain could make a substantial contribution to the defense of western Europe, and thus I believe they should share in the arms and equipment that we are distributing abroad. I can understand the reluctance of some Members to assist Spain. They have two chief objections as far as I can tell: First, by giving Spain military as- sistance we are strengthening Franco; second, if we help Spain, we will lose the support of some western Europeans. I think that the answer to the first question is obvious—Franco has been in power for 12 years and he is as strong as ever, As to the second, the situation is so critical—western Europe is so weak in relation to the present strength of the Soviets—that we can no longer afford the luxury of omitting Spain from our defense plans for western Europe, and any European who faces the facts must recognize this. There should be only one qualification before a country becomes eligible for military assistance, and that is: Are they guilty of aggression against other coun« tries? Spain is not. If we are willing to help Yugoslavia in her struggle for independence from Rus- sia because it is to our benefit, so we should be willing to help Spain, CONGRESSIONAL RECORD—HOUSE Mr. DONOHUE. Mr. Chairman, the bill we are discussing this afternoon merely proposes a continuation and ex- tension of the Military Defense Assist- ance Act we approved in 1949. Itisa solid investment in American security based on the conviction that adding strength to the defense forces of our allies increases our own safety. By our action, we are bringing our pledged pro- gram of assistance up to date. The issue presented by this bill is not whether we should follow a policy of mu- tual defense assistance; that has already been decided. The real issue today is whether we stand still, or go forward in implementing our policy by voting this 1951 program. No one would be foolish enough to say the adoption of this program is a guar- anty that Communist aggression will stop. Quite obviously there are calcu- lated risks in this venture. However, if we do not carry out our program, the risks are incalculably more costly and dangerous. The Korean aggression, where Ameri- cans are bearing the brunt of a United Nations police effort, because the Ko- reans have neither the weapons nor the experience to sustain the attack, is an example of the price we may pay in blood, tears, and treasure, if we do not help the free to defend themselves. Co- operation with the free is costly, risky, and often exasperating. Fighting alone, by ourselves, is costlier still. We can carry our part of the burden of mutual defense assistance. We may not be able to successfully carry the whole burden of defending the free world alone. The price of freedom and peace is always high in the face of aggression but they are worth any price. Thank God the American people still prefer death to tyrannical slavery. The history of Manchuria, Ethiopia, Austria, Poland, Lithuania, and the other small liberty- loving nations wearing Soviet shackles, and now Korea, should convince anyone that soft calls for appeasement lead only to military defeat and the destruction of human freedom. Let us demonstrate we have learned our lesson. Only one guaranty is left to us and the remain- ing free peoples of the world. We are thrown back on the words oi the builders of this Nation—the price of liberty is eternal vigilance and preparedness. This bill should be and, I know, will be wholeheartedly approved by this body, because it is not only consistent with the best security interests of the United States, but it also provides for the dis- charge of obligations into which we de- liberately and openly entered. This bill is a realistic step forward in the deter- mined struggle of this country to obtain peace, security, and freedom for ourselves and for the world. Mr. HAYS of Arkansas. Mr. Chair- man, this legislation is essential to our Nation’s defense. If war comes we will be infinitely stronger than we could pos- sibly be without the facilities covered by this program. But the hopes of peace are greater by reason of it. The gentleman from Ohio (Mr, McSwrrnry] spoke to the House re- cently of the activities of a Communist 10645 controlled peace conference in Stock- holm, Sweden. The conference pro- duced the so-called peace petitions which have been signed by many Amer- icans, unaware of their origin or pur- pose. A distinguished American journalist, Mr. Marquis Childs tells in his column today of one editor’s reaction to the peti- tions: It happens that the executive editor of the Winston-Salem Journal and Sentinel is Wal- lace Carroll. .Carroll directed the London branch of the Office of War Information during World War II. He has an under- standing of propaganda warfare as It is waged between truth and falsehood. His reaction to the appearance of the Stockholm peace petitions in his home town was not to say, “Tut, tut, this is bad, wicked, evil.” It was to take the offensive for an honest peace. The Journal {gs now circulating an “appeal for a true peace” In the first day or two several hundred signers responded. The ap- peal as circulated by the Journal 1s as fole lows: “The war in Korea is a danger to the peace of all peoples. “We believe that the Korean war can be stopped and that peace can be saved if the North Korean forces will obey the United Na- tions and go back to their starting point, “We believe that the governments and peo- ples of the world can persuade them to do this. “We believe the governments and individ- uals who proclaim their devotion to peace can prove that devotion by using their influ- ence to stop the Korean war in this way, “We invite all friends of peace to sign this statement” That petition, or something very like it, should be circulated not in Winston-Salem alone, not in North Carolina alone. It should be circulated in every country where the iron curtain doesn't keep it out. We have nothing like an organized party, such as the Communists have, to do that for us. But, I feel confident, the friends of free- dom and true peace in almost every country would take it up if the initiative came from the United States. Mr. Chairman, we must find effective means for letting the world know that our goal is world peace. The initiative must come from our Nation and we must put our skill and energies into a sound peace campaign. While we arm for de- fense we must take notice of the Com- munists’ misrepresentations and must meet the challenge by expanding our in- formation program. No people in all the world desire peace more than we and none can surpass us in creating conditions that make it se- cure if we put our hands to it. The CHAIRMAN. Under the rule, the Committee rises. Accordingly the Committee rose; and the Speaker having resumed the chair, Mr. Mitts, Chairman of the Committee of the Whole House on the State of the Union, reported that that Committee, having had under consideration the bill (S. 3809) to amend the Mutual Defense Assistance Act of 1949, pursuant to House Resolution 696, he reported the bill back to the House. The SPEAKER. Under the rule, the previous question is ordered. The question is on the third reading of the bill,
10646 CONGRESSIONAL RECORD—HOUSE The bill was ordered to be read a third time, and was read the third time. The SPEAKER. The question is on the passage of the bill. Mr. KEE. Mr. Speaker, on that I de- mand the yeas and the nays. The yeas and nays were ordered. The question was taken; and there were—yeas 362, nays 1, answered “pres- ent” 1, not voting 66, as follows: Polk Shafer Vinson Potter Shelley Vorys Poulson Sheppard Vursell Preston Sikes Wadsworth Price Simpson, 1, Wagner Priest Simpson, Pa. Walsh Rabaut Smathers Walter Ramsay Smith, Kans. Weilchel Rankin Smith, Va. Werdel Redden Bmith, Wis. Wheeler Reed, Ill. Spence Whitaker Reed, N. ¥. Staggers White, Calif Stanley Whitten Ribico® Steed Whittington Richards Stefan Wickersham Riehlman Stigler Widnal) Rodino Btockman Wier Rogers, Fla. Sullivan Wigglesworth Rogers, Mass. Sutton Williams Rooney Taber Wilson, Ind. Roosevelt Tackett Wilson, Okla, Sabath Talle Wilson Tex. Sadlak Taurtello Winstead St George Taylor Withrow Sanborn Teague Wolcott Sasscer Thomas Wolverton Saylor Thornberry Wood Scott, Hardie Tollefson Woodhouse Beott, Towe Woodruff Hugh D.,Jr. Trimble Yates Scrivner Underwood Young Scudder Van Zandt Zablocki Secrest Velde NAYS—1 Marcantonio ANSWERED “PRESENT”’—1 Rich NOT VOTING—66 Allen, La. Gore Norton Andrews Gregory Passman Aspinall Hall Patman Barrett, Wyo. all, Edwin Arthur Perkins Breen Hare Phillips, Tenn. Brooks Harris Pickett Buckley, N.Y. Hill Powell Bulwinkle Hinshaw Quinn Carroll Irving Rains Christopher Jennings Regan Cole, N.Y. Johnson Rhodes Combs Kearney Rivers Cooley Kearns Robeson Cooper Keefe Sadowski Cox Kilday Short Davis, Tenn. Lyle Sims Dawson McCarthy Smith, Ohio Dingell McConnell Thompson Eberharter McMillen, il. Welch Engel, Mich. Macy White, Idaho Gillette Marshall Willis Gilmer Morrison Gordon Murray, Tenn. So the bill was passed. The Clerk announced the following pairs: Mr. ..spinall with Mr. Cole of New York. Mr. Pickett with Mr. Edwin Arthur Hall, Mr, Cox with Mr. Barrett of Wyoming. Mr Carroll with Mr. Phillips of Tennessee, Mr. Powell with Mr. Smith of Ohio. Mr. Gregory with Mr. Hill. Mr, Welch with Mr. Engel of Michigan. Mr, Gordon with Mr. Short. Mr. Gilmer with Mr. Hinshaw. Mr. Morrison with Mr. Gillette, Mr. Cooley with Mr. Jennings. Mr. Rhodes with Mr. Macy. Mr. Brooks with Mr. Johnson. Mr. Andrews with Mr. Kearns. Mr. Murray of Tennessee with Mr. McMillen of Winois. Mr. Eberharter with Mr. Kearney. Mr. Harris with Mr. Keefe. Mr. Regan with Mr. McConnell, The result of the vote was announced as above recorded. A motion to reconsider was laid on the table. GENERAL LEAVE TO EXTEND Mr. KEE. Mr. Speaker, I ask unant- [Rolt No. 210] YEAS—362 | Abbitt Dondero Kean ‘Abernethy Donchue Keating Addonizto Doughton Kee Albert Douglas Kelley, Pa. Allen, Calif, Doyle Kelly, N. ¥. Allen, 11}, Durham Kennedy Andersen, Eaton Keogh H. Carl Eliott Kerr Anderson, Calif. Ellsworth Kilburn Andresen, Elston King August H. Engle, Calif. Kirwan Angell Evins Bein Arends Fallon Kruse Auchincloss Feighan Kunkel Bailey Fellows Lane Barden Fenton Lanham Baring Fernandes Larcade Barrett, Pa. Fisher Latham Bates, Ky. Flood LeCompte Bates, Mass. Fogarty LeFevre Battle Forand Lichtenwalter Beall Ford Lind Beckworth Frazier Linehan Bennett, Fla. Fugate Lodge Bennett, Mich. Fulton Lovre Bentsen Furcolo Lucas Biemiller Gamble Lynch Bishop Garmats McCormack Blackney Gary McCulloch Blatnik Gathings McDonough Boges, Del. Gavin McGrath Boggs, La. Golden McGregor Bolling Goodwin McGuire Bolton, Md. Gorski McKinnon Bolton, Ohio Gossett McMillan, 8. C. Bonner Graham McSweeney Bosone Granahan Mack, Il. Boykin Granger Mack, Wash. Bramblett Grant Madden Brehm Green Magee Brown, Ga. Gross Mehon Brown, Ohio Guill Mansfield Bryson Gwinn Marsalis Buchanan Hagen Martin, Iowa Buckley, Il. Hale Martin, Mass. Burdick Hall, Mason Burke Leonard W. Merrow Burleson Halleck Meyer Burnside Hand Michener Burton Harden Miles Byrne, N. ¥. Hardy Miller, Calif. Byrnes, Wis. Harrison Miller, Md. Cam Hart Miller, Nebr. Canfield Harvey Mills Cannon Havenner Mitchell Carlyle Hays, Ark. Monroney Carnahan Hays, Ohio Morgan Case, N.J. Hébert Morris Case, 8. Dak. Hedrick Morton Cavalcante Hoffernan Moulder Celler Heller Multer Chatham Herlong Murdock Chelf Herter Murphy Chesney Heselton Murray, Wis. Chiperfield Hobbs Nelson Chudoff Hoeven Nicholson Clemente Hoffman, Til. Nixon Clevenger Hoffman, Mich. Noland Cole, Kans. Holifield Norblad Colmer Holmes Norreli Corbett Hope O'Brien, Nl. Cotton Horan O’Brien, Mich, Coudert Howell O'Bara, 1). Crawiord Huber O'Hare, Minn. Crook Hull O'Konski Crosser Jackson, Calif, O'Neill! Cunningham Jackson, Wash. O'Sullivan Curtis Jacobs O'Toole Dague James Pace Davenport Javits Patten Davies, N. ¥. Jenison Patterson Davis, Ga. Jenkins Peterson Davis, Wis. Jensen. Pfelfer, Deane Jonas Joseph L, DeGraffenried Jones, Ala. Pteifier, Delaney Jones, Mo, William L. Denton Jones, N. 0. Philbin D’Ewart Juda Phillips, Calif. Doilinger Karst Plumley Dolliver Karsten Poare mous consent that all Members may have the privilege of extending their remarks §n the Recorp at the point just before the Committee rose; and I ask unani-+ JuLY 19 mous consent that all Members may have five legislative days in which to extend their remarks on the bill. The SPEAKER. Is there objection to the request of the gentleman from West Virginia? There was no objection. SPECIAL ORDER GRANTED Mr. SIKES asked and was given per- mission to vacate the special order grant- ed him for today; and that on tomorrow he may address the House for 1 hour fol- lowing the legislative business of the day and other special orders. FORT RUCKMAN MILITARY RESERVATION Mr. BONNER. Mr. Speaker, I call up the conference report on the bill (H. R. 1471) providing for the conveyance to the town of Nahant, Mass., of the Fort Ruckman Military Reservation, and ask unanimous consent that the statement be read in lieu of the report. The Clerk read the statement. The conference report and statement are as follows: CONFERENCE Report (H. Rept. No. 2567) The committee of conference on the dis- agreeing votes of the two Houses on the amendment of the Senate to the bill (H. R. T4771) providing for the conveyance to the town of Nahant, Massachusetts, of the Fort Ruckman Military Reservation, having met, after full and free conference, have agreed to recommend and do recommend to their re- spective Houses as follows: That the House recede from its disagree- ment to the amendment of the Senate and agree to the same with an amendment as follows: In lieu of the matter proposed to be inserted by the Senate amendment insert the following: “That, upon payment to the United States of the sum of 23,000, the Ad- milnistrator of General Services is author- ized and directed to convey by quitclaim deed to the town of Nahant, Massachusetts, all of the right, title, and interest of the United States in and to all lands constituting the Fort Ruckman Military Reservation, situ- ated within the town of Nahant, together with the buildings and other improvements thereon: Provided, however, That the instru- ment of conveyance shall contain such terms and conditions which will allow the recap- ture of the property in the event said prop- erty is not used for educational, recreational, or other public purposes: Provided further, That the instrument of conveyance shall re- serve to the United States, for so long as it is necessary for governmental purposes, that certain fifteen-foot easement for the maintenance, repair, and replacement of a cable and its appurtenances, and at such time as it shall be no longer required for governmental use, said easenrent may be abandoned and upon such abandonment will automatically terminate, and that certain temporary easement, terminating June 30, 1954, covering one and eight-tenths acres of land used in connection with the Turf Drain- age Investigation Program, with right Of ac- ceas thereto, both easements being more par- ticularly described in WAA Form 1005 dated June 22, 1048, Reporting Agency No, WD- 1299, as amended by WAA Form 1005 dated December 15, 1948, Reporting Agency No. WD- 1299-B, which are filed in the office of the General Services Administration.” And the Senate agree to the same, ‘Wittiam L. Dawson, Heragert C. Bonwes, Roszar F. Ricw, Managers on the Part of the House, Maraarer Cxtaszr Suirm, Managers on the Part of the Senate,
1950 STATEMENT The managers on the part of the House at the conference on the disagreeing votes of the two Houses on the amendments of the Senate to the bill (H. R. 7477) providing for the conveyance to the town of Nahant, Mass , of the Fort Ruckman Military Reservation, submit the following statement in explana- tion of the effect of the action agreed upon and recommended in the accompanying con- ference report as to each of such amend- ments, namely: The Senate amendment struck out all of the House bill after the enacting clause and inserted a substitute amendment. The con- ferees have agreed on @ substitute for both the House bill and the Senate amendment. Except for clarifying, clerical and necessary conforming changes, the following statement explains the differences between the House bill and the substitute agreed to in con- ference The House bill provided that the town of Nahant, Mass., would receive all right, title, and interest of the United States in and to all lands constituting the Fort Ruckman Military Reservation by quitclaim deed con- veyance from the General Services Adminis- trator, This conveyance was to be without monetary consideration. The Senate amend- ment sets out that this transfer will be ef- fected by the Administrator of General Serv- ices upon the payment to the United States of the sum of $23,000 as monetary considera- tion. The conferees adopted in this regard the Senate language, which will assure that in these transfers of surplus property the Government does receive a sum of money from the recipient town. This amount bears @ necessary relationship to the valuation of the property and the ability on the part of the community to underwrite this cost factor in a transfer beneficial to the community and the Nation. The House text provided for the recapture of the Fort Ruckman Military Reservation and appurtenances in the event of a national emergency. The Senate amendment struck out this recapture clause. The House con- ferees accept the Senate version and recede on this provision because adequate means remain and are available to the Government should occasion arise during a national emer- gency for reemployment of this property in the interest of national defense or security. H R 7477 carried the proviso that the in- strument of conveyance shall contain such terms and conditions which will allow the re- capture of the property in the event said property is not used for educational o. other public purposes. The Senate substitute car- 1ied no such provision. The conferees agreed upon the House text, with the Insertion of the word “recreational”, so that the agreed version now accepted by the conferees reads: “Provided, however, That the instrument of conveyance shall contain such terms and conditions which will allow the recapture of the property in the event said property is not used for recreational, educational, or other public purposes ” The conferees of both Houses agreed that the addition of the word “recreational” would broaden the ussge to which this property might be put, The effect of this clause will be to assure the Federal Government that the utilization of this property will be in the interest of the community of Nahant and will preclude the employment of this reser- vation land for genoral commercial, indus- trial, or residential purposes. Wirituiam L, Dawson, Hereert C. BONNER, Rosert F. Ricw, ‘ Managers on the Part of the House. The SPEAKER. The question is on the conference report. The conference report was agreed to. tatl motion to reconsider was laid on the e, CONGRESSIONAL RECORD—HOUSE SPECIAL ORDERS GRANTED Mr. HOBBS asked and was given per- mission to address the House for 10 min- utes in two instances today following the legislative program and any special or- ders heretofore entered. Mr. BURKE asked and was given per- mission to address the House for 20 min- utes on Monday next, following the legis- lative program and any special orders heretofore entered. Mr. HUBER asked and was given per- mission to address the House for 10 min- utes on tomorrow, followirg the legisla- tive program and any special orders heretofore entered. Mr. FURCOLO asked and was given permission to address the House for 20 minutes today, following the legislative program and any special orders hereto- fore entered. EXTENSION OF REMARKS Mr BUCHANAN