compcurr_1975

n fFComptroller of the CurrencyAdministrator of National Banks

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Annual Report 1975Comptroller of the Currency

The Administrator of National Banks

James E. SmithComptroller of the Currency


Letter of Transmittal

Treasury Department,Office of the Comptroller of the Currency,

Washington, D.C., October 1, 1976

Sirs: Pursuant to the provisions of Section 333 of the United StatesRevised Statutes, I am pleased to submit the 1975 Annual Report of theComptroller of the Currency.

Respectfully,Robert Bloom,

Acting Comptroller of the Currency.The President of the SenateThe Speaker of the House of Representatives

Ml


ContentsTitle of Section Page

Perspective vi iI. Condition of the National Banking System 1

II. Income and Expenses of National Banks 3III. Structural Changes in the National Banking System 5IV. Bank Examinations and Related Activities 13V. Law Department 15

VI. Fiduciary Activities of National Banks 19VII. International Banking and Finance 21

VIII. Washington Operations 23IX. Consumer Affairs 27X. Other Activities 29

XI. Financial Operations of the Office of the Comptroller of the Currency 31

AppendicesA. Merger Decisions, 1975 37B. Statistical Tables 109C. Addresses and Selected Congressional Testimony 164D. Selected Rulings 233

Index 243


Statistical Tables

Table No. Title Page

1 Assets, liabilities, and capital accounts of National banks, 1974 and 1975 22 Income and expenses of National banks, 1974 and 1975 43 National banks and banking offices, by States, Dec. 31, 1975 64 Applications for National bank charters, and charters issued, by States, calendar 1975 75 Applications for National bank charters issued pursuant to corporate reorganizations, and charters

issued, by States, calendar 1975 86 Applications for conversion to National bank charters, and charters issued, calendar 1975 97 Branches of National banks, by States, calendar 1975 108 De novo branch applications of National banks, by States, calendar 1975 119 De novo branches of National banks opened for business, by community size and by size of bank,

calendar 1975 1210 Mergers, calendar 1975 1211 Office of the Comptroller of the Currency: balance sheet 3212 Office of the Comptroller of the Currency: statements of revenue, expenses, and Comptroller's equity 3313 Office of the Comptroller of the Currency: statement of changes in financial position 34

VI


PerspectiveThe Office of the Comptroller of the Currency, like

the Nation's banking system, has changed overtime,but in no period has change occurred as rapidly as inthe last few years. I am hopeful that this preface willput many of the events of 1975 into the perspective ofthe dynamics of the banking and bank regulatorysystems.

The EconomyThe U.S. economy experienced its worst recession

since the 1930's in 1974-75, and real output of goodsand services declined in five successive quartersfrom the beginning of 1974 through March 1975.Since then there has been a steady recovery, butlevels of output before the recession were not passeduntil the first quarter of 1976. Inevitably, the NationalBanking System sustained a high volume of reces-sion-related loan losses. However, bank earningswere sufficient to cover those losses and still gener-ate increases in capital and valuation reserves. Thestrong position of National banks allowed them tolessen the impact of the recession on those borrow-ers having purely cyclical difficulties by liberalizingloan terms.

The demand for bank loans normally declinesduring recessions, and such was the case in the re-cent period. Loan demand has remained weak for anexceptionally long period, since March 1975, with thelevel of total loans outstanding in mid-1976 approxi-mately the same as that at the bottom of the reces-sion. That soft loan demand is attributable to an ex-tended period during which business inventorieswere reduced and to the relatively high level of non-financial corporations' internally generated funds in1975 and early 1976. National banks have been ableto strengthen their balance sheets by purchasing aheavy volume of Treasury securities. Banks' use ofthat source of funds has allowed large Treasuryfinancings to be accommodated without generatingstrong upward pressure on interest rates.

As the economic recovery proceeds, the demandfor short-term bank credit is expected to increase.

