While it would be difficult for the board to act promptly as a whole on all matters, it is very questionable whether they would have the power to delegate to one of their members full authority over the bureau with power to act on such questions as the issuance and extension of charters, appointment of receivers of insolvent banks and liquidation of their affairs. If the board should have authority to designate one of its members to act with full power in all such matters there would be practically no difference between the officer so designated and the present Comptroller. If he were not so designated and empowered it would be impossible on all occasions to give the prompt action that is necessary when a bank is in a critical condition. On numerous occasions the Deputy Comptroller, when Acting Comptroller, has had to give directions by telephone in the middle of the night to national bank examiners or answer inquiries in like manner in regard to matters that were necessary to determine before the opening of the bank for business on the following morning.
There is another phase of this question which calls for very careful consideration and is, without doubt, the most important, from the standpoint of the depositors' interests in the banks, of any of the objections that can be raised to the amalgamation of the office of the Comptroller of the Currency with the Federal Reserve Board.
The United States Government, as is well known, does not in any sense guarantee the deposits in national banks, or assume any liability for their payment, but the Comptroller of the Currency always has been regarded by depositors as the special guardian, as it were, of their interests. They always have relied on him for the protection which he has endeavored to insure to the fullest extent of his power by requiring the banks to observe the law and conduct their business not only within legal limitations but also within the bounds of prudence and safety. It is the prime duty of the Comptroller, and always has been, to know, through the instrumentality of his examiners, that a bank is at all times in a solvent condition, that the liquidating value of its assets is, at least, equal to its liabilities to depositors and other creditors, and that it can arrange to pay them promptly on demand. To this end all banks are examined twice each year and many of them more frequently as their condition seems to require. If the examiner's report discloses that a bank is in an unsatisfactory condition proper corrective measures are promptly adopted, always with a view to protecting the interests of the depositors.
Of course, it has been beyond the power of the Comptroller to prevent a bank failure in every instance, but as has been hereinbefore stated for every failure that has occurred many failures have been prevented through the timely and effective supervision of the Comptroller, and where failures have occurred the first duty of the Comptroller has been to take prompt steps to protect the interests of the depositors by at once placing the bank temporarily in the hands of an examiner until it could be determined whether reorganization and resumption of business could be effected or whether it would be necessary to finally liquidate the bank's affairs through a receivership. In the liquidation of a bank through a receivership the interests of the depositors take precedence over every other claim except that of the Government for the redemption of circulation, if there should be any circulation outstanding, and this liability is always satisfied by a sale of the Government bonds held by the United States Treasurer as security therefor. If the assets of the bank are insufficient to pay the liabilities to the depositors in full, then the stockholders become liable to the extent of one hundred per cent, of their stock holdings for the amount of the deficiency, and the receiver proceeds, under authority of the Comptroller, to enforce payment of the assessment.
As the assets of the bank are reduced to cash dividends are declared from time to time and the proceeds distributed pro rata to the depositors. No money or assets are returned to the stockholders until the claims of depositors are paid in full with interest from the date of closing of the bank if the assets should yield a sufficient amount for such payment.
It follows, therefore, that the interests of depositors in national banks are protected to the fullest extent possible by the Comptroller of the Currency from the moment a bank opens its doors for business until it is finally liquidated through a receivership, should the bank be so unfortunate as to be placed in the hands of a receiver.
The Comptroller or the receiver has no personal or selfish interests in the outcome of the liquidation to satisfy or to gratify.
His only concern in the liquidation of a failed bank is to endeavor to obtain every dollar that it is possible to realize from the assets of the bank by collection, compromise or sale and to make a fair, impartial and pro rata distribution of the proceeds to the depositors in the failed institution.
It is now proposed to change all this by merging the Comptroller's office with the Federal Reserve Board and transferring the supervision of the banks and bank examiners to the Federal Reserve Banks.
The relationship between the Federal Reserve Banks and the depositors in national banks is quite different from that of the Comptroller of the Currency towards these institutions. The Comptroller is entirely independent of these banks and free from any personal interest in their affairs. The Federal Reserve Banks are generally interested as a creditor and invariably so in the banks that are in an over-extended and otherwise unsatisfactory condition, or verging on insolvency. Therefore, when one of these banks becomes insolvent the Federal Reserve Bank is usually its largest creditor, and a preferred creditor at that, as it always holds as security for rediscounts or for loans made the institution its choicest paper. Self-preservation is the first law of nature. The first move of the Federal Reserve Bank after failure of the debtor bank, therefore, would be to take care of its own interests. The doors of the failed institution would be closed and its affairs would have passed into the hands of a preferred creditor - the Federal Reserve Bank - which would immediately proceed to satisfy its own claims, even to the extent of sacrificing the security which it holds, if necessary, regardless of the interests of the helpless and unfortunate depositors.