restrictive credit policy in times of inflationary pressure by discouraging loans that might otherwise pass without question.

2

On at least one occasion in recent banking history, at the time of the agreement of 1938, the federal agencies went so far as to make explicit their commitment to vary examination standards in order to facilitate the task of achieving economic recovery. At least until the late 1940s Federal Reserve officials entertained the idea of making supervision an adjunct of stabilization policy, but serious advocacy of such a course has gradually disappeared. In the continuing depression of the 1930s, it was possible to use for a time the “intrinsic soundness” rather than the “fair market” criterion of valuing assets. But as the American economy regained its fundamental vitality, attempts to have examiners in the several agencies vary their judgments to suit top-level policy decisions were bound to end in frustration. The examination staff of the Office of the Comptroller has consistently tried to maintain a more or less unvarying standard of judgment regarding bank assets, and the Federal Deposit Insurance Corporation has been inclined to follow the same rule. Federal Reserve supervision is thoroughly decentralized, examiners in the field reporting to the 12 Reserve Bank chief examiners. And though the Board's Division of Examinations performs a review function, and staff conferences achieve some standardization and coordination of procedures, the fact remains that field examiners are considerably removed, physically and in supervisory attitudes, from policy-making offices in Washington.

In a word, examiners assigned to the duties of work in the field take a rather narrow view of the function of examination. No amount of directives and conferences are likely to achieve a workable variation of examination criteria to meet swings in economic activity. The consequence is that the second of the concepts of examination, which combines investigation of a bank's affairs with exhortations to remedy practices increasing banking risk, is the one most likely to have the long-term approval of the supervisory agencies.

Supervision and the Allocation of Banking Resources

The apparatus of call reports, bank examination, and consultation between examiners and bank executives constitutes the central activity of bank supervision and consumes the time of the greater part of the personnel. In the minds of many people this function constitutes the raison d'etre of the supervisory agencies. As our historical inquiry has made clear, supervisors also significantly influence the allocation of banking resources and, more broadly, of financial resources.

2 Vide supra, pp. 135-137.

Rulings and Regulations. Banking law, though voluminous, is silent on a great many matters with which bank supervisors must deal. Consequently, rulings on particular points at issue and regulations issued to provide continuing guides on recurring procedural matters constitute the principal forms of bank regulation. Examples from the foregoing chapters come readily to mind. For more than half a century, national banks did not ordinarily have branches merely because a Comptroller of the Currency and his successors, despite the silence of the banking laws, ruled that they could not have them. In the early 1920s national banks began to branch in earnest, as another Comptroller ruled that "offices" were permissible within the city of a bank's location. In the 1930s a Comptroller decided that conservators of national banks could be former officers of those banks and need not be impartial "outsiders." Comptrollers of the Currency, as well as the Board of Governors of the Federal Reserve System, have ruled that member-bank purchases and sales of "federal funds" are not in fact "purchases and sales" but "loans and borrowings," yet another Comptroller maintained that they are not loans and borrowings and therefore are not subject to statutory restrictions. Comptrollers of the Currency had long ruled that national banks could not act as agents in the sale of insurance incidental to bank transactions (without regard to community population), yet another Comptroller ruled that they could.

The list of rulings and regulations pursuant to statutory authority is literally endless. Administrative determinations by agencies at both federal and state levels have as real an influence on banking operations, and more generally on financial institutions, as do requirements spelled out in the statutes. The implied powers of the agencies are so great that a liberal construction of the laws of the several jurisdictions gives almost unlimited power to single individuals, boards, and commissions. To be sure, as a consequence of a particular ruling or of the issuance of a specific regulation there may be loud complaints from the business community, sharp reaction from legislators, and even an ultimate attack in the courts. The fact remains that over long periods of time a Comptroller of the Currency or a board in Washington or a state capital may by a simple pronouncement greatly affect the transfer of resources into and out of the banking business. In this respect the regulation of banks is akin to that of public utilities, and many of the prerogatives of management in nonregulated businesses are thus not available to bank managements.

Approval of Charters, de novo Branches, and Mergers. Supervisory officials affect the allocation of resources in banking in an even more direct way. No bank may be formed without a charter, which must be approved by them. No bank may expand, either through the acquisition of new

3 The Federal Deposit Insurance Corporation does not approve charters. It can, however, refuse insurance to a newly organized state bank, so that in practice the FDIC does affect entry, particularly of small, state-chartered institutions.

capital or by the formation of new branches, even where the latter are permitted by the statutes, without explicit permission of a regulatory authority. Nor may a bank expand through the acquisition of another bank without the approval of a bank supervisory agency, and even then mergers are subject to attack by the Justice Department provided that litigation commences within 30 days of final agency approval.