asked and was given permission to extend his remarks and include a statement by him reporting on decisions reached this morning in the Select Committee on Lobbying Activ- ities together with an exchange of let- ters anu a press release. Mr. KLEIN asked and was given per- mission to extend his remarks in four instances and include extraneous matter. Mr. KELLEY of Pennsylvania asked and was given permission to extend his remarks and include an address by Mr. George P. Delaney, before the National Labor Conference in Geneva, Switzer- land. Mr, ELLIOTT asked and was given permission to extend his remarks and include extraneous matter. Mr, MURPHY (at the request of Mr. Rooney) was given permission to extend his remarks and include a speech by Maj. Gen. Anthony C. McAuliffe. Mr. WCOD asked and was given per- mission to extend his remarks and in- clude an address by Charles A. Collier, before the National Citizens Conference on Planning for City, State, and Nation, held in Washington, on the subject Community Building Is Good Business, notwithstancing the fact that it will ex- ceed two pages of the ReEcorpD, and is estimated by the Public Printer to cost $191.34. Mr. CAVALCANTE asked and was given permission to extend his remarks and include extraneous matter notwith- standing the fact that it will exceed two pages of the Recorp and is estimated by the Public Printer to cost $218.68. Mr. WHITAKER (at the request of Mr. CHELF) was given permission to extend his remarks. Mr. PLUMLEY asked and was given permission to extend his remarks. Mr. HEBERT asked and was given permission to extend his remarks in two instances and include extraneous mat- ter. Mr. LANE asked and was given per- mission to extend his remarks in three instances and include extraneous matter. Mr. FARRINGTON asked and was given permission to extend his remarks and include a poem. Mr. JAVITS asked and was given per- mission to extend his remarks in three 10647 instances and include extraneous mat- ter. Mr. NORBLAD asked and was given permission to extend his remarks and in- clude extraneous matter. Mr. SHAFER (at the request of Mr. MICHENER) was given permission to ex- tend his remarks in three instances and include extraneous matter, Mrs. ST. GEORGE asked and was given permission to extend her remarks in four instanccs. Mr. LATHAM asked and was given permission to extend his remarks and include an article, notwithstanding the fact that it will exceed two pages of the Record and is estimated by the Public Printer to cost $191.54. Mr. GAMBLE asked and was given permission to extend his remarks in the REcorD. Mr. GWINN asked and was given per- mission to extend his remarks in two instances. Mr. HESELTON asked and was given permission to extend his remarks and include an editorial. Mr. JUDD asked and was given per- mission to extend his remarks in two instances and include extraneous mat- ter. Mr. MARTIN of Iowa. Mr. Speaker, I ask unanimous consent to extend my re- marks in two instances and include ex- traneous matter, in one to include a letter written by Commodore Perry in 1856, which I placed in the Recorp Janu- ary 18, and which I referred to in my discussion of the bill on the floor yester- day. I ask unanimous consent that it be reprinted in the Recorp, notwith- standing its previous appearance. The SPEAKER. Is there objection to the request of the gentleman from Iowa? There was no objection. Mr. McGUIRE asked and was given permission to extend his remarks and include an editorial. Mr. KEOGH asked and was given per- mission to extend his remarks in two instances. Mr. McCORMACK asked and was given permission to extend his remarks in three instances and to include an ad- dress and an editorial. EXTENDING AUTHORITY FOR 5 YEARS FOR THE TEXAS CITY TIN-SMELTER OPERATION Mr. COLMER, from the Committee on Rules, reported the following privileged resolution (H. Res. 714, Rept. 2597), which was referred to the House Calen+ dar and ordered to be printed: Resolved, That immediately upon the adoption of this resolution it shall be in order to move that the House resolve itself into the Committee of the Whole House on the State of the Union for the consideration of the bill (H. R. 8569) to strengthen the common defense by extending for 6 years the authority for the Texas City tin-smelter operation. That after general debate which shall be confined to the bill and continue not to exceed 1 hour, to be equally divided and controlled by the chairman and ranking minority member of the Committee on Bank- ing and Currency, the bill shall be read for amendment under the 5-minute rule. At the conclusion of the consideration of the bill for amendment, the Committee shall rise and report the bill to the House with
10648 such amendments as may have been adopted and the previous question shall be considered as ordered on the bill and amendments thereto to final passage without intervening motion except one motion to recommit. AMENDMENT OF INTERSTATE COMMERCE Act Mr. SABATH, from the Committee on Rules, reported the following privileged resolution (H. Res. 715, Rept. 2598), which was referred to the House Calen- dar and ordered to be printed: Resolved, That immediately upon the adoption of this resolution it shall be in order to move that the House resolve itself into the Committee of the Whole House on the State of the Union for the consideration of the bill (H. R. 5967) to amend the Inter- state Commerce Act, as amended, to clarify the status of freight forwarders and their relationship with motor common carriers. That after general debate which shall be confined to the bill and continue not to exceed 2 hours, to be equally divided and controlled by the chairman and ranking mi- nority member of the Committee on Inter- state and Foreign Commerce, the bill shall be read for amendment under the 56-minute rule. At the conclusion of the considera- tion of the bill for amendment, the Com- mittee shall rise and report the bill to the House with such amendments as may have been adopted and the previous question shall be considered as ordered on the bill and amendments thereto to final passage with- out intervening motion except one motion to recommit. RUSSIAN RAILWAY SERVICE CORPS Mr. McSWEENEY, from the Commit- tee on Rules, reported the following privileged resolution (H. Res, 716, Rept. No. 2599), which was referred to the House Calendar and ordered to be printed: Resolved, That immediately upon the adoption of this resolution it shall be in order to move that the House resolve itself into the Committee of the Whole House on the State of the Union for the consideration ot the bill (H. R. 6277) to give discharges to the members of the Russian Railway Service Corps organized by the War Department under authority of the President of the United States for service during the war with Germany, That after general debate which shall be confined to the bill and continue not to exceed 1 hour, to be equally divided and controlled by the chairman and ranking minority member of the Committee on Armed Services, the bill shall be read for amendment under the 5-minute rule. At the conclusion of the consideration of the bill for amendment, the Committee shall rise and report the bill to the House with such amendments as may have been adopted and the previous question shall be considered as ordered on the bill and amendments thereto to final passage without intervening motion except one motion to recommit. SPECIAL ORDERS GRANTED Mrs. ROGERS of Massachusetts asked and was given permission to address the House for 3 minutes today, following the legislative program and any special orders heretofore entered. Mr. POTTER asked and was given per. mission to address the House for 5 min- utes today, following the legislative pro- gram and any special orders heretofore entered. FEDERAL DEPOSIT INSURANCE ACT Mr. SMITH of Virginia. Mr. Speaker, I call up House Resolution 697 and ask for its immediate consideration. CONGRESSIONAL RECORD—HOUSE The Clerk read the resolution, as fol- lows: Resolved, That immediately upon the adoption of this resolution it shall be in order to move that the House resolve itself into the Committee of the Whole House on the State of the Union for the consideration of the bill (S. 2822) to amend the Federal De- posit Insurance Act \U. 8. C., title 12, sec, 264). That after general debate, which shall be confined to the bill and continue not to exceed 2 hours, to the equally divided and controlled by the chairman and ranking minority member of the Committee on Bank- ing and Currency, the bill shall be read for amendment under the 65-minute rule. At the conclusion of the consideration of the .- bill for amendment, the committee shall rise and report the bill to the House with such amendments as ruiy have been adopted and the previous question shall be considered as ordered on the bill and amendments thereto to final passage without intervening motion except one motion to recommit. PERSONAL ANNOUNCEMENT Mr. SHORT. Mr. Speaker, I was nec- essarily delayed downtown earlier this afternoon and just missed roll call No. 210, on the passage of the extension of the Mutual Defense Assistance Act. Had I been present I would have voted “yea.” I want the Recorp to show that. FEDERAL DEPOSIT INSURANCE ACT Mr. SMITH of Virginia. Mr. Speaker, I yield 30 minutes to the gentleman from Illinois [Mr. ALLEN], and yield the gen- tleman from Massachusetts |Mr. Mc- CorMackK] such time as he may consume. Mr. McCORMACK. Mtr. Speaker, I ask unanimous consent to extend my re- marks at this point in the REcorp. The SPEAKER. Is there objection to the request of the gentieman from Mas- sachusetts? There was no objection. Mr. McCORMACK. Mr. Speaker, the Government employees everywhere have lost a real friend in the passing of James G. Yaden, the national president of the American Federation of Government Employees. I had known Mr. Yaden for the many years that he was with the Civil Service Commission and during his tenure of office as president of the American Fed- eration of Government Employees. My late friend was a great American, @ man of deep moral convictions and. faith, an understanding leader of his splendid organization, and a real friend of and worker for all Government em- ployees. I am deeply grieved in his death. To Mrs. Yaden and his son and daughter I extend my profound sym- pathy in their great loss and sorrow. Mr. SMITH of Virginia. Mr. Speaker, the bill whose consideration this rule proposes to make in order is a bill that has been reported from the Committee on Banking and Currency. It is the first general revision that has been had of the Federal Deposit Insurance Act. I think it would not be out of place at this time, in the light of the fact that this is the first major revision of that act, which has been in force for some 17 years, to submit some brief comment upon the administration of that act. As you know, when Congress passed the Glass-Steagall bill early in the Roosevelt Administration, the FDIC was JULY 19 a portion of that act. At that time the whole Nation was in a state of confu- sion relative to fiscal institutions. All the banks had recently been closed, owing to the economic crisis that was on the country at that time. After the en- actment of that law, I think there has never been a time when the banking in- stitutions of this country have been sounder or in better shape, and that condition has continued to better itself from year to year as this institution has continued to function. I think it should be said in the light of the fact that this is a major revision of the act that the organization that has carried out the provisions of this act has done a splendid job for the country and ought to be complimented for its fine administration. There have been practically no bank faflures in this country since this law has been in effect. Whatever failures there have been have been of a very minor and scattered char- acter, . The law as it was first enacted and at the present time provides for the insur- ance of bank deposits up to a maximum of $5,000. Of course, that does not in- sure al] accounts. The reason for that small amount of insurance I think grows out of this, that runs on banks which cause failures of banks are known to be very much a psychological condition. One person gets a notion that something is wrong with a bank and he tells some- body else, and the first thing you know you have a run on the bank. That con- dition is more likely to come about with the small depositors than with the larg- er depositors. So this $5,000 insurance is furnished as an insurance against the panic which causes sound institutions to go down in times of trouble. One of the major features of this revision is to increase that insurance from $5,000 to $10,000. Personally, I do not think it is necessary. I have no quarrel with it, and I understand many of the banks want it, but personally I think that if you insure the small de- positors, who are the vast majority of all depositors, you have taken away the psychological situation that causes runs and failures of banks. However, the committee in its wisdom has seen fit to increase this insurance from $5,000 to $10,000. Another feature of the bill is a refund of a portion of the annual premium paid by the banks. As it is, under the present law each bank pays one-twelfth of 1 per- cent of its deposits as an insurance premium. Through that process a large surplus has been built up by the Corpo- ration over these 17 years. In fact, it is something like $1,200,000,000 which the committee thinks is ample for the pres- ent situation. There has been a good deal of agitation for drastically reducing those premiums, The committee did not think well of that, but they have reached this formula which I, having had some 20 years’ experience in a financial insti- tution, think is a very sound proposition. That is to say, that of this premium which is paid each year the FDIC will pay all of the expenses and losses that may accrue. After that has been done they will take the surplus premiums which are left over. and of
1950 that surplus premium will return 60 per- cent to the institutions that have paid the premiums and the other 40 percent will be used to build up that surplus of $1,200,000,000. The committee, and 1 agree, feel that 40 percent annual in- crease added to the present large sur- plus is going to be ample to take care of any situation in view of the fact that all losses are first to be paid. If any year comes along when the losses are greater than the income, then no refund is to be made to the insured until that loss has been made up in future years, It is cal- culated through that method we will provide for an increase in the reserve of approximately $70,0C0,090 a year. Mr. DONDERO. Mr. Speaker, will the genticman y.eld? Mr, SMITH of Virginia. I yield. Mr. DONDERO. Has any change been made in the propesed legislation chang- ing the amount of the assessment against the banks which is now one-twelfth of 1 percent of their deposits? Or is it to be handled on a yearly basis? Mr. SMITH of Virginia. That re- mains as it is, the one-twelfth of 1 per- cent remains. There are numerous little minor changes in the law which, growing out or experience, are largely administrative changes, I have mentioned to you, how- ever, I believe, the only major changes which the law contcmplates. Mr. TACKETT. Mr. Speaker, will the gentleman yield? Mr. SMITH of Virginia. I yield. Mr. TACKETT. I believe I under- stood the gentleman to say it is contem- plated by the committee that the 40 per- cent would build up a reserve of some- thing like $70,000,000 a year? Mr. SMITH of Virginia. I think that figure is in the report. Mr. TACKETT. To what extent does the committce anticipate this reserve building up? In other words, now it is $1,200,000,000 and $70,000,000 a year are to be added to it by only taking 40 per- cent of the assessments. How far are they going to raise this reserve? Mr. SMITH of Virginia. I think they have done nothing on that in the bill. I think that is a question which is left open for future experience, and as experience guides that is what they will do in the future. They may recommend some fur- ther legislation to either raise or lower the premiums. Mr. TACKETT. I called up Secretary Snyder and asked if he anticipated rec- ommending to the Committee on Bank- ing and Currency that the assessments be reduced. On the 20th day of Jan- uary, 9 days later, he called me stating that he was going to ask for a drastic reduction in the assessments. I notice in this bill there is no reduction of assessments, but it is contemplated that the amounts which are lost by virtue of the insurance be paid, and that only 40 percent of the money be retained, which would make, I believe the gentleman said, something like $70,000,000 a year be added to the reserve. Has there not been some consideration by the com- mittee toward a reduction of the assess- ments from one-twelfth of the deposits? CONGRESSIONAL RECORD—HOUSE Mr. SMITH of Virginia. I am not a member of the Committee on Banking and Currency. I am a member of the Rules Committee and as such am pre- senting to the House the pending resolu- tion providing for the consideration of the bill. So I do not know what discus- sion took place in that committee. Mr. Speaker, I reserve the remainder of my time. Mr. ALLEN of Illinois. Mr. Speaker, I yicld 1 minute to the gentleman from Vermont {Mr. PLUMLEY]!. Mr. PLUMLEY. Mr, Speaker, I ought to apologize, and would, were it not for the exigoncy which compels me to take advantage of the opportunity to say that tomorrow you will find in your mail an envslope bearing my signature, ad- dressed to you, which you should not throw into the wastepaper basket. It contains five pieces of literature relative to that greatest of States, to which T hope some of you may have the incli- nation to migrate. My friend the gentleman from Mas- sachusetts |Mr. PHItein] tells a story on me which I love. He tells everybody that I am the sole Representative from the State of Vermont. Then he says he got stuck in Brattleboro and he was look- ing for me. He met some people and he said, “Is Charlie at home?” They said, “No. We lives 125 miles from here, but I see by the paper he will be at home on Tuesday.” The address is 12 Prospect Street, and the latchstring is out. If you cannot use this literature, please send it back to me, because the demand is greater than the supply. Mr. SMITH of Virginia. Mr. Speaker, I yield 1 minute to the gentleman from Colorado [Mr. Marsatis]. Mr. MARSALIS. My. Speaker, I ask unanimous consent to insert in the Rec- orp at this point a telegram from Mr. George F. Rock, chairman of the board of directors of the American Industrial Bankers Association, in which he heart- ily endorses this legislation. The SPEAKER. Without objection, it is so ordered. There was no objection. The telegram is as follows: Denver, Co1o., July 19, 1950. Hon. Joun H. Marsacis, Member of Congress, House of Representatives, Washington, D, C.: Understand that S. 2822, a bill to amend Federal Deposit Insurance Act, will be con- sidered by House of Representatives today or tomorrow. In my opinion this legisla- tion deserves speedy enactment. Increase in deposit insurance coverage provided by this bill will benefit millions of small de- positors. Likewise it will be helpful to banks in cities and villages throughout the Nation as well as to individuals and busi- nesses using bank credits. With a success- ful record over a period of more than 16 years, the Federal Deposit Insurance Cor- poration has demonstrated its work as a stabilizing influence for the American free enterprise system of dual banking. Since 1944 not a single depositor has Jost money as a result of banking disorders. I am voic- ing the sentiment of bankers and business communities generally when I assure you that this outstanding record testifies to the able administration of the Federal Deposit 10549 Insurance Corporation. Urge you to give this legislation your unqualified support. Gerorce F. Rocr, Chairman, Board of Directors, Amere fcan Industrial Bankers Associa- tion. Mr. ALLEN of Dllinois. Mr. Speaker, I yield 6 minutes to the gentleman from Pennsylvania [Mr, Futton). Mr. FULTON. Mr. Speaker, the ques- tion has been raised as to the soundness of the United States banking system. In looking to that you must look to see what makes up the reserves in the bank- ing system and see whether they are assets or obligations that can be de- pended upon. If the United States banking system becomes too filled with Government obligations that have been put into the banks through the Fcderal Reserve System by a method of moneti- zation, the time is going to com? when the whole banking system depends on just how good the Government bonds are and whether they are maintained at 100 percent of their present parity price. The rusiness, industrial, and in- dividual service and loans of the banks become merely a minor incident in the banking business. When this occurs, as it is now occurring, the banks cannot survive without the income on Govern- ment obligations. Should this particu- lar income be reduced, the prospect would then be Government subsidies even at the best, or nationalization of the banking system. The stockholders of banks in this country must insist the banking institutions conduct a commer- cial banking business and get off the soft cushion of Government interest-bearing obligations. The Government is already invading the field of loans because the banks are fast becoming coupon-clipping agencies for Government bonds to the detriment of their real field which made them strong. The banks will surely regret this ‘‘easy” way, and their fail- ure to take local responsibility for the financing of loans and legitimate busi- ness will come back to plague them. Now, may I ask the committee, when you speak of a reserve of $1,200,000,000 that has been built up in the FDIC, what is that reserve? Mr. BROWN of Georgia, ment securities. Mr. FULTON. What kind of Govern- ment securities does that reserve repre- sent? Mr. BROWN of Georgia. It repre- sents Government bonds at 2 percent. They realize $25,000,000 a year on those Government securities, and that is passed on to the reserve. Mr. FULTON. There are no other securities than Government securities in the FDIC reserve? Mr. BROWN of Georgia. That is right. Mr. FULTON. So that actually this reserve is just a general obligation of the Government, although it is represented py bonds of the Government in formal orm. What is the percentage of deposits in insured institutions guaranteed at $5,000 at the present time? What percent of the total amount of bank deposits of in- sured institutions are they? My pre- vious information is that these insured In Govern-
