National bank examiners were not salaried officers at that time. Their compensation consisted of fees assessed against the banks examined, and the rate of such fees was fixed by statute.
All banks located outside of reserve and central reserve cities, except those hereinafter mentioned, were required to pay a fee for each examination based upon the amount of their capital stock. The rate so fixed varied in amount from a minimum of twenty dollars to a maximum of seventy-five dollars, according to the capital of the bank.
Banks located in the States of Oregon, California and Nevada, and in the States that were Territories at the time of the enactment of this law, were excepted from the operation of this provision, for the reason that they were so widely scattered and the cost of travel between them was so great that the fee based upon the capital of the associations would not compensate the examiner for the time employed in making the examinations and the expenses of travel incurred.
The fees for examinations of banks in such States and Territories were therefore authorized by law to be fixed by the Secretary of the Treasury upon the recommendation of the Comptroller of the Currency, and the rate so fixed was based upon capital stock with an additional allowance of one cent on each thousand dollars of the average gross assets of the respective banks as shown by their five reports of condition during the preceding year.
Before the corporate existence of any bank was extended, the law required a special examination of the bank to be made, "at the expense of the association". It was held by the Comptroller's office, and very properly so, that the provisions governing the rate of fees for the regular examination of banks did not apply to examinations for extension of charter. It was the practice, therefore, to allow the examiner the regular fee and actual expenses, or a per diem of fifteen dollars and expenses for making such examinations.
The full measure of the Comptroller's authority to assess banks for examinations was therefore limited to the three provisions of law referred to.
When a bank was found to be in such an unsatisfactory condition that a special examination was necessary, and the Comptroller deemed the statutory fee inadequate to compensate the examiner for the time employed and the expenses incurred in making such examination, a specific sum appropriated by Congress was at the disposal of the Comptroller to pay for such examinations, and the Comptroller was free to fix the rate of compensation in such cases, chargeable to this fund. A per diem of twenty-five dollars, covering services and expenses, or fifteen dollars a day and expenses, was usually allowed.
The sum annually appropriated for this purpose previous to Mr. Murray's assuming charge of the office, was from five to eight thousand dollars. But in the estimate for appropriations for the Comptroller's office he reduced this amount to five thousand dollars, and declared that he did not intend to use public funds to pay for the examination of banks. He was advised that the statutory fee was not sufficient to compensate an examiner for making a special examination of a bank in an unsatisfactory condition and that it was necessary to charge the expenses of such examinations to this fund, which would not be sufficient if reduced to five thousand dollars. He replied that he would make the banks pay this expense as a penalty for getting into such a condition as to make a special examination necessary, and he proceeded to carry out this unlawful policy thereafter.
Without any authority of law for his action, but in direct disregard of law, and without even the approval of the Secretary of the Treasury, which the statute required him to obtain as his authority to assess a bank for any amount in excess of the fee based upon capital, he arbitrarily established a special rate of fees which he made such banks pay, ranging in amount from fifteen to twenty-five dollars a day and expenses. Where the statute fixed the fee at twenty or twenty-five dollars for one examination these banks were assessed anywhere from forty to over four hundred dollars for one examination. When a bank protested against this exorbitant and unlawful charge, as occasionally one did, the fee was paid from the special examination fund provided for such purpose. In every case in which this unlawful fee was charged the bank was in an unsatisfactory condition, requiring several days to examine it, and most of them submitted to this extortion because they feared the exposure that would result from a protest.
It was for the examination of this class of banks that Congress provided the special fund which Mr. Murray declared he would not use. He did not use it where he could lawfully have used it, in payment for special examinations, but he did use it where he could not lawfully use it, in payment for investigations made by himself as to the manner in which bank examiners do their work.
The provision of the act appropriating this money read as follows:
For expenses of special examinations of national banks, and bank plates, of keeping the macerator in the Treasury building in repair, and for other incidental expenses attending the working of the macerator, and for procuring information relative to banks other than national, five thousand dollars.
There is no authority in this provision of law for the use of any part of this fund to pay a bank examiner, or the traveling expenses of the Comptroller, for investigating the manner in which another examiner does his work, and the use of an appropriation for purposes other than those for which it was specifically authorized was an unlawful diversion or use of such funds. In every case of such investigation the regular examiner made the examination of the bank, received the statutory fee for the examination, and all the Comptroller and the examiner who accompanied him did was to look on or discuss banking questions with the officers of the bank while the examination was in progress. If this fund could be lawfully used for such purposes, then the appropriation should have been discontinued, as it would eventually become nothing but a junketing fund for the use of the Comptroller and his favored employees.
The misapplication of trust funds of insolvent national banks by Mr. Murray was no less pronounced than his misuse of the special examination fund and his unlawful assessment of fees for examinations. The creditors of failed national banks were required to bear the expenses of an examiner for investigating whether another examiner made proper examinations of the failed bank prior to suspension, or neglected to discover and report the conditions which led to the failure, and the funds of the insolvent bank were charged with the expense of such investigation, while the law limited the use of such funds to the legitimate expenses of the receivership and the payment of the depositors and other creditors of the failed bank. There was no warrant in law for the Comptroller to use any part of such funds in payment for investigations of suspected dereliction of duty on the part of an examiner in connection with his examinations of the bank before suspension, and every dollar so used was an unlawful diversion of the funds of the failed institution and diminished the amount returned to the depositors and stockholders.
Another practice inaugurated during Mr. Murray's administration was the detailing of favored salaried employees to make examinations of banks and allowing them a per diem and expenses in lieu of their salaries, by assessment upon the banks. As this allowance did not come out of the Treasury of the United States no vouchers were rendered to the Government for such bills, consequently they did not have to pass the scrutiny of the accounting officers of the Treasury Department, otherwise the fact that salaried officers were receiving extra compensation for services rendered in time which belonged to the Government would have been disclosed.
Such a practice was not only demoralizing to the office force because of the jealousies it engendered between the favored few and the employees who were not so favored, but was detrimental to the public service by reason of the absence from their regular duties of those who were employed and paid for attending to the current business of the bureau. It was also an infringement upon the legitimate work of the regular examiners who were commissioned for the express purpose of making such examinations, and who, in most instances, could have done the work at less expense to the banks in time and travel.