Franklin D. Roosevelt

Letter to Jesse Jones on a Plan to Admit Non-Member State Banks to the Deposit Insurance Fund.

October 23, 1933

The President sent the following letter to Mr. Jesse Jones, Chairman of the Reconstruction Finance Corporation:

The attached statement explains the conclusions I have reached regarding the matter of preferred stock subscriptions to nonmember State banks applying for admission to the Deposit Insurance Fund. We developed a good plan for dealing with the question of paying of[ as much as possible of deposits in the banks closed since January 1, 1933, and it is well started. I want to follow the same line in respect of the provision of capital to non-member State banks. I ask, therefore, that you suggest to your Board that they create a special Division of Cooperation with State banks and that Mr. Harvey Couch be designated to head this division. Sitting with him to recommend action to your Board, in addition to yourself, ex-officio, I have designated the following gentlemen:

Eugene Black, Governor of the Federal Reserve Board

Dean Acheson, Undersecretary of the Treasury

Lewis Douglas, Director of the Budget

J. F. T. O'Connor, Comptroller of the Currency

Walter J. Cummings, Chairman of the Board, Federal Deposit Insurance Corporation

Henry Bruere

Frank Walker

In this way all the different angles of Government contact with this question will be made available to your Board, and a responsible body made available for speeding up the work and making its recommendations to your Board for official action. Sincerely yours,

The statement referred to in the above letter follows:

"We began last week through the Deposit Liquidation Board to distribute money to depositors in banks closed since January 1, 1933. There are about 3,500 of such banks.

"By making loans on the assets in liquidation up to an amount justified by liquidation we hope to distribute to depositors up to a billion dollars with the least possible delay. Where delays occur they will be due to lawsuits beyond our control and not to a lack of effort or readiness to help on the part of the Federal Government.

"The thawing out of frozen deposits will put money in the hands of thousands who desperately need that money to live on, and it will restore working. capital and credit to business men and farmers all over the country. This drive to distribute frozen deposits is one of the major steps of the recovery program. I count on the cooperation of everyone concerned to get this job done and done quickly.

"Now we are taking another important step to help in the recovery of business and agriculture. Everybody knows that you cannot have business or farming carried on without a banking system to serve business and farmers. We are building up such a banking system. Ever since the bank holiday and the reopening under license of many thousand banks the Government has been at work on this. It has reorganized banks through the Comptroller's office and the Reconstruction Finance Corporation. Hundreds of banks have been put on a stronger basis. Recently the Reconstruction Finance Corporation has urged banks needing additional capital in order that they might give credit to business men and farmers to secure that capital by the sale to the Reconstruction Finance Corporation of preferred stock. This is already being done in many cases. But we hope that all banks will take advantage of this opportunity to put themselves in an easy cash position to help in the work of recovery.

"! repeat, banks are essential to the recovery. A bank can operate freely and with confidence in its future, only if it has a capital sufficient for the volume of business that it should do and can do as business speeds up. We need the banks and want them to have adequate capital. As a rule such capital cannot now easily be found in the communities. As recovery continues, such capital will be found. But in the meanwhile and temporarily but for such length of time as may be necessary, the Government will supply the necessary capital through the Reconstruction Finance Corporation in its purchase of preferred stock. The Reconstruction Finance Corporation will thus serve as a Recovery Finance Corporation.

"The banks must feel free to function well and the Government will help them prepare themselves to play their important part.

"There is widespread response already from the banks to our invitation to cooperate in this way in improving the Nation's banking facilities. This response is coming from all types of banks—the greatest as well as the small banks, and is coming from all parts of the country.

"To accept the Government's offer to purchase preferred stock does not mean that a bank is weak but that it is eager to cooperate 'in the recovery effort to the fullest possible extent and thus undertake to put this additional capital to work. We are not thinking of idle capital. We are thinking of working capital—capital working for recovery.

"While this is going on we are getting ready to operate the new Federal Deposit Insurance Corporation. Automatically on January 1, all the national banks and State banks which are members of the Federal Reserve System will have their deposits insured up to $2,50 for each depositor. The State banks, of which there are about 8,600 in the country which are not members of the Federal Reserve System will have their deposits insured in the same way if they apply for admission to the fund, and are accepted. I hope they will all apply. Under the law when they apply an examination must be made of their condition. That gives us the opportunity to do a very important thing in strengthening the banking structure, in which State non-member banks play such an important part.

"This opportunity is along the lines of giving these banks adequate working capital. It is well known that the Federal Government has no supervisory relation with State banks not members of the Federal Reserve System. We are getting our first official and general contact with them since the bank holiday through the new Federal Deposit Insurance Corporation. We want to take advantage of this contact for the benefit of the banks and the communities they serve by taking up with them at this time the question of the adequacy of their working capital. We want them to be able to do their part and if they find use for more capital to do their part well and comfortably we should do everything humanly possible to see that they get it. In other words, deposit insurance gives us the opportunity not only to protect depositors, but to make more serviceable our whole banking system. By doing that we shall bring a powerful force, an indispensable force, into action to speed recovery.

"There is a big job to be done in having the eight or nine thousand State banks apply and be examined and have their needs considered and acted on between now and January 1. The questions involved need to be considered from the standpoint of the recovery effort in general, from the banking standpoint, public welfare and the welfare of depositors and borrowers. This means that many decisions have to be reached wisely from all these angles and that an effort be put forth to promote the interest and cooperation of every bank in our program as well as that of all the State Governments. To facilitate this work I have suggested to the R.F.C. that they set up a special division for Bank Cooperation in Recovery and make recommendations to the Board for purchase by R.F.C. of preferred stock. This will be done and will follow the plan announced last week for dealing with closed bank loans. The head of this new division will be Mr. Harvey Couch, a member of the Reconstruction Finance Corporation Board, and serving with him on the Advisory Administrative Committee in charge of this effort will be Mr. Jesse Jones, the Chairman of the Reconstruction Finance Corporation Board, ex-officio, and the following:

Eugene Black, Governor of the Federal Reserve

Board Dean Acheson, Undersecretary of the Treasury

Lewis Douglas, Director of the Budget

J. F. T. O'Connor, Comptroller of the Currency

Walter J. Cummings, Chairman of the Board, Federal Deposit Insurance Corporation

Henry Bruere

Frank Walker

"Governor Black is to head a subcommittee on cooperation with member banks in this same effort."

Franklin D. Roosevelt, Letter to Jesse Jones on a Plan to Admit Non-Member State Banks to the Deposit Insurance Fund. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/207765

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