10650 deposits amount to over 93 percent in number of depositors in the average insured bank in this country. Mr BROWN of Georgia. About 95% percent Mr. FULTON. So that over the whole country it is 9544 percent of the deposits, at a $5,000 guaranty, that are covered by the FDIC guaranty? Mr. BROWN of Georgia. That 1s right. Mr. FULTON. Then if you increase the guaranty to $10,000 by this bill, what, in number, does that increase the percentage of deposits covered in insured institutions over the whole country? Mr. BROWN of Georgia. Ninety-elght and six-tenths percent. Mr. FULTON. So that when we pass this bill the United States will have in number of bank deposits of insured in- stitutions not covered by this insurance program only 1.4 percent? Mr. BROWN of Georgia. In amount you have a $12,000,000,000 increase and 2.2 percent in the number carried. Mr. FULTON. The number covered is raised to 98.6 percent. Mr. BROWN of Georgia. But in the total amount covered you have an extra $12,000,000,000. Mr. FULTON. But there is only 1.4 percent in number not covered under the $10,000 guaranty. Mr. BROWN of Georgia. About 2 percent. Mr. BUCHANAN. Mr. Speaker, will the gentleman yield? Mr. FULTON. I yield. Mr. BUCHANAN. I may say that the total amount of deposits insured are now - approximately 48.4 percent. This pres- ent bill will cover 56.5 percent. The total number of accounts at the present time is 95.7 percent, and this bill will increase them to 98 6 percent. Mr. FULTON. My colleague from Pennsylvania agrees that there is only 1.4 percent in number not covered. Mr. BUCHANAN. As far as the total number of accounts is concerned. As far as the total amount of deposits is concerned, it is at present 48.8 percent; this bill will cover them to the tune of 56.5 percent Mr. FULTON. May I ask my worthy colleague on the Banking and Currency Committee what kind of Government obligations are in the assets of the banks which will cover or secure the 1.4 per- cent in number not taken care of under this bill? Mr. BUCHANAN, They are covered in their entirety to the extent of $5,000. Mr. CRAWFORD. Mr. Speaker, will the gentleman yield? Mr. BUCHANAN. I yield. Mr. CRAWFORD. I wonder if the gentleman would agree that the sound- ness of the banks from the standpoint of the depositor is the ability of the bank to pay its dollar obligation to the de- positor. As a depostior you want to know whether or not you will get your dollar value back. We have this very in- teresting situation: These insured banks probably carry today roughly sixty to sixty-two billion dollars’ worth of Gov- ernment bonds which bonds can be con- verted into Federal Reserve notes, which are currency, so that the bank can pay its CONGRESSIONAL RECORD—HOUSE obligation to the depositors. We are now starting in on a new defense program and additional billions of Government securities will have to be issued which will be primarily sold to the banks. As long as the banks can convert those bonds dollar for dollar into Federal Re- serve notes which are legal tender the bank will probably be able to pay off the dollar obligation due the depositor, but the big question always is: What is the dollar worth after the depositor gets it? Mr. FULTON. The gentleman is very correct. I wanted to point out this prob- lem that we are coming to in the banking system. Before I came to Congress, for 12 years I was a partner and associated with a law firm representing a very large banking group in the cits of Pitts- burgh, so that I am very interested as to the effect of this proposed legislation and our current banking and currency policies on our banking and fiscal situ- ation. When the Government guaran- tees either directly or indirectly all the deposits in the banks, it is a needless move to be charging banks so much premium, one-twelfth of 1 percent on the deposits per year, and putting the proceeds over into another reserve ac- count which is also simply put into Gov- ernment obligations, because that is simply a bookkeeping transaction. The Government becomes liable cither di- rectly on its guaranty of deposits or in- directly on the obligations under the bonds in the reserve. May I point out to you that if the Administration applies the Brannan Plan principle to the banking industry, which is an unfortunate possibility, the Government will then guartantee all the bank deposits in one blanket guaranty of the Government. When the Government guarantees all the deposits in the bank by one obli- gation there is no need of paying 2.1 percent a year on Government bonds held by the banks as security for de- posits, because the deposits are already guaranteed. Then the Government will come along under the Brannan plan theory and say to the banks: In exchange for a blanket Government guaranty of all your deposits, we want you to turn in your Government bonds and Govern- ment short-term obligations for cancel- lation of the formal instruments. The Government will then guarantee the banks the same return as they now re- ceive on their Government obligations and will tell the banks they do not have to pay any further annual FDIC pre- miums of one-twelfth of 1 percent per year as it is much easier for the Govern- ment simply to pay the losses as they occur, after the stockholders’ equity is applied to reduce them. The banks would like this suggestion. As the deposits are all guaranteed, no depositor will be worried about the sol- vency of the bank or the validity of its loans, so the few losses will be largely stockholders’ losses, but they won’t be able to complain much because their bank will have been receiving annual payments from the Government in lieu of interest on Government bonds and short-term obligations, without which under present conditions the bank’s op- JULY 19 erations would not have been profitable or netted them a return on their in- vestment. Through this method of cancellation, the Federal Government would reduce its principal indebtedness by sixty to sixty-two billion dollars, the amount of Government bonds, for example, turned in as unnecessary for security for bank deposits because of the general blanket guaranty by the government of all de- posits. The banks would then have to get a continuing appropriation each year to make up the loss of interest, which would be the total charge to the Government, in addition to the small net annual losses on the guaranty. And the banks would be in the same predicament the farmers would be under the Brannan plan, dependent on Gov- ernment annual appropriations for their very existence. Do not underestimate the appeal of this blanket guaranty of deposits plan which I have just out- lined, as the face amount of the Na- tional debt can be cut substantially by it. I close by warning the banks that by approaching under this bill to 98.6 per- cent guaranty in number of deposits they are coming so close to the blanket Government guaranty by their own ac- tions that any child can see it will not pay the Government to pay 2.1 percent annually on the face amount of Govern- ment bonds now held by the banks as assets to secure only 1.4 percent in num- ber of accounts. The closer we approach to 100-percent guaranty of deposits by the Federal Government, the closer we fatally approach Government control of the management of those deposits. This unfortunately means nationalization of the United States banking system by in- direction, and the gradual termination of an independent United States bank- ing system. . Mr. ALLEN of Illinois. Mr. Speaker, I yield myself 20 seconds. The gentleman from Virginia has clearly explained the rule and the pro- visions of the bill. I do not know of anyone who is opposed to the rule. I hope it passes. Mr. Speaker, I reserve the balance of my time. Mr. SMITH of Virginia. Mr. Speaker, I move the previous question. The previous question was ordered. The SPEAKER. The question is on the resolution. The resolution was agreed to. Mr. SPENCE. Mr. Speaker, I move that the House resolve itself into the Committee of the Whole House on the State of the Union for the consideration of the bill (S. 2822) to amend the Fed- eral Deposit Insurance Act (U.S. C., title 12, sec. 264). The motion was agreed to. Accordingly the House resolved itself into the Committee of the Whole House on the State of the Union for the con- sideration of the bill 8, 2822, with Mr. Foranp in the chair. The Clerk read the title of the bill. The first reading of the bill was dis- pensed with. Mr. SPENCE. Mr. Chairman, I yield myself 10 minutes. Mr. Chairman, I do not think there is any agency of the Government that more
1950 richly deserves the confidence, the re- spect, and the gratitude of the American people than the Federal Deposit Insur- ance Corporation, You will remember that in 1933 we had the collapse of our banking system, that confidence was shaken in all our financial institutions, and that the banks were closed. The Government was called upon to take their capital notes or buy their preferred stock. The Reconstruction Finance Corporation furnished the money to re- store their solvency so that they might resume business, and the banks were re- opened. Shortly thereafter the Federal Deposit Insurance Corporation was cre- ated and from that day to this there has been a renewed confidence in our banks, @ renewed stability in our economy, and there have been so few bank failures that they have had no appreciable effect upon the economy of the Nation. This institution has been in existence for 16 years and its net losses amount to but $26,000,000 in all that time. Dur- ing that time it has accumulated a re- serve of $1,200,000,000. The bill under consideration increases the insurance coverage from $5,000 to $10,000 of individual accounts. In my opinion, this will have a very beneficial cffect especially upon many of our small- er banks. There are many corporations that deposit in the smaller banks to the extent of $5,000 in order to encourage good will and I have been told by some who have control of these organizations that if the coverage is increased to $10,000 it will increase their deposits. It would encourage the decentralization of the money of our country and would encourage its further distribution. Mr. GROSS. Mr, Chairman, will the gentleman yield? Mr. SPENCE. I yield to the gentle- man from Iowa. Mr. GROSS. Can the gentleman tell me what the average income in the United States is? Mr. SPENCE. No; I cannot. Mr. McSWEENEY. Mr. Chairman, will the gentleman yield? Mr, SPENCE. I yield to the gentleman from Ohio. Mr. McSWEENEY. What happens to the fund? Does it lie idle? Is it in Gov- ernment bonds? Is it usable? Can it be borrowed upon? Mr.SPENCE. Yes, it is in Government bonds, and it yields now $25,000,000 a year, which is added to the insurance re- serve, The assessments on the banks are one-twelfth of 1 percent of the deposits. Under this bill the net income from the assessments will be distributed. Forty percent will go into this fund which will increase it about $40,000,000 a year, which added to the investment income of $25,- 000,000 will increase the insurance fund about $65,000,000 a year, Mr. McSWEENEY. Is that 60 percent distributed pro rata? Mr. SPENCE, Sixty percent, after the payment of administrative expenses, losses, and reserve for losses will be dis- tributed pro rata upon the basis of the assessments paid as a credit against future assessments. Mr.CRAWFORD. Mr. Chairman, will the gentleman yicld? CONGRESSIONAL RECORD—HOUSE Mr. SPENCE. I yield to the gentle- man from Michigan. Mr. CRAWFORD. On the basis of the premium paid in. Mr. SPENCE. As a dividend on the basis of the premiums paid in. In addition to this, in the organization of the Federal Deposit Insurance Cor- poration, $139,000,000 was advanced by the Federal Reserve banks and $150,- 000,000 by the Treasury for capital stock of the corporation. That money has all been paid back. No Government agency has any money in this corporation now. The fund is contributed to entirely by the insured banks. But in the retirement of that stock no interest was paid, It is now provided that the interest that was due upon these advances, which amounts to $80,000,000, will be paid into the Treasury of the United States out of current assessment revenues. Then after that is done this organization will be absolutely free of any contributions by the Federal Government and the backlog will have been entirely made up by the assessments on the banks. Those are the salient features of this bill. I think there is no objection to it, and I hope that the House will pass the ill, Mr. FULTON. Mr. Chairman, will the gentleman yield? Mr. SPENCE. I yield to the gentleman from Pennsylvania, Mr. FULTON. Is it not true that the closer you come to a guaranty by the Government of all bank deposits, the closer you come to the United States Government running all banks? Mr. SPENCE. No; I cannot see that the Government would run the banks any more if it were a $10,000 guaranty rather than a $5,000 guaranty. Cer- tainly, they would not attempt to exer- cise an further control over the banks under one condition than the other. Mr. BROWN of Georgia. Mr. Chair- man, will the gentleman yield? Mr, SPENCE. I yield to the gentle- man from Georgia. Mr. BROWN of Georgia. I think the gentleman from Pennsylvania is labor- ing under some misapprehension about this bill. When you raise the coverage from $5,000 to $10,000 the bank does not pay another dime. They pay the same assessment. It is only when you have failure that it would make a difference. But, the assessment would be the same whether it was 10 or 5. Mr. FULTON. What I am afraid of, in answer to that, is that when the Gov- ernment guaranties 98.6 percent in num- ber of deposits, you are then going to have the Government calling the tune for what the banks do, and to me that is very short-sighted policy on the part of the banks to further put themselves in the power of the Government. Mr. SPENCE. I think the gentle- man’s apprehensions are entirely un- founded. Mr. MULTER. Mr. Chairman, will the gentleman yield? Mr. SPENCE. I yield to the gentle- man from New York, Mr. MULTER. The basic mistake our friend from Pennsylvania is making is in saying that the Government is guar- 10651 anteeing those deposits. The Federal Deposit Insurance Corporation is an agency of Government, but the fund that is being used to guarantee these deposits is contributed by the banks, It is not Government insurance, Mr. SPENCE. It is not Government insurance, The fund is entirely made up by the assessments from the banks. Mr. FULTON. The great mistake the gentleman from New York is making is that the reserve the FDIC holds of $1,- 200,000,000 is likewise invested in Gov- ernment obligations, so that while it is & separate corporation it is the Govern- ment by its obligations that makes up the fund at the present time. Mr. SPENCE. A private corporation may also invest its reserves in Govern- ment obligations, so I do not think that is pertinent at all. Mr. GROSS, Mr. Chairman, will the gentleman yield? Mr. SPENCE. I yield to the gentle- man from Iowa, Mr. GROSS. May I ask the gentle. man from New York where the banks get thelr money? The gentleman says the banks are paying premiums, but where do the banks get the money? Mr. MULTER. They use the deposi- tors’ money and charge the depositor a service charge. Mr. GROSS. That is right. Mr. SPENCE. There are other pro- visions of the bill which I have not dis- cussed, The provisions I have men- tioned are the salient features of the legislation. I think by reason of the splendid administration of the Federal Deposit Insurance Corporation during its 16 years of existence we can confi- dently expect a wise and conservative management of its affairs in the future. Mr. WOLCOTT. Mr, Chairman, I yield myself 10 minutes. Mr. Chairman, I believe this to be a very desirable bill. The committee amendments to the bill should be adopt- ed and the bill should be passed in that form. You recall that the Federal Deposit Insurance Act was originally passed back in 1933. When it was first set up, as a compromise only $2,500 of the deposi- tor’s money was insured. The bill that was originally introduced asked for a coverage of $10,000. At that time there were certain inter- ests against Federal deposit insurance and the divorcement of investment af- filiates from the banks, Those inter- ests had given the President and the Secretary of the Treasury an ultimatum that if those two bills were passed then a refunding operation of about $600,000,- 000, as°I recall, which was due in June 1933, would not be bought. So there was much opposition not only from some of the interests but from those high in Government to Federal deposit insur- ance, The then chairman of the House Com- mittee on Banking and Currency, our very esteemed late friend, Henry Stea- gall, literally pushed the bill through the House with an overwhelming majority, as did our esteemed friend, the Senator from Michigan (Mr. VANDENBERG].
