Business: Crowley on Capital

Chairman Leo Thomas Crowley of Federal Deposit Insurance Corp. was about to leave his room in Milwaukee's Hotel Schroeder one day last week and go downstairs to address the Wisconsin Bankers Association, when someone rapped on his door. In stepped a process server with a subpoena. Would Mr. Crowley please come right away? The Grand Jury could not wait. Mr. Crowley shook his head. frowned, remonstrated, finally went. While the Wisconsin bankers thrummed their fingers for 30 minutes, the Grand Jury extracted from Mr. Crowley all he knew about closed banks in Milwaukee county. Then and then only was he allowed to go back to the hotel and make his speech.

The occasion was a homecoming, but Mr. Crowley lost no time in giving the bankers of his native State a piece of his mind about their business. As chairman of the State Banking Review Board and onetime president of the Bank of Wisconsin (absorbed by Wisconsin Bankshares Corp.), he knew Wisconsin banks at first hand, had long championed legislation to bolster the weaker ones. When he rose to speak, the president of the State Banking Association had just finished damning RFC's practice of buying bank stock as "positively pernicious."

Cried Mr. Crowley: "You flatter yourselves if you believe the Government wishes to enter your institutions. . . . The Government is merely trying to protect depositors. ... On March 31, 1934 the book capital of 630 banks in this State amounted to $89,000,000. The total deposits amounted to $540,000,000. Upon the basis of examination recently made, it appears that the net sound capital in these 630 banks is about $50,000,000. In other words, the total net sound capital investment in Wisconsin banks amounts to less than 10% of the total deposit liability. This is an unhealthy situation and must be corrected."

The Crowley method of correction: Let banks in Wisconsin (and elsewhere) which do not have $1 in capital for every $10 in deposits, continue to sell capital stock or notes to RFC until they attain the 10-to-1 ratio.

Said Chairman Crowley: "It was not until the RFC had given the FDIC a raised the maximum guarantee for deposits from $2,500 to $5,000 beginning July 1. Deposits insured total $15,700,000,000 belonging to fifty-six million accounts in 14,000 banks. This week under the $5,000 maximum, insured deposits will jump considerably. The Federal Government sidestepped because they would have necessitated a large scale reexamination of banks. Another reason given was that FDIC wanted to develop a more equitable system of assessing banks for the permanent guarantee.