Clearly, then, investment in banking does not necessarily follow the prospect of profits. Almost from the beginning of commercial banking in the United States, there was recognition of the fact that banks are special institutions, that the banking industry plays a role so central to the wellbeing of the economic system as to require special scrutiny and continuing oversight. Within the past generation the reasons for supervision of commercial banking have become less compelling because of (a) the innovation of deposit insurance, (b) improved techniques for stabilizing output (and so income) of the economy, and (c) the increasing relative importance of branch banking. But the tradition of bank supervision is so well established in this country that it is hard to imagine any serious turning away from the basic controls over entry.

Nonetheless, there are strong indications that modern supervisory agencies are more responsive to economic requirements and less amenable to personal and political pressures than they used to be. For example, before the Comptroller of the Currency issues a charter, his staff conducts an elaborate and exhaustive investigation that reveals the background and resources of the organizers, the present banking facilities available to the area to be served by the proposed bank, and the likely effect of a new firm on competition in that area. A national bank examiner makes an on-thescene investigation of the proposed bank's prospects. Before a charter is granted or rejected, a number of expert judgments, from economists and lawyers as well as from experienced examination personnel, are considered. A simpler procedure is followed before a permit to open a de novo branch is issued. However, the economic and legal investigation preceding a merger decision is even more complicated and exhaustive than that required before approval of a charter, and a major case may require months of work by a score or more of staff members with the highest professional qualifications. In a word, the work of supervisory agencies is less tied to tradition, to rules of thumb, than it was even a decade ago. The concept of supervision has changed to a reliance on an intellectual basis for decisions rather than on the prejudgments, the "sense" of what is appropriate, that used to guide one man or a board. Those who wish to know what bank supervision is are best informed by observing what bank supervisors do. A brief exami

4 We should not be so naive as to suppose that such pressures have disappeared or that they ever will. No businessman welcomes competition, and new charters are almost invariably opposed by the bankers whose business will be affected by new competition. The opposition is simply less effective than it used to be.

William B. Camp, 22nd Comptroller of the Currency: like his predecessors, Comptroller Camp will maintain a continuity of supervisory procedures while making administrative changes required by a rapidly growing economy.

nation of the organization of the Comptroller's Office may further comprehension of the activities of the oldest supervisory agency.

The Office of the Comptroller Today

For more than 100 years, the Comptroller of the Currency has maintained about the same status in the administration of the federal government. He is still appointed by the President with the advice and consent of the Senate, and his term of office remains five years unless he is removed sooner by the President for reasons communicated by the President to the Senate. Although the law provides that the Comptroller of the Currency "shall perform his duties under the general directions of the Secretary of the Treasury," the Comptroller operates with a degree of autonomy not enjoyed by any other bureau within an Executive Department. To be sure, the Secretary of the Treasury recommends an appointment in the first place, and in modern times it is scarcely to be imagined that the Comptroller and the Secretary could work to opposite purpose. Moreover, urgent political requirements of the President have on occasion been transmitted to the Comptroller through the Secretary of the Treasury. The fact remains that for months and even years a Comptroller of the Currency can run his bureau as though he were physically located outside the Treasury, with no official ties to it.

6

The Comptroller reports directly to Congress through an annual report explicitly ordered by the statute. Yet he and his Office are, in the absence of further legislation, outside congressional purview for the simple reason that funds for maintaining the Office are obtained from assessments on national banks and not from congressional appropriations. Despite the quasi-autonomy of the Office, the staff are considered civil servants, though not until 1942 were examiners subject to competitive procedures of the Civil Service Commission as a condition of employment."

Although the Comptroller of the Currency can draw on a wide variety of talent and obtain technical assistance in minute detail, he must make the final decision on all major questions of national-bank regulation. Because he is not required to compromise his views with other members of a board or commission, the personality and abilities of the man in the office give that Office its tone and largely determine the creativity of a particular administration. This fact accounts for the great swings in influence of the

5 This stipulation about removal is not provided for any other Presidential appointee. 6 For example, it appears that in the fall of 1947 considerable pressure was brought to bear on the Comptroller by Secretary John Snyder to permit branching of banks owned by Transamerica Corporation. See Marriner S. Eccles, Beckoning Frontiers, New York: Alfred A. Knopf, 1951, pp. 448-449.

7 Since 1946 the Comptroller's Office has had an excepted status under Civil Service, first under Schedule A authority and since 1955 under Schedule B authority. The effect of the Schedule B exception is that the Comptroller may conduct his own noncompetitive examinations. This excepted status could be withdrawn at any time.