10652 There was a compromise of $2,500 cov- erage. Later that was increased to $5,000. Now this bill seeks to increase the coverage to $10,000, to put it where it would have been had the original bill been enacted. There are a good many reasons why this coverage should be increased to $10,- 000, but those of you who represent small banks should be peculiarly interested in the increase of this coverage from $5,000 to $10,000. There are thousands of communities in the United States, very small commu- nities, which can support only one rel- atively small bank. Any depositor in that community may have his funds in- sured in that bank up to $5,000. If he has more than $5,000, then it is usually taken to a city bank and deposited there. Thus the city bank gets the benefit of that deposit. Under the provisions of this bill that country bank will be put in @ position where it will accept the de- posit and the FDIC will insure the de- posit up to $10,000. So, although there perhaps will not be twice as much money available in the small country banks for lending purposes, nevertheless there will be a great deal more money available in the small country banks for loaning in those communities. In so many in- stances we know that the life of the com- munity revolves around the bank and the progress which that community makes is a direct result of the lending policy of the small bank, and its ability to make loans to its customers. So that, to me, is one of the most cogent reasons why that particular part of the bill should be enacted. The House committee has also pro- vided that the Federal Deposit Insurance Corporation might examine these banks without having to get th: approval of the Federal Reserve Board in the case of member banks, other than national banks, and the consent of the Comp- troller of the Currency in the case of the national banks. It is thought desirable to allow the insuring agency when it feels that a bank needs examination to deter- mine whether there is danger of the bank closing to bolster up the reputation of the bank in the community in the case that there were rumors in the commu- nity that the bank was not sound. So it works as a stabilizing influence in all communities, and the examination made by the FDIC will be for the double pur- pose of assuring the depositors and the borrowers in the community that the bank is sound or to determine if it is un- sound what might be required to make the bank sound. They are authorized to go in before the bank fails, and bolster up the bank and prevent its failure. So it adds another advantage to the FDIC assurance against bank runs and bank failures, which we have not had hereto- fore. Mr. CRAWFORD. Mr. Chairman, will the gentleman yield? Mr. WOLCOTT. I yield. Mr. CRAWFORD. Does this right which is now extended to the FDIC to make the inspection carry with it the meaning that the FDIC will make annual or semiannual or quarterly audits or only exercise that right when it thinks it is necessary? Mr. WOLCOTT. The latter ts true— only when it thinks it is necessary be- cause of something found in the exami- nations made by the Federal Reserve or the State bank examiners or the Comp- troller of the Currency or because of ru- mors which they have heard locally com- ing to them from local interests in re- spect to the bank’s condition. I think we have been given more than reason- able assurance that there will be no more duplication of examination in the future if this bill is passed, than there has been in the past for the very reason that, of course, up to the present time, in s0 many instances the FDIC has taken the Federal Reserve examination and the Comptroller’s examination, and in many instances the State examination. So we do not expect, and as a matter of fact we have been given more than reasonable assurance, that there will be no effort on the part of FDIC to duplicate any of the effort in the examining field of the State agencies, the Comptroller of the Cur- rency, and the Federal Reserve. But they do seek the right to go in in those cases where they think a bank is in a little trouble and where they think that ‘their examination should determine whether the bank should be closed or whether it should continue to operate under its present policy, or whether it needs a little additional capital or per- haps a little guidance that they might give it to bolster it and renew the con- fidence which the people in the com- munity have. The CHAIRMAN. The time of the gentleman from Michigan [Mr. Wo t- coTt] has expired. Mr. WOLCOTT. Mr. Chairman, I yield myself five additional minutes. Mr. CRAWFORD. It seems to me the committee has acted wisely, in that they have followed the fundamental principle in insurance, that the insurer should have the right to come in and inspect that which it is insuring at any time it deems advisable. If I understand the gentleman correctly, that is exactly what you have done. Mr. WOLCOTT. That is exactly it, and that is the attitude taken by the committee Mr. REES. Mr. Chairman, will the gentleman yield? Mr. WOLCOTT. I yield. Mr. REES. Do I understand that the FDIC uses the examinations that are conducted under the Comptroller of the Currency? Mr. WOLCOTT. Yes, largely; and the Federal Reserve. Mr, REES. That is, the examiner for the Comptroller of the Currency exam- ines a bank and furnishes the FDIC with a report, and the FDIC uses that report; is that correct, as its own examination? Mr. WOLCOTT. That is correct. If, however, they are not satisfied with the Comptroller’s report or the report of the Federal Reserve, then heretofore they have asked permission of the Federal Re- serve, in the case of a member bank, or the Comptroller’s office in the case of a national bank, to go in and examine further. But they would have to get the approval of one or the other of the agen- cies before doing it. CONGRESSIONAL RECORD—HOUSE JULY 19 Mr, REES. The amount of guaran- teed deposit is comparatively small with respect to the amount guaranteed, is it not? That is, a very small percent of the amount guaranteed? Will that be increased by reason of this $10,000 in- crease? Mr. WOLCOTT. As I understand it, a little more than 1 percent of the de- positors and deposits will be the increase. Mr. FULTON. Mr. Chairman, will the gentleman yield? It is 48.8 to 56.5 increase. Mr. WOLCOTT. Oh, it is ninety- some, Mr. FULTON. It is 48.8 to 56.5 in amount of deposits, Mr. WOLCOTT. That is in numbers. Mr. FULTON. No, that is in amount. Mr. REES. This applies only to indi- vidual funds, does it not? Mr. WOLCOTT. It applies to all funds of all depositors, It applies to the Government funds that are on deposit. Mr. REES. Does it apply to city funds? A municipal account? Mr. WOLCOTT. It applies to city funds and Federal Government funds which are now secured by collateral. Mr. REES. ‘Then, if a city has a de- posit of $10,000, or less, it will not be required to put up any other bonds to secure that deposit. Is that correct? Mr. WOLCOTT. Well, it may have to, but so far as the city is concerned, it would be insured against loss up to $10,000. Mr. REES. I do not want to press the matter, but what is meant by the thought that they may have to? Mr. WOLCOTT. Because in many in- stances the State law provides that a bank must put up collateral to secure the deposit of a municipal depositor. This bill will not in any way interfere with the statutory provisions which now require banks to put up collateral to secure municipal deposits. Mr. REES. In other words, even though it is under FDIC guaranty, it still must comply with the State law if there is one that requires the deposit of municipal bonds or Government bonds to pay that deposit. Mr. WOLCOTT. That is right. The FDIC is in addition to the security which they get from having to place the col- lateral for the payment of money upon demand. Mr. REES. I thank the gentleman. Mr. WOLCOTT. There is over $4,000,- 000,000 available against losses at the present time. There is something over @ billion dollars in the insurance fund; and then, under the law, when that has been exhausted and there is need for it, the FDIC can call upon the Treasury for an additional $3,000,000,000. Mr. REES. Mr. Chairman, will the gentleman permit one further question at that point? Mr. WOLCOTT. I yield. Mr, REES. How much money as of the present date is guaranteed in deposits? Mr. WOLCOTT. Ido not know. It is in the report somewhere. Mr, REES. I think the report shows. Mr. WOLCOTT. The deposits are $156,800,000,000.
1950 Mr. REES. How much more will be guaranteed under this bill? Mr. WOLCOTT. The gentleman can figure out the increase percentagewise and determine it. Mr. FULTON. The $15€,800,000,000 is not correct. That is the total amount of deposits in insured institutions, but not the amount guaranteed. Mr. WOLCOTT. It is there in the re- port; I do not know where it is, but it is there. Mr, PULTON. That is not the correct amount insured. — Mr. WOLCOTT. I have not the figures in my mind. If the gentleman will consult with the Clerk and the chairman, they can tell him. What I have in mind is another point I want to make here, and I do not want to cover things which are in the report which I will refer to later on if I have to. I want to bring out the fact that there is criticism of this increase to $10,000 by reason of the fact that the fund is not large enough. Nobody knows exactly what fund is large enough, but for ordi- nary cases it is too large at the present time. Nobody can say whether one billion is large enough or two Dillion is large enough; so we keep this cushion of $3,000,000,000 in Treasury funds in here to give more assurance. And then do not forget the fact that in addition to the reserve funds which must be used first, the assets of every bank, of all Gov- ernment bond holdings of every insured bank, all the real-estate holdings, all of the commercial paper, and all of the stock upon which loans have been made, ell the assets of the bank, may be utilized in the liquidation of the FDIC obliga- tion; so nobody knows exactly unless they know the total amount of all the assets of all the banks and offset that against the total amount of possible loss which, taken as 100 percent, would be covercd according to actuarial figures almost in its entirety with the reserve which the FDIC now has and the $3,000,- 000,000 which the Treasury will put in if it is necessary. This $3,000,000,000 of the taxpayers’ money cannot be used until the reserves of the FDIC and the assets of the bank are exhausted. If we had such a depression here in the United States as to exhaust the assets of the banks and the reserves of the FDIC, then there would not be anything in America worth having; so we do not need to worry about the ability to pay off, or we do not have to be too actuarial about these figures. When the time comes that we have to use Treasury money to bolster this fund up, then the country will have gone so far below the safe line economically as to make the FDIC relatively incon- sequential. This has a tremendous psychological effect against runs on banks which some- times cause a depression. It should be continued for that reason if for no other reason. A person having less than $5,000 in a bank as of a year ago last February felt safe. At that time we had @ little slump. There was no panicky feeling, no hysteria, no runs on the banks. People were not going down to the bank and saying: “Here, let me see XCVI-——671 CONGRESSIONAL RECORD—HOUSE my money. TI want my money,” because if they had less than $5,000 they knew it was insured and they could get it upon demand at any time. That prevented runs on the banks at that time which might have plunged us into a very deep depression in February 1949. For that reason and the other rea- sons which have been given, this bill should be passed in the form in which ‘t has been reported out of the com~- mittee. The CHAIRMAN. The time of the gentleman from Michigan has expired. Mr. WOLCOTT. Mr. Chairman, I yield myself three additional minutes, Mr. HALE. Mr. Chairman, will the gentleman yield? Mr. WOLCOTT. I yield to the gen- tleman from Maine. Mr. HALE, I have received a good many letters from banks complaining of the amount they have to pay by way of annual premium to the Federal Deposit Insurance Corporation. As I read sec- tion 7 of this bill it does give some relief to those banks. Am I correct about that? . Mr. WOLCOTT. The gentleman is correct. Under the formula set up in the bill, which has been covered by the chairman of the Committee on Banking and Currency, a net is arrived at after the collection has been made of the premium. The net is arrived at by de- ducting the operating costs of the FDIC, any expenses which they have been put to and the payment of the interest on $289,000,000 of capital after the first year or two because under the provisions of the bill they are required to pay in- terest on the capital although the capital has been retired. They are going to pay the interest on that capital. But after this gets rolling and after the operating expenses, losses, and the other expenses are deducted, then they establish a net. Forty percent of that net goes into the reserves. We will be constantly increas- ing the reserves from year to year. Sixty percent is returned to the banks on a pro rata basis as a dividend. It is estimated that in practice and in effect if the Corporation is enabled to continue with as few losses as it has had, the net result of this formula will be a decrease in premium payments from the present one-twelfth of 1 percent to ap- proximately one-twenty-fourth of 1 per- cent. Mr. CRAWFORD. Mr. Chairman, will the gentleman yield? Mr. WOLCOTT. I yield to the gentle- man from Michigan. Mr. CRAWFORD. The answer to the question propounded of the gentleman from Michigan (Mr. Wo.corr] is found on page 4 in this language: By December 31, 1949, the insurance fund of the Corporation had tncreased to $1,203,- 942,687, representing 1.596 percent of the estimated insured deposits on that date of $75,500,000,000. Mr. WOLCOTT. Yes. I call the at- tention of the gentleman from Pennsyl- vyania [Mr. Futron] to that language which I think answers his question. The CHAIRMAN. The time of the gentleman from Michigan has expired, 10653 Mr. SPENCE. Mr. Chairman, I yield 10 minutes to the gentleman from Georgia [Mr. Brown]. Mr, BROWN of Georgia. Mr. Chair- iaan, I want to pay a just tribute to the officials of FDIC. I know of no agency now or in the history of government that has done a better job than the FDIC, It started out in 1935 from scratch without a dime. It borrowed $289,000,000 from the Treasury and from the Federal Re- serve banks. Throughout the 16 years of operation it has paid back the $289,- 000,000. The Corporation has only lost $26,000,000, and it has set up as a reserve the large sum of $1,200,000,000. That is remarkable. And, for the last 6 years not an insured bank in the United States has failed. In a Boston paper the other day there appeared a nice compliment to this agency stating that the present Presi- dent of the United States is the only man who occupied the White House for as long as 4 ycars without a bank failure since the year 1867, Who is it that does not have con- fidence in the officials of FDIC? I do not know of more than 12 or 15 men in the United States out of the 150,000,000 who are against the FDIC now. We have made four essential changes in this Jaw. One is the coverage from $5,000 to $10,000. The second gives the right to the FDIC to ymeke examinations to determine its risk, The third is a formula relative to re- duction of premium which is Just, equit- Ie, and sound. The fourth gives the Co: poration per- mission to erect a building. The increase from $5,000 to $10,000 coverage helps the Httle banks of the country. They can keep the money there instead of sending it far away. It gives more security to the economy of the locality. Nobody is against that. Representatives of large and small banks in this country have testified they were for it. We do not change the law in collecting the assessment. The Corporation col- lects one-twelfth of 1 percent, amount- ing to $120,000,000 a year from the banks of this country. They invest the money in Government securities and realize $25,000,000 a ycar in addition. The formula is this: Bear in mind that is $120,000,000 plus $25,000,000. Out of the $120,000,000 which the Corporation col- lects from the banks of this country, after the operating expenses for the year are paid and all losses paid, if any, then it sets aside 60 percent of the balance as a credit for the following year’s premium to be deducted from the one-twelfth of 1 percent due, and the balance is car- ried to the reserve. With about $50,000.- 000 to add to the reserve, it still has the $25,000,000 or more obtained as interest on the funds, making the total amount approximately $75,000,000 annually to add to the reserve fund. Who pays this money? The Govern- ment does not pay a dime, and the tax- payers do not pay a dime. The banks pay it all. Mr. KEATING. Mr. Chairman, will the gentleman yield?