The National Banking System is in an excellent posi-tion to meet that demand, and thus contribute furtherto economic advance.

Technological AdvancesEconomic adversity is often father to cost-saving

and competitive innovation. During 1973 and 1974,the banking industry was exposed to a new tech-nological developmentelectronic banking. The ad-vent of on-line accounting systems and the inefficien-cies in traditional batch processing systems, accom-panied by heavy branch development costs, ledbankers to consider and implement automated tellermachines. As a result of uncertainty under applicablelaws as to the status of such devices, bankers beganseeking approval to operate such terminals at loca-tions other than approved branch sites during 1974.

On December 24, 1974, the Comptroller an-nounced his interpretation of 12 U.S.C. 36 that suchterminals, known as Customer-Bank CommunicationTerminals (CBCT's) were not branches and, thus,were not subject to state branching limitations.1 OnMay 19, 1975, the Comptroller amended his previousruling to require sharing of terminals located 50 milesor more from the bank's service area with any otherinterested institutions.2 Additionally, the May revisionestablished certain pre-notification requirementsSince those rulings were issued, this Office's positionhas been strongly resisted by several state bankingcommissioners and the Independent Bankers Associ-ation of America. A number of Federal courts haveheld the Comptroller's ruling on the branch questionto be erroneous. The Comptroller and several bankshave petitioned the Supreme Court of the UnitedStates to review the question. The pre-notificationprovision of the interpretive ruling was suspendedOctober 21, 1975, and presently only notificationfollowing CBCT installation is required.

Despite ongoing litigation, in 1975, 51 banks es-1 See Annual Report of the Comptroller of the Currency, 1974,

pp. 316-326.2 See pp. 235-241 of this report.

VII


tablished 153 CBCT's and 24 states enacted legisla-tion allowing State-chartered institutions privilegessimilar to those afforded to National banks. As ofJune 30, 1976, 73 banks had established a total of225 CBCT's. Customer acceptance of electronic sys-tems has been good as indicated by transaction vol-umes and customer use of new plastic cards. Theoutlook for the rest of 1976 and 1977 will be affectedby the United States Supreme Court's decision onwhether or not CBCT's are branches.

Bank RegulationIn the past, National bank regulation was primarily

reactive to changes in the banking system and inindividual banks. Recognizing that the rapid rate ofchange that now characterizes the banking industrymay necessitate basic changes in bank regulation,the Comptroller's Office underwent an in-depth man-agement review by outside consultants (for furtherinformation see Annual Report for 1974 and else-where in this report). The Comptroller's evaluation ofthe Haskins & Sells report has led to a major re-organization within his Office. Implementation of mostnew programs has been completed or will be com-pleted by the end of 1976.

The Haskins & Sells report has given the Comp-troller's Office a new outlook. We view banking as adynamic process; individual banks and the systemas a whole will be analyzed by looking to the futureas well as to the past. Diagnosis of areas of weak-ness, treatment of existing problems, and measuresto prevent future difficulties will be used to maintaina healthy banking system. Planning for the future,based on the lessons of the past and also on expecta-tions will direct not only bank regulation, but also theinternal operations of the Office. The increased com-plexity of banking and related operations requiresthat we, as bank supervisors, maintain at least thesame degree of technical expertise in specializedfields as do National banks and bankers. That will bea further commitment of the Office. In summary, webelieve that the Haskins & Sells report has allowedus to see ourselves better and to provide better regu-lation. The Comptroller's goal is to promote an open,healthy and competitive National Banking System.The general policies to be followed by the Comp-troller toward that end will be announced in the earlyfall of 1976.

Each operating division, each region and theheadquarters-based research and analysis divisionwill contribute to the Comptroller's planning program.The program has already produced an internal planof activities and further results, which may also be ofhelp to bankers in planning for the future, will be re-leased. Those releases will be through technicalpublications, trade journals or publications of our

own. The Comptroller's internal plan, backed by op-erational reviews, has already led to progress in theareas of manpower development, budgeting andresource deployment.