10654 Mr. BROWN of Georgia. I yield to the gentleman from New York. Mr. KEATING. Do I understand that the net effect of this change in the method of assessment, which is a little bit complicated, would probably be ap- proximately that a banking institution would pay only about 40 percent of what it is now paying in the way of assess- ments? Mr. BROWN of Georgia. Let me cx- plain it this way. The FDIC collects at the present time $120,000,000 from the banks. The operating expenses for this year are around $6,000,000. It is $6,- 000,000 subtracted from $120,000,000. Then you have 60 percent of that which would be in reserve next year as a credit, and 40 percent goes into the fund to pay losses hereafter. Mr. BROWN of Ohio. will the gentleman yield? Mr. BROWN of Georgia. I yield. Mr. BROWN of Ohio. The gentleman has been making a very splendid state- ment, in which he has been explaining how this fund operates. The facts are, of course, that the depositors who re- ceive the benefit of this insurance in effect pay for the insurance through fees the banks receive or the interest that is derived on the deposits that the banks earn on the money deposited, so that in effect the depositors who are protected by this legislation are actually paying for their own insurance, and there is no reason why they should be charged a higher insurance rate than is necessary to protect the fund and to insure these funds. Mr. BROWN of Georgia. There is not a bank in the United States that opposes this bill. Mr. BROWN of Ohio. No, every bank is for it. Mr. BROWN of Georgia. Eighteen witnesses appeared before our commit- tee, and only one or two opposed one or two sections of the bill. Mr. BROWN of Ohio. As I under- stand it, practically every depositor in these banks wants this protection. The depositors, of course, are paying the costs in the end, and they are entitled to the insurance for which they pay. Mr. BROWN of Georgia. Another thing I might say is that the Govern- ment makes money out of this, because when a bank makes its return for taxes it gets a credit or deduction of the one- twelfth of 1 percent it paid to the FDIC. If the bank receives the credit of 60 per- cent, then it has to pay the taxes on that, which amounts to a little over $25,000,000 ayear. Under the present law, the Gov- ernment does not receive any part of the one-twelfth of 1 percent for taxes. Mr. BROWN of Ohio. That becomes an earning instead of a debit item? This insurance is primarily for the benefit of the depositors of the Nation, not for the benefit of the banks. The depositors really benefit by this legisla- on, Mr. BROWN of Georgia. There are a lot of banks in this country that would not join the Federal Reserve if they were not required to under the law. The State banks that belong to the Federal Reserve have to pay this assessment. All national banks have to pay it, but State banks who are not members of the Mr. Chairman, CONGRESSIONAL RECORD—HOUSE Federal Reserve may elect to take FDIC protection. Mr. BROWN of Ohio. I have heard some people argue in opposition to this bill that this is primarily a bankers’ bill. It is not a bankers’ bill, it is a depositors’ bill. Mr. BROWN of Georgia. Ihave heard the statement that we are subsidizing the banks of the country. This is cer- tainly a misstatement. Who pays the money? The banks pay it. Not a dime is paid by the taxpayers or the Govern- ment. A large part of the money comes from the larger banks of this country to help the little banks. Hon. Lee Wiggins, of South Carolina, a former Under Sec- retary of the Treasury, and who rep- resents three little banks in the State that adjoins mine, is the author of this formula. He was successful in ectting the large and small banks and the de- positors together, and I am glad he was successful in getting something satisfac- tory to all concerned. Mr. BROWN of Ohio. But the gen- tleman will agree that the real benefici- aries are not the banks but the deposi- tors of the Nation. . Mr. BROWN of Georgia. Of course it is the depositors, absolutely the de- positors altogether. The money is paid by the banks. Iam one of the first men who ever ad- vocated this kind of legislation, in 1924. I have helped lead the fight ever since then. My people and the banks in my town and State are anxious for this bill to become law. Mr. STEED. Mr. Chairman, will the gentleman yield? Mr. BROWN of Georgia. I yield. Mr. STEED. I am Ighly in favor of this legislation and appreciate the gen- tleman’s statement. Is it not true that the $10,000 guaranty on bank deposits now is somewhat equivalent to the $5,000 guaranty at the time that the $5,000 guaranty was originally made? Mr. BROWN of Georg'a. I am itn- clined to agree with you. With reference to the building, the building cannot cost more than $15,090,000, and it cannot be built until the President O. K.’'s it. Why should they have a building? Because they are paying today more than $200,000 ayearin rent. It is good business sense to have a building of theirown, It means money to the taxpayers of this country if they can selcct a good place here or somewhere else. With reference to this matter of mak- ing examinations. I say that these pco- ple ought to have the right, without get- ting written permission from the Fed- eral Reserve or the Comptroller of the Currency, They are the people who must pay the loss and should know what thcir risk is. When they go into a bank now and find that the bank is weak they have a right to set up some arrangement with another bank or merge it with an- other bank. It is because of the diligence of these FDIC officicls that we have not had an insured bank failure in the last 6 years. The Federal Reserve has a right to make examinations of the na- tional banks, but I understand they never do, Then why should not the FDIC have the right to go and investigate if they want to? The Comptroller of the Currency is a member of the Board of the JULY 19 FDIC. Naturally the FDIC will accept their report without making any undue investigation. Of course, the FDIC wants to save all the money it can. Not a dime comes out of the banks when FDIC makes the examination. They pay in full for the examination themselves. So there is nothing to be alarmed about. There may be four or five little banks in the United States that are alarmed because they think FDIC might make extravagant ex- aminations. But every dime comes out of the FDIC fund and they will not make many examinations, as was so well said by my distinguished colleague, the gen- tleman from Michigan |Mr. Wotcotrt]. Mr. GAMBLE. Mr. Chairman, I yield 10 minutes to the gentleman from Pennsylvania [Mr. KuNKEL]. Mr. KUNKEL. Mr. Chairman, I am in favor of this legislation with one or two exceptions, with respect to which I think the bill might well be amended. Mr. Chairman, I ask unanimous con- sent to proceed out of order. The CHAIRMAN. Is there objection to the request of the gentleman from Pennsylvania? There was no objection. Mr. KUNKEL. Mr. Chairman, I take this opportunity to call attention to one serious omission in the President’s mes- sage this morning. No one was more anxious than I was to get rid of price control and rationing; but not to take steps at this time to provide at least stand-by controls for rationing in my judgment is a serious mistake. One of the troubles we had during the last war, and one of the reasons for high prices and for enforcement difficulties was the fact that price control was instituted long before rationing. When you have price control without rationing, there is no restriction whatever on the demand for the article. Even the ordinary deter- rent of the increased price is removed. Consequently, it promotes scarcity which, as time goes on, becomes less and less possible to cure. In my judgment, it would be a great mistake if we did not impose rationing prior to price control, or at least coin- cidentally with price control, if we are to drift into a period of shortages. Price control is somewhat popular. People like to buy at a low price. Ra- tioning is unpopular, because people hke to buy all they want to buy at a low price. But you must have rationing, if price control 1s to be workable. It is more basic than price control in any ef- fort to stabilize an economy of scarcity. Another thought along the same line, running back to the time when we passed the first price control legislation during the last war: If prices are once allowed to become dislocated, and then you at- tempt to impose selective controls in cer- tain commodities, you can never catch up to the dislocations. Ten new ones arise while you are trying to cure one old one. If you are going to have any price control legislation, it should freeze the price structure at a time when prices have been determined by ordinary eco- nomic causes and interactions, and not by artificial and arbitrary orders and regulations. If that is done, then you can, at least to some degree, conform to the ordinary economic pattern. You
1950 can keep the flow of goods moving in a stream at least somewhat near to normal. My own thought is that if rationing were installed at any time it might easily be possible to avoid price control. As soon as you do have price control you immediately restrict production, which cuts the supply, while at the same time you keep up demand by means of artificially low prices. On the other hand, rationing regulates demand. When the President sought the power to have priorities, and also to impose allocations, he virtually admitted the force of the argument which I am now making, because allocations and prior- ities are merely on the wholesale scale what rationing would be on the retail scale. We have already had enough ex- perience, even in the few days since the trouble in Korea started, to show how panicky buying and undue hoarding can exhaust stocks, and how little protection there is for the ordinary buyer who wants to order and buy if and when he needs to secure the goods. I think if you will study the history of what happened from 1942 on, when we first attempted to put price control on during the last war, and when you see the bad effect that came from not having any rationing at the outset of that period, you will agree with me that some steps should be taken to give authority for at least voluntary rationing, and some kind of stand-by authority for statutory rationing, and that the study of that subject should start very soon. Indeed, it should have started before now. We spent some months on the first price control bill passed by the Congress. I think we conducted hearings for 4 months. It is a very difficult sub- ject to work out. If we do not work it out before the situation runs away from us, I think we can look forward to having many of the difficulties in the present price structure that we had during the last war and the immediate postwar period. Of course, any measure ap- proved should be drawn in such a way that if the war situation should correct itself or not be as arduous as most of us fear it will be, then the President should not have the power to institute controls to an unlimited degree. But to neglect the study of this subject, and to neglect preparing the legislation which would be ready at a moment's notice to meet the trouble would, in my judgment, be re- peating the serious mistakes that we made during the last war period. Mr. CRAWFORD. Mr. Chairman, will the gentleman yield? Mr. KUNKEL. I yield. Mr. CRAWFORD. Since the Presi- dent’s message of today was made public, the wires are carrying heavy messages from sales agencies and purchasing agen- cies all over the United States, moving in. Within the last 45 minutes I have had some of those largest buyers call me and ask me what I thought about the Presi- dent's message in that respect. Of course, the message as worded, in the absence of action taken, becomes one of the most inflationary forces that we have ever had turned loose in the United States, because people are now acting in the Nght of what has gone before and of their recent experiences in the last 10 years, CONGRESSIONAL RECORD—HOUSE Mr. KUNKEL, As a matter of fact, I may say to the gentleman from Michi- gan, it would have been an admirable thing could we have had legislation ready which could have applied to rationing, and to allocations, and to priorities at the time the President first declared the emergency in connection with the Ko- rean situation. Mr. CRAWFORD. Certainly. If we can assume that the market which has covered the last 60, 90, or 120 days, is a fairly free market—I mean prior to the Korean situation—that might be the point at which the gentleman has rec- ommended that we fix normal and start from there. But certainly if this thing which is under way since 1 o'clock this afternoon and which will gather speed, is let run for 90 days, the good Lord only knows what kind of mess we shall be in. Mr. KUNKEL. If the situation con- tinues, as unfortunately it looks as though it would, there never will be-a time in the next year or two at which the price level and the economic adjust- ments in this country will be as near normal as they are today. From this point on they will become increasingly abnormal; and consequently, if and when selected controls are imposed they will cause all kinds of unsuspected disloca- tions as well as many which we can rea- sonably anticipate. Mr. SPENCE. Mr. Chairman, I yield such time as he may desire to the gentle- man from California [Mr. SHepparp). Mr. SHEPPARD. Mr. Chairman, after listening to President Truman's stirring message to the Congress on the Korean situation there should be but one thought in the minds of the Members of this body. In the interest of successful prosecution of the United Nations cam- paign against lawless aggression and the defense of the United States, we must act at once. President Truman has called for ac- celerated and increased production of essential materials, products, and services and in this time of crisis it is the duty of Congress to expedite such a program. The words “too little and too late” must never again be applied to the efforts of the United States in its battle to pre- serve world peace. We should consider at once the Presi- dent’s recommendation that—~ First. The Congress should author- ize, for national defense purposes, pro- duction loan guaranties and loans to increase production. Second. The Congress should au- thorize the making of long-term con- tracts and other means to encourage the production of certain materials in short supply. Mention of the words “materials in short supply” brings vividly to mind this country’s steel supply. If we are to meet this Nation's extremely heavy mili- tary needs without serious disruption of the economy, as President Truman re- quested, there is no denying that our present steel capacity is definitely inad- equate. Expansion, particularly decen- tralized expansion, is needed at once. An appeal for expanded steel facilities is not a new topic with me. I have point- ed out upon previous occasions that the United States was lagging in steel pro- 10655 duction. Only last month I urged Henry J. Kaiser to expand his Fontana, Calif., steel plant in the interest of national de- fense and national economy. Iam happy to say that Mr. Kaiser has met my challenge. He already has filed with the National Security Resources Board and the Munitions Board a plan for expanding the ingot capacity of the Fontana plant from 1,200,000 tons a year to 1,900,000 tons. The cost would be ap- proximately $100,000,000, and Mr. Kaiser has assured me that steel could be pour- ing from these new facilities in a mat- ter of months. Recalling Mr. Kaiser's tremendous and unparalleled production record of World War II, I am sure that my colleagues will agree this is no idle boast. It is men like Mr. Kaiser to whom Congress must turn when the country needs production and needs it in a hurry. It is men like Mr. Kaiser who must be encouraged by Congress if we are to avoid another too-little-and-too-late situation. Expansion of the Fontana steel plant is essential because of its strategic loca- tion which enables it to— First. Provide steel where it may be most needed—both for protecting the public from being cut off from essential civilian steel supplies and for the prose- cution of military defenses. Second. Assure independent iron-ore supply far away from the vulnerable eastern sources dependent on the Sault Ste. Marie lock bottleneck. Fontana iron ore is hauled 52 miles over a privately owned railroad and only 112 miles on a common carrier, Third. Require minimum transporta- tion for assembly of raw materials and distribution of finished and semifin- ished steel products to fabricators. Fourth. Protect the western United States from the danger of its rail- and water-transportation routes being cut off by hostile war action. The expanded facilities would provide both essential basic materials and finished steel where they would be required by our Pacific defense forces and essential civilian workers, not only eliminating drain on transportation facilities, but lessening the peril of interruptions in long-haul transportation. To give industry in general the sup- port it needs in this national defense effort, Congress should consider immedi- ately a program of accelerated amorti- zation similar to that in effect during the last war. This should permit a com- pany, upon obtaining an appropriate certificate of necessity from an agency such as the National Security Resources Board, to increase its plant capacity and write off the cost over a 5-year period. 1 know that there are many Members of the House and the Senate who favor this method as an incentive to industry to expand. I believe it is imperative that we give it consideration as rapidly as possible, Steel plants cannot be built in a day. We waited too long in the last war be- fore expending steel capacity. Let us not make that same mistake again. Mr. BROWN of Georgia. Mr. Chair- man, I yield 10 minutes to the gentle- man from Pennsylvania (Mr. Bucwanan].
10656 Mr. BUCHANAN. Mr. Chairman, the bill S. 2822 before us today has as its principal advantage to depositors under the pending bill the provisions which raise the maximum insurance coverage from $5,000 to $10,000. Insured banks will benefit from two provisions of the bill: The first would simplify present procedures for comput- ing the assessment base, while the second would provide for a substantial reduc- tion in the cost of insurance to the banks in normal years. During its more than 16 years of exist- ence the Federal Deposit Insurance Cor- poration has paid out about $316,261,289 to protect about 1,350,000 depositors in some 412 insured banks that have en- countered difficulty. Bringing that down specifically to the State of Penn- Sylvania during this period, some 158,000 depositors in 24 insured banks in the State of Pennsylvania have had their funds protected by the advance of about $56,746,000 in Federal Deposit Insurance Corporation Funds. Further breaking the situation down in the particular State of which I am a Representative, the accounts in the insured banks in Pennsylvania as of the present time are some 8,730,000 in number. The accounts fully insured under the $5,000 maximum at the present time aggregate about 8,416,000. Under this increased coverage plan it would increase the number of ac- counts insured to about 8,621,000. As to the total deposits, the total amount of deposits in all insured banks in the State of Pennsylvania aggregates about $10.899,000,000; and the insured deposits under the $5,000 maximum covers about $5,620,000,000; and under the $10,000 maximum it will be increased to some $6,481,000,000. The present maximum insurance coverage of $5,000 covers more than 99,000,000 deposit ac- counts in the insured banks throughout the Nation. The percentage of these total accounts at the present time is about 95.7 percent, which will increase the number then of total accounts cov- ered to some 98.6 percent. The total dollar deposits covered in the Nation today aggregate about 488 per- cent of the total amount of money on deposit, or approximately $76,500,000,- 000. It will move that figure up to some 56.5 percent, or an approximate amount of $88,500,000,000, an increase of some $12,000,000,000 in the total dollar deposits covered. The principal changes in the existing law are some five in number. The report of the committee staff and the commit- tee on page 5 of the report very capably points these changes out. The first of which I have cited is this increase in the insurance coverage. The second 1s the simplification in the computation of the assessment base. The third is the reduction in the years in which the Cor- poration does not encounter any undue loss in the case of deposit insurance to the banks by making provision for a credit to them of a percentage of the net assessment paid each year. Fourth, in this bill by amendment we cover the ex- pansion of examination authority to en- able the Corporation to examine any in- sured bank or any bank seeking insur- ance and fifth, and finally, the payment to the Treacury of interest of 2 percent CONGRESSIONAL RECORD—HOUSE on capital funds originally provided by the Treasury and the Federal Reserve Bank. There are other minor changes, of course, of a less important nature, many of which are rather technical and repeal certain obsolete sections of the existing Jaw. I do not want to take any further time of the Committee of the Whole. In the reading of the bill for amendment when the problem comes up we will be able to present the entire picture so far as the bill is concerned. There have been some erroneous im- pressions about who the benefits of this bill will accrue to. However, the com- mittee report has duly covered that. In the final reporting of the bill I may say there was no record vote, which would indicate also there was no record vote of opposition to its final reporting. There were differences on some of the amend- ments, but these were agreed to by ap- proximately a 2 to 1 margin. Mr. FULTON. Mr. Chairman, will the gentleman yield? Mr. BUCHANAN. I yield to the gen- tleman from Pennsylvania, Mr. FULTON. I want to compliment the gentleman on his factual statement. What is the benefit to be gained by hav- ing a premium paid of 100 cents on the dollar each year, then having 60 percent given back? Why not just have the 40 percent paid in originally and only call for the 60 percent when it is needed? Mr. BUCHANAN. The premium is di- vided in that fashion, of course, under the terms of the bill, 60 percent accruing to a reserve account and 40 percent to the banks, with certain added provisions. Mr FULTON. Why could they not calculate the expenses of the FDIC for a@ year, call on the banks for a 40-per- cent premium payment for reserves, and let it be known it is a contingent lability of the banks in the future, and not have them pay it in ench year? Mr. BUCHANAN. Well, in 1949 the net income of corporation holdings of securities in that year amounted to some $25,122,803, and there is at present a reserve fund of about $1,200,000,000. That is rather adequate to take care of any losses that might occur. The ob- ject, of course, is not to build that re- serve fund to too large a proportion. When you are draining off too much you are probably draining it off of some of the small banks of the country rather than the larger banks. This would largely aid the smaller banks when they are insured up to $10,000 and make more money available for loans and credit ad- vances to the businesses in that particu- lar area. Mr. FULTON. Does not the gentle- man think that by moving further to- wards the guaranteeing of all bank de- posits by an agency of the Government we are then getting to the point where we might have all the bank deposits guaranteed, and that the Government will then set the policies for the banks in their local operations? Mr. BUCHANAN. No; I do not feel that way. I have no fears about that at all because the present system is operat- ing in a fashion which, as I have stated here from the percentage figures, a large number of the accounts are now cov- ered, almost 95.5 percent, and this will JULY 19 increase a few percentage points of the total number covered. But, of the total dollar deposits covered there is still ade- quate leeway there, so I have no fears about Government restraint or controls being exercised through the FDIC. Mr, FULTON. May I have the gentle- man’s comments on the operation of this reserve fund of $1,200,000,000? ‘That is invested in Government obligations, is it? Mr. BUCHANAN. That is right. Mr. FULTON. Suppose that a depres- sion occurs or there are bank failures enough so that we have to call on that reserve for paying the bank depositors, what would happen? Is it not a fact that all we do 1s to dip into the general funds of the Treasury and come up with enough money in order to pay the bank losses? Mr. BUCHANAN. Well, we have built rather rigid supports in our economy to- day on a sound basis, and if the occasion that the gentleman refers to should occur, I am sure that the fund supports that we have constructed will be re- enacted and make for a safer banking system. I believe the policy, in general, over the last 15 years, is indicative of that trend. Mr. FULTON. May I ask the gentle- man this question? Where will the funds come from to pay out the bank losses when the reserve fund is invested in Government bonds? Mr. BUCHANAN. Well, of course, that is a situation that we will meet when that time comes. Mr. FULTON. Will that not have to be by a general appropriation out of the Treasury of the United States, because after all they are just obligations of the United States? Mr. BUCHANAN. If that is the wish of the Congress at that time, that will possibly be the way in which it will be handled. Mr. FULTON. There are certainly re of us questioning the policy of the ill. Mr. BUCHANAN. Yes, some of the provisions of the bill, but as to the entire bill 1 do not know of any objections. There may be some. Mr. MULTER. Mr. Chairman, will the gentleman yield? Mr. BUCHANAN. I yield to the gen- tleman from New York. Mr. MULTER. Any bonds that are issued by the United States Government are obligations of the Government. They must be paid by calls upon the United States Treasury. That is why the bonds are issued by the United States Government now. Mr. BUCHANAN, I include the fol- lowing statements: S. 2822 Section 17, pages 52-45—Audit by General Accounting Office: This section authorizes the Comptroller General to make a commer- cial-type audit of the FDIC. A commercial- type audit is described in the attached excerpt from House Report No, 846, Seventy- eighth Congress, first session.? 1This excerpt was included in the reports of both House and Senate committees which considered the Government Corporation Con- trol Act. See Rept. No. 856, House of Representa- tives, 79th Cong., Ist sess. pp. 95-96; Rept. No. 694, Senate, 79th Cong., 1st sess., pp. 8-9.
1950 The language in thig section was worked out between the Comptroller General and the Federal Deposit Insurance Corporation after careful study, and should not be changed without full knowledge as to what effect any such change would have. The proyisions for a commercial audit of the FDIC should be set forth in the FDIC law as it is here and should not be contained in the Government Corporation Control Act or any other such omnibus measure, since the FDIC has little, if anything, in common with Government corporations and other agencies which would be included in such an act. The audit provisions of this bill have been designed to fit the particular needs and operations of the Corporation. IV. Divrerences BETWEEN GOVERNMENTAL AND CommerciaL TYPEs or AUDIT (Excerpts from H. Rept. No. 846, 78th Cong., 1st sess.) (This statement is incorporated in both Senate and House committee reports on the Government Corporation Control Act.) e * o e ¢ In general the purpose of the governmental type of audit is to determine the validity of expenditures under appropriations made by the Congress in the light of restrictions and Mmitations placed by the Congress generally upon the expenditure of appropriated moneys. It is a part of a system designed to enforce the personal accountability of gov- ernmental officers authorizing or expending those funds upon the basis of documents and records usually submitted to the General Accounting Office and retained in its cus- tody. In contrast, the commercial type of audit is separate and apart from the ac- counting system and internal financial con- trol of the Corporation and is designed to determine the true financial condition of the Corporation as of a given date and the re- sults of its financial operations during the period covered by the audit, as well as estab- lishing whether the funds of the Corpora- tion have been regularly expended in ac- cordance with corporate authorization. These determinations are made by detailed examination of the operating and financial records of the Corporation at the places where they are being used in the conduct of corporate business. e ° e e oe The fundamental difference between the two types of audit and the inadequacy of the governmental type of audit as applied to capital-fund operations of the Corporation may be more clearly seen from a comparison of the procedures involved. The governmental type of audit generally involves the following seven steps: 1. The fixing of the amount for which the disbursing officer is accountable under his bonded responsibility by reason of the ad- vance of funds under particular appropria- tions upon accountable warrants and by rea- son of collections received by him; 2. The submission by the designated dis- bursing officer to the General Accounting Office for audit and settlement of an account supported by certified vouchers and by other original papers evidencing specific payments which he has made from the particular funds charged to him; 8. The examination by the General Ac- counting Office of these vouchers and other original supporting papers to determine whether the payments covered thereby were properly authorized and whether the ex- penditures represent valid obligations of the Government under the specific appropriation sought to be charged; 4. The settlement by the General Account- ing Office of the disbursing officer’s account and the determination of his liability to the United States; 5. The determination of the llability to the United States of the officer certifying for CONGRESSIONAL RECORD—HOUSE payment the items included in the disburse ing officer’s account; 6. The preparation and issuance of certifi- cates of settlement incorporating all unex- plained or unadjusted differences developed in the examinations of the accounts; and 7. The institution of collection proceed- ings tf the accountable officer fails to pay over any balances found due from him in the settlement. COMMERCIAL-TYPE AUDIT The commercial type of audit ordinarily made of large business corporations usually involves the following seven steps: 1. The establishment of the authorities of the various officers and employees by refer- ence to the original articles of incorporation, bylaws, minutes of the board of directors, and other official authorizations taken in the name of the corporation; 2. The verification, through appropriate checks, of the original general and subsidiary ledgers by comparison of original collection and disbursement documents with such ledgers and, in connection with this, the de- termination that all actions reviewed are properly authorized; 8. The verification from the original ac- counting records and supporting documents of the accuracy of all items appearing on the balance sheet, including verification of all cash on hand and in banks, and when needed, positive establishment of the existence of assets by physica! inventory methods or through inquiries addressed to debtors and the determination of actual liabilities through inquiries addressed to creditors; 4. The review and establishment of the accuracy of any operating statements to de- termine that they clearly indicate the finan- cial progress of the corporation during the period covered by the audit, including proper reflection of any profits made or losses suffered; 5. Determination, in light of the actions by the board of directors and any changes in the policies of the corporation, that proper records are established and necessary safe- guards developed correctly to reflect the financial operations of the corporation and to protect the corporation from financial loss which can be prevented by proper and adequate records and procedures; 6. The preparation of a report covering the audit, including certified financial state- ments and comments deemed appropriate by the auditor, such as recommendations for changes in the accounting procedure and records, errors still uncorrected at the com- pletion of the audit, analysis of facts brought out in the financial statements, and the submission of such a report to the officials ordering the audit; and 7. The institution of corrective action by the corporate management, The CHAIRMAN. The time of the gentleman from Pennsylvania has expired. Mr, GAMBLE. Mr. Chairman, I yield 10 minutes to the gentleman from Iowa {Mr. Tare]. Mr. TALLE. Mr. Chairman, I urge my colleagues on both sides of the aisle to support the pending legislation, 8S. 2822, Itisa good bill. It will strengthen our Nation’s banking system. Depositors and bankers alike endorse the measure. Depositors will benefit principally from the added protection in the provision raising the maximum insurance cover- age from $5,000 to $10,000. Insured banks will benefit because of the sim- plified procedure for computing assess. ment bases and because of the substan- tial reduction in the cost of the insur. ance in normal years. 10657 As a member of the Banking and Cur- rency Committee, I was pleased last March to read an editorial in the Des Moines Register and Tribune paying de- served tribute to the Federal Deposit Insurance Corporation. FDIC is one Government agency that has consistent- ly been well managed. It has never been the object of partisan political attacks, The editorial states: FDIC Has Bern a COMPLETE SUCCESS In the dark days of 1933 a new alphabet agency of the Federal Government was added to the dozens blooming in the first spring of the New Deal in Washington. This particu- lar one—embodied tn legislation sponsored by Michigan's Republican Senator, ArTHUR H. VANDENBERG-—~Wwas FDIC (for Federal Deo posit Insurance Corporation). The idea made sense to men and women who had seen bank doors locked and their savings dwindle to nothing a few months before. Under FDIC, the Government guar- anteed every depositor's account up to $5,000. Confidence returned to the Nation and the Federal Deposit Insurance Corporation con- tinued to reinforce the integrity of banking and savings institutions. Its record, brought into review this week as the Benate passed a bill broadening its coverage, is a cheering Government success story and a happy note of national prosperity. Every cent of the €289,000,000 advanced by the Treasury to start FDIC has been repaid. Last year it operated at a profit of $138,091,- 786, giving it a surplus, or reserve fund, of $1,203,942,687. The new Senate bill, which the House is expected to approve, would extend the cover- age on individual bank deposits from $5,000 to $10,000 and, at the same time, cut the insurance premium—paid by the banks—by about one-half. The $5,000 guaranty covered about 86 per- cent of all bank accounts. The increased protection will bring the coverage up to 98.4 percent of all deposits. The FDIC cannot prevent bank failures. There have been from one to four a year since 1933. But every depositor has been paid in full up to the first 65,000 of his account. In 1948 this amounted to only $400,000. The depression baby has grown up to he a quiet, thrifty, and successful member of the Federal family. Mr. Chairman, as I pointed out in the committee hearings on this bill, the FDIC has been a good buttress to bank man- agement. Students of banking agree that the most important single cause of bank failures is bad management. In other words, sound banking is predicated on good management. It was this thought I had in mind several years ago when, on the occasion of the Iowa Cen- tennial, I commended the pioneers who were responsible for the establishment and operation of the original State Bank of Iowa. My words on that occasion apply equally to the men who have ad- ministered the FDIC so ably during the 16 years of its existence, for they, too, have helped to lift the banking fraternity to a high and honorable place in society. I join with the gentleman from Georgia [Mr. Brown] in expressing admiration for the management of the FDIC. It is obvious, Mr. Chairman, why de- positors are eager to receive the protec- tion afforded by Federal deposit insur- ance. But the fact that this insurance 4s also popular with banks, both large and small, is a tribute to the splendid administration of the Corporation. E. E,
10658 Manuel, of George, Iowa, former Presi- dent of the Independent Bankers Asso- ciation, had this to say about FDIC ina recent letter to Chairman Maple Harl: We independent bankers are surely grate- ful for the recognition given us by the Fed- eral Deposit Insurance Corporation. We have a feeling that your organization is going down the line fighting for us. Yes; the FDIC has had a stabilizing effect on American banking. And Amer- ican banking is one of the most unique institutions in our economic machinery. The unusual character of our banking system was well described in a recent ad- dress by another outstanding Iowa bank- er, J. F. Kennedy, of New Hampton, president of the Iowa Bankers Associa- tion, as follows: I suppose the principal reason that Amer- ican banking differs from banking in other Jands lies in the fact that our system reaches right down to the little people—the work- ingman, the farmer, the small-business man. Let’s keep it that way. It is this development of American banking to include all segments of our society that is significant. And my in- terest in the pending bill is based on my firm conviction that the benefits of de- posit insurance should be made available to increased numbers of depositors, In- suring bank deposits is not a new idea, but experience has proved that such op- erations should not be conducted on a local basis. Spreading the risk is a vital principle in insurance. Back in 1829 the State of New York set up a safety fund; it failed because it was confined to one State. In more recent years other States, particularly in the Middle West, have tried similar experiments. ‘They, too, failed because, first, the principle of spreading the risk cannot operate suc- cessfully in the limited confines of a single State; and, second, because the banking Jaws in those particular States were loose. I want to emphasize that these failures do not disprove the valid- ity of the idea of deposit insurance; but they do establish that the risk should be spread through a Nation-wide system. Mr. Chairman, S. 2822 will ben fit both depositors and bankers. By its en- actment, the safety and liquidity of bank deposits throughout the land will be as- sured, and the American banking system will thereby be strengthened from top to bottom. This legislation deserves the full support of every Member in this Chamber. Mr. SPENCE. Mr. Chairman, I yield 15 minutes to the gentleman from New York [Mr. Mutter}. Mr. MULTER. Mr. Chairman, the bill we are now considering represents the conscientious bipartisan effort of the Committee on Banking and Currency, Under the leadership of our distin- guished chairman, the gentleman from Kentucky, I think, by and large, they have done an excellent piece of work in strengthening the Federal deposit-insur- ance law. They were assisted in their work by the directors and staff of the Federal Deposit Insurance Corporation under the guidance of their able Chair- man, the Honorable Maple T. Harl. The Corporation and its efficient staff nave received unanimous praise from CONGRESSIONAL RECORD—HOUSE every source for the fine work they have done. This bill will enable them to do an even better job, provided it is im- proved in one respect. The bill presently provides for a re- duction in the amount to be paid by the banks for the insurance set up by this law. That,I think, is a very serious mis- take at this time. The bill doubles the amount of insurance from $5,000 to $10,000 per account, and at the same time it cuts back the amount to be paid for that insurance by about 60 percent. I will address myself at this time to the reasons why we should eliminate from this bill any provision for reduction in the assessments or premiums. If we do not eliminate that provision entirely, at least, we should postpone the effective date of the reductions, refunds, or credits until such time as the reserve fund is built up to at least double what it is now. I would like to bring your minds back for a moment to the days when the Fed- eral deposit insurance law, was written upon the statute books of our country. The very distinguished gentleman from Alabama, the late Mr, Steagall, had la- bored long and well over a period of 15 years prior to 1933 trying to write upon our statute books a law insuring deposits. Almost every banker in the country for 15 years vigorously opposed him. Then in 1933 those of you who were here at that time, were besieged by those very bankers demanding that the Government rush in and insure deposits and guarantee them against the losscs which had been brought upon the banks and the bank depositors and stockhold- ers by the bad judgment, yes, even by the mismanagement and folly of those same bankers. When the bill was before the House in 1933, the distinguished gentle- man from Alabama, Mr. Steagall, said this: It is submitted that the guaranty of bank deposits against loss provided by this bill is absolute and that no specific guaranty ot the Government is necessary to make the protection of the depos'tors complete— Meaning, as he indicated, that this was to be a deposit insurance fund built up by the banks out of bank funds to guar- antee depositors against loss. At that session of the Congress in 1933, in discussing the conference report, be- fore final enactment of the bill, the same gentleman said: The purpose of this bill 1s to promote the the public welfare and protoct the interest of depositors. It rests upon the theory that banking which is not safe for depositors ought to be prohibited by law. It is in- tended to require common honesty in the operation of the banks of this country and to make it posisble for banks to employ bank credits in support of trade and commerce in the United States. He said further: We lay down the proposition that bank- ing is not the individual right of a citizen, but that when we charter an institution to engage in banking, to receive the deposits of the public, it is the duty of the law-mak- ing power of the Government to see to it that the deposits of the public are protected. Common honesty requires this, the public welfare requires it, and the future welfare of the banks requires it. JULY 19 Those words bear repetition today, be- cause there is a provision in this bill sponsored by these same bankers which, if it remains in the bill, will undermine the entire structure of Federal Deposit Insurance, I understand tha} when the time comes during the reading of the bill for amendment, the gentlewoman from Connecticut |{Mrs. WoopHovuss] will offer an amendment to strike out the provi- sion granting to the banks 60 percent re- fund of the present assessments, which are used to build this insurance fund. The assessments are really premiums paid for this insurance. The fund is called upon in the event of need, to pay depositors back their own money which they have loaned to these banks, which the banks are using to earn their profits. There is nothing wrong with the bank- ing system and nothing wrong with that theory, provided they will adhere to the principle of this bill, and continue to build this fund until it 1s large enough to protect the depositors of this country against loss. One banker who came before the com- mittee said $10,000 now is quite com- parable to $5,000 in 1934. I agree. If that is so, we should expect them to come in here and say, “If you are going to increase the insurance coverage from $5,000 to $10,000, we ought to at least pay double the premium.” Not so in this bill. They say, “Let us cut it by 60 percent. Let us get double the insur- ance and pay only 40 percent of the premium we pay with a 50-cent dollar." Mr. FULTON. Mr. Chairman, will the gentleman yield? Mr. MULTER. I yield. Mr. FULTON. Iam interested in the independence of the banking system. You have heard me say this afternoon that the nearer we come to the control of deposits, the nearer we come to con- trol of the banking system by the United States Government. Will the committee assure me that there is no intention that tke greater the percentage of deposits guarantced, there 1s then the possibility of greater control by the United States Government? Mr. MULTER. Ordinarily it would be presumptuous for me to speak for every member of the committee. In this in- stance, however, I am sure I am voicing the sentiment of ev:ry member of the committee. There is not one of us who wants to see banking nationalized or so- cialized in this country, and that we will do nothing in this bill, or otherwise, that will lead toward nationalization cf our banking system. We want it to remain as a private free enterprise system. Mr. GAMBLE. Mr. Chairman, will the gentleman yield? Mr. MULTER, I yield. Mr. GAMBLE. We on this side of the aisle agree wholehcartedly in that state- ment the gentleman has made. None of us wants banking nationalized. Mr. FULTON. I thank you very much. I wish to compliment the gentle- man on his remarks, Mr. MULTER,. At the same time, as I warned some of the bankers who came before our committee, I said: “If the time ever comes when the banking sys- tem will have to call upon the United
1950 States Government again to save them, and put Government money into those banks to pay their losses and pay their depositors their money, we might well find the Government taking over the banking system.’”’ And we want to stop that if we can. The way to do it is to make sure that we have a reserve fund of bankers’ money and depositors’ money large enough to cover any loss. No witness who has come before our committee has dared say that the reserve fund here is large enough and adequate enough to cover the possible losses. The Secretary of the Treasury is quoted in the Senate hear- ings as having said that barring a panic such as we had in 1930-33 the fund is sufficient. We are looking ahead to the days when we may have another panic. We hope we will never have another, but that is what we must guard against, a collapse of the good times which we have had since the existence of the FDIC, against the possibility of a panic such as we had in 1933. In that year we had $58,000,000,000 of deposits in the coun- try’s banking system, and the losses the depositors took at that time quite apart from stockholders’ losses amounted to 3.3 percent of their total deposits. If we had had an insurance fund at that time we would have needed just under $2,000,000,000 to guarantee those losses. Today we have three times the amount of deposits in our banking system. In our insured banks alone today we have $156,000,000,000 of deposits. If we take as our criterion what happened in 1930- 33, we need at least $6,600,000,000 to guarantee against loss. The fund today stands at $1,200,000,000. One banker said to our committee the fund is sufficient because they have the right to draw on the United States Treas- ury for $3,000,000,000. Yes; the law says that in the event FDIC funds are exhausted it may call on the Treasury with no further authorization necessary from Congress. The mere note given by the FDIC is sufficient to borrow from the Treasury $3,000,000,000 to save our in- sured banks. I say that before the bankers are en- titled to any reduction in assessments, any refund of premium, any credit of premium, cal] it what you will, this in- surance fund should be built up at least to the $3,000,000,000 that they have a right to borrow from our Government, The distinguished gentleman who pre- ceded me, whose profound knowledge of economics I respect sincerely, told you of an instance many years ago when New York State had an insurance fund; he said the fund collapsed because it must be on a national scale for this kind of insurance to succeed. I differ with my good friend in his conclusion. We have had insurance systems in eight other States of the Union, systems in- suring deposits: They were North Da- kota, South Dakota, Texas, Mississippi, Nebraska, Washington, Olahoma, and Kansas. Mr, FULTON. Mr. Chairman, will the gentleman yield? Mr. MULTER. I shall be pleased to. Mr. FULTON. The gentleman men- tioned the Nebraska system that has been CONGRESSIONAL RECORD—HOUSE in effect on a State level. The gentle- man will recall that the Nebraska sys- tem failed because they kept guarantee- ing more and more and more of the de- posits of the banks until they guaranteed all the deposits in the Nebraska banks and then the local bankers lost their sense of responsibility so they went into these various projects that were somewhat risky, fecling they had no responsibility because the Government would make good the deposits. This makes me won- der whether or not in this bill when we are about to guarantee up to 98.6 percent in number of the total deposits we are not rapidly getting to the point where we are neglecting the local responsibility of the banks and weakening the banking system as an independent agency. I wonder if the gentleman would care to answer that. Mr. MULTER. I was about to develop that very point. I do not think the gen- tleman’s conclusion is correct as he stated it. Mr. FULTON. Iam merely asking for information, not giving a conclusion. Mr. MULTER. Let me develop the point. I will show you why I think that is not the reason for the failure of those State systems. Every one of those State funds fell, not because they could not call on the Nation for support but be- cause they did not have reserves big enough to cover the losses when the time came along to pay the losses that oc- curred. In every instance, because they had had a period of good times for 10 or 15 years, they cut the assessments, they cut the reserves, they took credits and dividends out of the reserve fund until they did not have enough money to meet the losses when bad times struck them. Mr. FULTON. Asa matter of fact, in several of those States were there not many bankers put in jail because they did not live up to the responsibilities and went into very highly speculative obli- gations and lost? Mr. MULTER. That is true. Let me call attention to the fact that we were told in committee we do not need a big reserve fund now because a lot of money is in Government bonds, money that be- lengs to the bank depositors; therefore there is not so much risk capital out. Everybody here knows that in the last 2 years we changed the margin require- ments from no margin on stock sales to 25 percent, and now it is 50 percent. There are $2,000,000,000 of bank loans, depositors’ money, in the market today on these margin sales. You all know what happened last week. There were drops in the market of anywhere from 1 to 50 points. As soon as the bankers begin doing that kind of thing and begin making speculative loans, even though they may not go to jail, they are going to tear down this fund and tear down the reserves, then they will come down here again crying to us to save them once more. Let us save them now against themselves by building up this reserve ‘und. Mr. FULTON. The gentleman does not think tt will get to be the habit that they will say, “We will make the loan because it is only Government money if it is lost?” 10659 Mr. MULTER, That is why we insist in this bill that the Federal Deposit In- surance Corporation shall have the right to go in and examine and inspect these banks whenever they deem that neces- sary in order to be able to stop any of those practices before they go too far. Mr. FULTON. I thank the gentleman. Mr. MULTER. To prove my point that it was lack of reserves and the cutting of the melon, the return and the rcfund of premiums, the payment of dividends out of the reserve funds, that destroyed these insurance funds on the State level, let me direct your atten- tion to the fact that in three States today, Massachusetts, New Hampshire, and Con- necticut, we have State insurance funds. They are sound and prosperous. Here is the reason: In Massachusctts the de- posits are on the ratio of 12 to 1 against reserves, in Now Hampshire 1342 to 1 and in Connecticut 7 to 1. This reserve fund of the FDIC is almost 150 to 1 on the basis of total deposits. It is 78 to 1 on the basis of insured deposits up to $5,000 per single account. It will be about 90 to 1 on the basis of insured deposits up to $10,000 per account. Until you build up this reserve fund to a better propor- tion, we are begging for trouble, we are in danger of not being able to support these banks in the event of difficulty. The Federal Savings and Loan Incur- ance Corporation and its members are secking no cut in their assessments or premiums. They pay the same rate of one-tweltth of 1 percent that the mem- ber banks of FDIC have been paying up to now. Their fund comparatively speaking is stronger than the FDIC fund. The ratio of their deposits to reserves is 45 to 1. Most of their money is in- vested in mortgages secured by the homcs of our American people. Outside of Gov- ernment securities they are the soundest investments ever produced in this coun- ry. Insurance of deposits is comparable to the business of insuring credit risks and the writing of surety company bonds. No one anywhere in this country can buy credit insurance for a premium of one- twelfth of 1 percent. Yet the bankers would cut it by 60 percent. There is not a surety company in this country that is permitted to write bonds aggregating a total potential Hability of more than 2!4 times their surplus and reserve, No banker would dare run his bank on the basis that they are now asking the FDIC to operate. No careful investor would put $1 of his own money into any institution that was asked to operate on such a basis. Mr. R. E. Gormley, chairman of the legislative committee of the Georgia Bankers Association told our committce that before any reduction in premiums should take place a surplus of at least $2,500,000,000 should be built up. He urged that the surplus be built up so that the banks of this country will never have to call upon the Federal Treasury for another dollar. Not one of the bankers who appeared before our committee took the position thet the surplus now in this fund was adequate. Most of them said that the
10660 amount of surplus was something to be determined by the Board of Directors of the FDIC. The Board of Directors of the FDIC refused to take the position that the fund was adequate and placed the re- sponsibility for fixing the amount of an adequate fund upon the Congress. Ir this Congress allows the reduction of assessments to remain in this bill and disaster should befall this country be- fore the fund is built up to a large enough sum to protect the Nation’s de- positors, the responsibility will be that of this Congress, and this Congress alone. I, for one, want this record to be crystal clear that I am warning the Congrcss against such an eventuality, and the re- sponsibility for such a catastrophe, if one should occur, must rest upon the conscience of those Members who pass this bill in its present form. The CHAIRMAN. The time of the gentleman from New York has expired. Mr. GAMBLE. Mr. Chairman, I yneld 5 minutes to the gentleman from Michi- gan |Mr. Potter]. Mr. POTTER. Mr. Chairman, I ask unanimous consent to speak out of order. The CHAIRMAN. Is there objection to the request of the gentleman from Michigan? There was no objection. Mr. POTTER. Mr. Chairman, I know that all of us here in the House and the American people generally are proud of the outstanding ability, the gallantry and the heroism of our fighting troops in Korea. I think that we are particu- larly proud of the gallantry of our ground forces. I can recall not too long ago, as a matter of fact since the end of World War II, when gentlemen in high positions of Government told us that this will be the last war where we will have to have ground troops, that the next war will be a war of science, a war in which push buttons would be the in- strument of war. Today we find ourselves in our first engagement, with the doughboys spilling the blood. The infantryman is the un- sung hero; he is the unsunz soldier; he is the individual who is seni in first and feels the brunt of battle. Normally he receives a minimum of training com- pared with other services. He reccives the equipment that is left over; yes, and he is put into the hottest spot on any front. Because of that, Mr. Chairman, I have introduced today a bill which will give the ground soldier a bonus for combat duty. The President’s message today proposes an increase in our expenditures for military defense of $10,000,000,000. Out of that, I am sure that we can pro- vide a special bonus of $5 a day for any of our ground troops actually in combat, ‘Lhat is what my bill provides for. Certainly, Mr. Chairman, there are several precedents that have already been established for special bonuses. We have awarded flight pay to our aviators. We give special bonuses for submarine duty. We give special bonuses for div- ing duty, and there is special treatment for the paratroopers. The infantry and other combat ground troops is one group that is actually shedding their blood, CONGRESSIONAL RECORD—HOUSE who do not have the opportunity to come home at night and sleep between clean shects. This bill will give them at least a little incentive, a little boost to their morale, to let them know that their coun- try has not forgotten them; that they are not being sent in to fight and then let the other branches of the service re- ccive the credit for the work which they are doing, I sincerely hope that our Armed Serv- ices Committee will take immediate ac- tion, particularly at this time when our ground forces are receiving such rough treatment at the hands of the encmy. This is a war in which you either live or die. From the evidence that has come to us through the newspapers, if you are captured you go through such torture that death is preferred. So, I sincerely hope that the membership of this House will act upon this legislation. It hap- pens that I know a little bit about the fecling of an infantry soldier. It is gall to him when he looks up into the sky and he sees his buddies in the Air Force fly over him, and he says, ‘‘Well, they are going back tonight to warm meals and clean sheets, and at the same time get- ting pay and a half.” This bill is a lit- tle token for a sacrifice that cannot be paid in compensation but nevertheless it is a token In appreciation, a debt that we owe them for service which they are rendering for us. Mr. GAMBLE. Mr. Chairman, I yicld 5 minutes to the gentleman from Michi- gan | Mr. CrawFrorp]. Mr.CRAWFORD. Mr. Chairman, first I wish to compliment the committee for bringing this bill to the flood in its present form. Back in 1933 and 1935 we did some very fundamental legislating insofar as bank legislation is concerned. It might be recalled that about that time we instituted a policy of deficit financing of the United States whicl laid down before our people the fundamental proposition that 1f vast issues from the Federal Treasury were to be sold, they would either have to be sold to indi- viduals and corporations and partner- ships and trusts, or to the banks of the country. The people in charge of the drafting of the legislation knew full well that individuals and corporavions and partnerships would not absorb the issues which were to be put out by the Federal Treasury and that, therefore, the banks would have to take up a substantial por- tion of those issues, and which the banks did to more than $80,000,000. Some of these fundamental changes that were made might be very briefly mentioned. Passing a law which for- bade the banks to pay interest on de- mand deposits to the depositors was about as fundamental] a change as could be made in banking as it stood prior to 1933. Another fundamental change that came in banking law was the institution of th: FDIC. Another fundamental change that came in the banking laws had to do with the lability of the stockholder. Those laws removed the double Hability, so that the stockholder could not be assessed again for the investment he had made in the bank structure origi- nally, That was done to encourage JULY 19 people to invest their money in the cap- ital structures of banks, so that there would be banks that could purchase the issues put out by the Federal Treasury. Another fundamental change that was made in the banking laws came about through making it possible for banks that had purchased these issues of the Fed- eral Treasury, if they needed currency badly to meet the demands made upon them by the people who had deposited their savings in the banks, to take those bonds issued by the Federal Treasury, sold to the banks, and turn the bonds back through the machinery of the Fed- eral Reserve System and draw currency from the Federal Reserve in the form of Federal Reserve notes to the extent of the par value of the bonds. Those were some very fundamental changes made in our banking law, and they have had a vast influence on bank- ing in the United States. If bank capital structures are to be retained sufficiently to carry a reasonable ratio to the amount of the deposits in the banks, it is necessary for banks to earn some profits now and then so that people will invest their money in the preferred and common stock of the banks. This bill has something to do with that par- ticular phase of banking. This bill will substantially help the little banks of the country. That is why they agree to the provisions of the bill. This bill will have a favorable influence on the earnings of these little banks as well as the medium-size and the larger banks, This bill does away with a lot of the paper work the banks have had to do in con- nection with compiling the assessment base which was used by the FDIC for the purpose of making assessments against the banks so as to get thcse premiums into the hand of the FDIC. On page 7 of the committee report is a very fine statement with respcct to the most unique formula that has been worked out. This bill does not guar- antee that the banks will receive back 60 percent of the dividend. It does not say anything of the kind. The bank might get 60 percent if certain things eventuated but there is no guaranty that those things will eventuate. This formula is a protective formula for the FDIC or, in other words, for the dcposi- tors who put their money in the banks, which is all right. The FDIC operates on a basis which gives a great, wide spread all over the United States to all banks, under various management. Altogether, this is a pretty good bill, I think, This wid? spread is as always a good thing in underwriting, It gives that much more insurance. If a fire-insur- ance company or a life-insurance com- pany can get a very wide spread over millions of risks scattered over a vast expanse of territory then the under- writer using ordinary sense can get much better protection all the way through for everybody that is insured. The FDIC must necessarily have great power. I will give you one little illustration which happened in my district just recently. A little bank with a very small capitali- zation of less than $100,000 found itself in trouble, The president was taking his
1950 first vacation after 25 years. He and his wife—he is a very fine old gentle- man—went down in Florida. A situa- tion developed where there was a great shortage in this bank of several hun- dred times as much as the total capital stock of the bank. It became necessary for the FDIC to step in immediately, to put up several hundred thousand dol- lars and to take over the bank and con- solidate it with another neighboring bank and all of this without the presi- dent of the bank even knowing anything about the bank being in any kind of trouble whatsoever. That illustrates how powerful the FDIC can be under the FDIC law. If it is going to protect the depositors, it must have that power and it does have the power. This bill simply gives the FDIC a little bit more power for the benefit of these depositors who, after all, as the gentleman from Ohio ([Mr. Brown! said, really put up the insurance premiums to take care of this insurance which they enjoy. The consolidation was made. The FDIC stepped in. The community immediately settled down. There was no run on the bank. Every- body was fully protected. That one lit- tle loss may cost—and that was a very small bank, mind you—as I was saying it may cost the FDIC more than its total deposit insurance loss in 1949 which was $431,000. Therefore, the FDIC has to have power, I think this is a good bill. Mr. HAYS of Arkansas. Mr. Chair- man, I am reluctant to take any of the Committee’s time. It is apparent I be- lieve that the general objectives of this measure will receive approval by the House. The FDIC has _ established itself as an important arm of the Federal system. It has been well administered and the changes proposed by the bill will mean substantial improvements in its service. I strongly favor its principal provisions, the increase in coverage, the change in assessments, and the payment of divi- dends, I regret that I cannot agree with the majority of the Banking Committce with reference to the proposed power for ex- amination of insured banks. It appears from the hearings that whenever the Corporation has felt that special circumstances warranted a sep- arate examination of a State member bank, it requested permission of the Fed- eral Reserve Board to make such an ex- amination. I want to point out that the Federal Reserve Board Chairman’s statement shows that 115 requests for consent to make examinations of State member banks have been received from the Corporation. Of these, not one was refused, 110 were granted, and in five cases the requests were withdrawn or dropped. It would seem that the FDIC is fully informed on the condition of State member banks and therefore noth- ing would be accomplished by any change in the law giving the Corporation power to examine such institutions without the consent of the Federal Reserve Board. I call attention also to the fact that the Executive Committee of the National Association of Supervisors of State Banks, representing the State banking departments of the 48 States, is opposed CONGRESSIONAL RECORD—HOUSE to the provision whick would permit the FDIC to examine State member banks without the prior approval of the Fed- eral Reserve Board. They urge that such & provision would tend to weaken the dual banking system. I quote in part from a letter dated January 30, 1950, addressed to the Senate Banking and Currency Committee, from the Legislative Committee of the Na- tional Association of Supervisors of State Banks: We fear State banks faced with examina- tions by three different supervisory agencies would bo placed in highly disadvantageous competitive position with national banks which would be examined only by Comp- troller of Currency. For these reasons I opposed the amend- ment giving this power to the Corpora- tion. Mr. SPENCE. Mr. Chairman, I yield 2% minutes to the gentleman from IIlli- nois (Mr, Price}. Mr. PRICE. Mr. Chairman, an edi- torial in the Streator (I1ll.) Times re- cently said a lot of what I should like to say in praise of Federal Deposit Insur- ance Corporation. It reads, in part, as follows: Congressional action to expand the scope of the FDIC (Federal Deposit Insurance Cor- poration) as reflected in the passage in the E> >nate of a bill to extend coverage on indi- vidual bank deposits from €5,000 to $10,000 and at the same time decrease the insurance premium paid by the banks will reccivo uni- versal support. This is one measure which had its birth in the depth of depression which has proved its usefulness and is des- tined to play an important role in any eco-~ nomic disturbance that may appear in the future. So successful has been the operation of this program that the FDIC has repaid every cent of the §289,000,000 which it borrowed from the United States Treasury when in- augurated in 1933 and last year had a profit of some $138,000,000. In reserve is $1,203,- 000,000. Under the @5,000 guaranty of bank deposits by the FDIC about 96 percent of all ac- counts have been covered and it {fs esti- mated that under the new law 98 4-percent coverage will be effected. Though the FDIC is not offered as a guar- anty against all bank fallures, it is notable that only one to four a year have fallen by the wayside since 1933. It is also notable that every deposttor in those few institutions have been paid in full up to the $5,000 guar- anty which in 1948 amounted only to #400,- 0du. After many years during which there was no bank guaranty and much opposition to such a guaranty from many quarters, the experience with this depression project has been most gratifying. We are considering today a bill pro- viding for an increase in Federal insur- ance of bank deposits from $5,000 to $10,- 000. In the State of Tilinois this provi- sion of the bill will extend the benefits of complete coverage to an additional 186,- 000 depositors in insured banks. Under existing law, 5,826,000 deposi- tors in insured banks of Illinois are pro- tected entirely. Raising maximum cov- erage to $10,000 will give complete cover- age to 6,012,000 Illinois depositors, on the basis of the latest survey made by FDIC. Insured banks will benefit from two provisions of the bill. The first would simplify present procedures for comput- 10661 ing the assessment base, while the second would provide for a substantial reduction in the cost of insurance to the banks in normal years. During its more than 16 years of exist- ence Federal Deposit Insurance Corpo- ration has paid out about $350,000,0C0 to protect 1,550,009 depositors in 412 in- sured banks that have encountcred diffi- culty. In the State of Ilinois during this pe- riod, 19,000 depositors of 15 insured banks have had their funds protected by the advance of $4,078,000 in FDIC funds. The present maximum insurance cov- erage of $5,000 protects completely more than 99,000,000 deposit accounts in in- sured banks throughout the Nation. Up- ping the coverage to $10,000 would give complete coverage to an additional 3,000,000 deposit accounts, meanwhile raising the Corporation's potential lia- bility by about $12,000,000,000. The economy of the Nation has bene- fited greatly from the financial stability engendered by FDIC. Owners of the 104,000,000 insured deposit accounts in our banks also have come to realize that safety and security are their rights. Significantly, this corporation has not cost depositors or the taxpayers a single penny. The insurance premiums are paid by the banks, and so far have been suffi- cient to cover deposit insurance losses and expenses and to accumulate sub-~ stantial reserves against possible future losses. It will be my purpose to help this agency extend widcr coverage to bank depositors throughout the Nation and to help it continue its contribution to the security and stability of our financlal life. Mr, WOLCOTT. Mr, Chairman, I yicld such time as he may desire to the gentleman from New Jersey {Mr. Wot- VERTON ]. Mr. WOLVERTON. Mr. Chairman, the bill now before the House, S. 2822, to amend the Federal Deposit Insurance Act, is entitled to have the unanimous support of the House. It increases the amount of insured de- posits from the present limit of $5,000 to $10,000. This will cover a large percent- age of accounts that exceed the $5,000 limit and under present law are not fully covered as to the amount above $5,000. The enactment of the Federal Deposit Insurance Act is one of the most worth while of all the acts that have becn enacted by Congress to give security to the people of this Nation. With the experiences of our people in the last depression, when their savings were lost through the closing of banks, there is nothing that has been shown to be so necessary and commendable as the legislation passed by Congress in 1934 that guarantees depositors against loss up to $5,000. I had advocated the in- surance of such accounts long before Congress passed the legislation in 1934. I voted for the original bill, and I will vote for the present bill that increases the amount guaranteed up to $10,000. It is a natural step forward to increase the amount to $10,000. There is no way to estimate the sc.tisfaction, the comfort, and the sense of security that the origi- nal bill has given, and this present bill
10662 will give, to our people. The insurance by the Federal Government against loss of their hard-earned savings removes doubt and fear from their minds, With a Government guaranty back of the moneys deposited, the savings of our people are as safe as the Government itself. The fund which has been created from annual payments by the banks of the Nation has been well managed and has proven a bulwark of strength to our financial institutions and a sense of security to the depositors. The other features of the bill making changes in the administration of the fund are also well considered and will prove helpful. I give my wholehearted and enthusi- astic support to the bill. Mr, WOLCOTT. Mr. Chairman, I yield the remainder of the time, 5 min- utes, to the gentleman from Kansas | Mr. Rexs]. Mr. REES. Mr. Chairman, I am sup- porting this legislation in general. I think the provision increasing the in- surance coverage from $5,000 to $10,000 should be approved. There are some provisions, however, to which I would like to direct atten- tion. I do not think that $15,000,000 for a new building at this time is necessary, and at the proper time I shall offer an amendment to strike the $15,000,000 from this bill. Mr. BROWN of Georgia. Mr. Chair- man, will the gentleman yicld? Mr. REES. I heard the very splendid address by the distinguished gcnileman from Georgia. He gave a fine presenta- tion of this measure. He did a splendid job in explaining this proposed legisla- tion. Weare grateful for his efforts. He made a very persuasive argument in favor of that building, but, ncvertheless, I do not believe this is the time to use these funds for that purpose. Let us leave the money in the fund. Mr. BROWN of Georgia. This is just an authorization. It is left up to the President. It may not be* built for 10 years. Mr. REES. Well, let us not authorize it. Just leave it alone. At the present time it is not as essential as a number of other things. Of course you authorize first. Then you, or someone, will be here asking for the funds to build it. Better leave it out for the present, anyway. Fifteen million dollars is a lot of money for one building for a comparatively small agency. Mr. BUCHANAN. The Federal De- posit Insurance Corporation is paying about $200,009 c year in rental. Mr, REES. In Washington? Mr. BUCHANAN. Yes. Mr. REES. Well, my observation is that is too much. You are paying too high rents for the small group of people you have employed there. You might do well to look into that situation, I think there are many places whcre the Government is paying excessive rents. This may be one of them. I would like to have the gentleman tell me how many CONGRESSIONAL RECORD—HOUSE employees there are. There is nothing in the hearings to indicate how many there are, This is a comparatively small agency. Mr. BUCHANAN. Approximately 600 people. Mr. REES. Approximately 600 people. Mr, BUCHANAN. And in three dif- ferent buildings. Mr. REES. Under this bill you would spend as much as it cost to build the Supreme Court Building when it was erectcd. But in view of the present conditions let us make sure that we are pretty fairly well insured. I think the authority of the Federal Deposit In- surance Corporation to examine banks is a good one. Mr. BUCHANAN. Mr. Chairman, will the gentleman yield further? Mr. REES. I yield to the gentleman from Pennsylvania. Mr. BUCHANAN. In the last 16 years there have been some 412 cases of bank suspensions involving payment to the depositors of $316,000,000 of which ap- proximately $290,000,000 were bank as- sets ond only $26,000,000 came from the fund, Mr. REES. It is @ splendid record. I agree with the gentleman. I think it ought to be understood that the assets of the bank are used before this deposit account is called upon to supplement it. Most of the bank failures came during the years before the act was put into effect rather than in the 16 years in which it has been in effect. I, too, want to commend the manage- ment of the FDIC for the splendid serv- ice it has rendered. According to the figures submitted, there is presently on deposit in the insured institutions in round figures, $156,800,000,000, of which 76,000,000,000 is presently insured. Under this legislation insured deposits will be increased approximately $12,000,- 600,000, making a total of $88,000,600,000 that would be covered under this bill. The insurance fund presently amounts to $1,200,000,000. Although the fund is comparatively small, it is fair to ob- serve that the Comptroller of the Cur- rency and State banking departments and the FDIC have, since the enactment of tinis act, done a pretty good job in the examination of banks. Of course, it ought to be observed, too, that during the past few years, economic conditions have becn such that there should be no occasion for bank failures. Because reference has been made to the question as to who pays the insurance fees, it ourht to be observed that the fces are paid from the profits of the insured banks. I think the provision in the bill au- thorizing FDIC to examine the banks, if and when deemed necessary, is a good one. It will give the agency opportunity to conduct such examinations if and when they have reason to believe there 4s a likelihood of a bank becoming in- solvent, I would like to make one further ob- servation. It is that in view of present uncertain conditions, {t 1s quite impor- tant that the insurance fund be kept as JULY 19 strong as can be done so that in the event of emergency, the depositors in the banks will be amply protected. The section provides for the authori- zation for the construction of a building for the FDIC at a cost of $15,000,000. I do not believe it is good policy for our Government, especially in view of our present situation, to authorize the expenditure of $15,000,000 for this pur- pose. There is nothing in the hearing to in- dicate the number of employees in the organization. Assuming there are 600, that means $25,000 expenditure for each employee. Right now we are talking about the shortage of copper, of steel, and other building materials; also need of skilled labor. The President has just delivered an address asking for certain curtailment of building materials. It would not look very well for the Govern- ment to be authorizing this building, which may be fine if we could afford it. Our Government agencies should be first to set example of curtailment of unnec- esSary buildings. I think it would be more sensible to leave the $15,000,000 in the fund to help guarantee bank deposits. At the proper time I shall offer an amendment to strike that section from the bill. Mr. SPENCE. Mr. Chairman, I yield the balance of my time to the gentle- man from North Carolina [Mr. Drang]. Mr. DEANE. Mr, Chairman, this leg- islation needs no particular advocate on the part of any of us. Perhaps the only question at issue will be the for- mula involving the payment of dividends which has been discussed. I feel we should be cautious in our move to amend the bill. Let me point out the fact that the increase from $5,000 to $10,000 is only a 15-percent increase in the la- bility of the fund. The percentage of deposits now covered represents 48 8 per- cent. The percent of deposits covered by the bill before us is 56.1 percent, representing a difference of 15 percent, I also wish to pay my high tribtite to the banking fraternity. Since the pas- sage of the original FDIC legislation we have scen a complete change in the thinking of bank officials. You will not find anywhcre in the country a more earnest, sincere group of individuals and they are doing a good job. The passage of the original FDIC legislation and the strengthened banking legislation of the various States has stabilized the banking industry and created faith on the part of depositors which formerly did not exist, I wish to make this observation, Mr. Chairman, and that concerns the mcth- ods used by FDIC in coming to the as- sistance of insured banks that are in need of assistance. It is generally the policy of FDIC to avoid bank receiver- ships unless the conditions are such that warrant such a course of action, In- stead the Corporation uses its authority by the merger of banks with financial aid of FDIC. In the table below I show the comparison of the two approaches or methods:
1950 Number of depositors, amount of deposits, recoveries, and loss’ in tnsurod banks placed in receivership or merged with the financtal aid of the Corporation, 1934-48 Banks placed | Banks morged Item Total in receivers | with financial ship? aid of FDIC Number of banks. ._ 2.2... eceeeeeeeneneceeneecnnceenecnenee 407 245 162 Number of depositors... ...........--. 1, 342, 200 BRO, 708, G80, 824 Estimated number with no loss... .. 1, 288, 010 82h, 486 959, 624 Estimated number with some logs 2. ..2.2.--.2. eae eee eee 2, SOU 2, B00 | ewneeeee--eenee Estimated number with claims barred by termination of insurance or receivership §....... 2c ceencenecevenen snc onceee 54, 771 S477) |. oe. ae een Amount of deposits..........-..----.--+ £522, 678, O00 $109, 603, 000 $413, 075, 000 Estimated recovery by depositors... $520, 347, 000 $107, 272, 000 $413, 075, 000 Estimated loss by depositors... - $1, 883, 000 $1, 883,000 Joe - Insurance terminated or claims barred $448, 000 $446,000 |i... 2 wee. Disbursement by FDIC. 22... --| $266, 976, 000 $87,030, 0X) $170, 937, 000 Estimated loss t0 FDIC. 222. ewww eeneencn een nnn nneneceewees $24, 930, 000 $14, 538, 000 $10, 305, 000 1The figures given in this table for number of depositors tn recelverships differ from those in the 1947 Annual Feport due to the final dis; osition of 6,585 claims, the status of which had becn unsettled but were proviously tabulated as fully insured, Of these, 4,383 when scttled became barred claulms; the balance, 2,252, were considered fully insured and the claims paid The estimated number of depositors with no loss was reduced by 358 restricted claims which were paid in full o: into a trust fund until claimed by the depositors. An adjustment of 1 depositor in the total number has also been made. $1,402 depositors will lose an estimated $1,841,000 in accounts which excoeded the limit of 85,000 Insurance and CONGRESSIONAL RECORD—HOUSE were not otherwise protected, and 1,007 deport ma will lose about $42,000 in accounts which had been restricted or deferred prior to 1834, or ware otherwise Ine gible for Insurance prot ection, 3 Of theso 54,771 claima, it is estimated that 2,810 will be fully paid or hold in trust, and 4,422 will be partially paid. How does the second approach work? I refer now to the authority of the FDIC to extend funds and direct the merger of the bank that needs assistance with a going institution. I can give you a re- cent concrete example. About noon on a recent Saturday the phone rang in the offices of Federal De- posit Insurance Corporation here in Washington. An insured bank in North Carolina had “over-loaned,” as short of cash, and in difficulty. Within an hour responsible members of the staff and field representatives had been dispatched to the scene. Through the night and all day Sunday, while the majority of us relaxed, these men toiled in the magnificent tradition of Federal Deposit Insurance Corporation. The result? What in the years before 1933 would have been a catastrophe to this North Carolina community—hysterical deposi- tors, hard-pressed borrowers, and the other elements which constitute panic— were absent. The situation was well in hand and normai—another example of Federal deposit insurance in action. By time for the bank to open on Mon- day morning, Federal Deposit Insurance Corporation was able to announce that no depositor of the bank would suffer the loss of a penny. In conjunction with Gurney P. Hood, commissioner of banks for North Carolina, FDIC’s Chairman, Maple T. Harl, had arranged a plan that would protect all depositors, assure con- tinuity of banking services in the area and prevent undue strain upon the bank's borrowers or the economic life of the community. Under terms of the plan, FDIC ad- vanced about $1,500,000 in cash to cover all deposit Habilities of this bank and will take over all its assets. A neigh- borhood bank, as a result of the action of the Corporation, will assume all of the deposit liabilities, with the cash to back them, and will establish branch offices in the two locations served by the outgoing bank. Meanwhile, there will be no in- terruption to banking service in the com- munitics involved, Of equal importance is the fact that Federal Deposit Insurance Corporation will liquidate the assets of the outgoing bank. The Corporation, like any well- run business, wants maximum recovery on its cash advance. But unlike an in- dividual bank it has no need to force immediate sale or foreclosure. It liqui- dates the assets it acquircs in an orderly manner with due regard for economic conditions in the community and so achieves both minimum strain in the area and maximum recoveries. During the more than 16 years of its operation, Federal Deposit Insurance Corporation had previously been called upon to protect 1,350,090 depositors in insured banks that encountered diffi- culty. For this reason it disbursed $340,000,000 of which it estimates its losses will be $25,000,000. The present case is the seventh in North Carolina which has benefited from FDIC aid. In the early days of the Cor- poration, two insured banks were placed in receivership and their depositors paid in cash by FDIC. More recently, since the merger technique of protection was authorized by Congress, four banks were aided by the Corporation. The 8,000 depositors of these six banks will be eternally grateful for the prompt protection they received, just as will the depositors in the bank that was taken over last week. It is gratifying to me to see the har- monious and effective cooperation of the Corporation with State bank supervisory authorities. Our North Carolina com- missioner of banks, Gurney P. Hood, and Maple T. Harl, Chairman of FDIC, have worked in harness and in harmony for many years. In their examinations of banks, in their correlation of supervisory standards, and in their operations when difficulty strikes a bank, they share a philosophy as simple as it is effective, “The insured depositor shall not suffer,” they say, and the record proves they mean what they say. Great credit for the remarkably good record of banking during the past 16 years must also be given to the bank- ers themselves. They, too, are deter- 1063 mined to run sound and safe institutions and they are working constantly to that end. Not only do senior bankers finance professional schooling for their staffs— they go regularly to graduate schools and seminars themselves. The average banker is constantly on the alert for new devices and new techniques that will improve the safety and efficiency of his institution. Furthermore, he wel- comes the periodic visits of State and Federal supervisory authorities. The exchange of ideas and experiences is good for everyone—especially the deposi- tors. The benefits of Federal Deposit In- surance now protect more than 104,- 000,000 deposit accounts in 13,650 banks throughout the Nation. The mere existence of this insurance {s a great psychological aid to stability of oureconomy. Each instance of “Fed- eral Deposit Insurance in Action,” like this in North Carolina, strengthens the faith of depositors in the banks and in the Corporation which insures the safety and liquidity of their deposits in insured banks. I should like to congratulate Chairman Harl and his efficient staff not only upon another job well done, but also upon the permanent contribution the Federal Deposit Insurance Corporation, under outstanding management, has made to the financial and social welfare of this Nation. It is my understanding that we are now in the seventh year without the fail- ure of an insured bank and without loss to any depositor in an insured bank. This is an all-time record in this Na- tion’s history for banking stability and depositor safety. Mr. Chairman, I repeat what I said in my opening statement. I know there are members of our committee who are sin- cere in thinking that the banking for- mula, this formula that is being pro- posed, should be amended, but we should be very careful as we amend the bill. As our distinguished chairman mentioned in the very beginning, all administrative Costs and losses, and all other liability factors must first be absorbed before the return of any dividend, which will in my opinion fully safeguard the fund. The CHAIRMAN. There being no further requests for time, the Clerk will read the bill for amendment. The Clerk read as follows: Be it enacted, ete., That section 12B of the Federal Reserve Act, as amended, is hereby withdrawn as a part of that act and is made a separate act to be known as the Federal Deposit Insurance Act. Src. 2. The Federal Deposit Insurance Act is amended to read as follows: “Src. 1. There is hereby created a Federal Deposit Insurance Corporation (hereinafter referred to as the Corporation) which shall insure, as hereinafter provided, the deposits of all banks which are entitled to the bene- fits of insurance under this act, and which shall have the powers hereinafter granted. “Suc.2. The management of the Corpo- ration shall be vested in a Board of Direc- tora consisting of three members, one of whom shall be the Comptroller of the Cur- rency, and two of whom shall be citizens of the United States to be appointed by the