Bank ExaminationsThe National Bank Surveillance System, a data-

based analysis of individual banks, alone and in com-parison with competitors and similar institutions, isnow operational. Both headquarters and regionalpersonnel have -undergone training in the system.With support from NBSS reports, examiners will beimplementing revised examination procedures thiswinter after extensive training sessions in the fall.NBSS reports for and pre-examination interviews witheach National bank will allow examiners to focuseach examination on the particular aspects of thebank which need the most scrutiny. In general, bankexaminations will place greater emphasis on eachbank's own policies, procedures and internal con-trols.

Bank Corporate ActivitiesThe processing of applications for new bank char-

ters, branch certificates, merger approvals, andchanges in capital is undergoing change. Many ofthe processes that were handled by the headquartersstaff are now centered in the regions. After six monthsof training in the Washington Office, regional cor-porate specialists were sent to each region in mid-1976. Proposed corporate activity policy statementsfor the Comptroller's Office were proposed this sum-mer and are now being finalized on the basis of thesubstantial and generally favorable comments re-ceived. The processing of applications is also cur-rently under review in an attempt to speed up theapplication process.

Consumer AffairsThe Comptroller's Consumer Affairs Division be-

gan operation in September 1974. That division ischarged with protecting the rights of the public indealings with National banks. During 1975, substan-tial consumer legislation was enacted and many reg-ulations were promulgated. On January 1, 1976, aConsumer Complaint Information System was estab-lished at the Comptroller's Washington Office todeal with bank customer complaints. The Office'scommitment of personnel to the area of consumeraffiars has been expanded in each of the last 3 yearsand further growth is expected in 1977.

Beginning in September 1976, a select group of250 examiners will undergo 2 weeks of intensivetraining in the newly designed procedures for exami-nation of National bank compliance with various con-sumer protection laws. All National banks will be

VIM


subjected to a separate examination for consumerprotection purposes within a 12-month period during1976-77.

Extensive resources have been devoted con-sumer protection in processing consumer complaintsand in conducting examinations. Both consumersand banks have benefited from the new consumerprotection laws. Despite the necessary complexity ofmany of the regulations, increased disclosure andmore rigorous, non-discriminatory credit guidelinesshould serve the public well.

Changes in OrganizationTo redirect emphasis in accordance with the rec-

ommendations of the Haskins & Sells report, the orga-nization of the Comptroller's Office has been modified.In July and September of 1975, several Deputy Comp-trollers were appointed to head specialized, modi-fied or new functions. Seasoned managers in theOffice have responded even more positively than

expected to the search for new and better proceduresand that positive attitude is continuing. Enthusiasmextends throughout the staff and in the banking com-munity as well.

The primary initiator of the reorganization of theOffice, the Honorable James E. Smith, who wasComptroller of the Currency for over 3 years, re-signed effective July 30, 1976. Mr. Stanley E. Shirkwas nominated by the President to serve a 5-yearterm as Comptroller of the Currency. The Senate hasnot yet acted on that nomination. As Acting Comp-troller of the Currency, I can assure the Congress andthe public that every effort is being exerted to con-tinue the striving for excellence, for a sound bankingsystem serving the public interest in an open at-mosphere, and for a most efficient and productiveagency.Robert BloomActing Comptroller of the CurrencyOctober 1,1976.

IX


/. Condition of the National Banking System1975 found the U.S. economy in the severest re-

cession since 1938. The negative movement of in-come and employment factors exerted the expectedinfluence on the condition of the National BankingSystem. In the United States, as gross private invest-ment fell, total loans made by National banks de-creased for the first time in recent years, by 1.8 per-cent. With the decrease in loan opportunities and inlight of prevailing economic conditions, banks con-verted their funds into security holdings which, byyear-end, showed an increase of 17.2 percent. Thetotal asset figures for National banks were bolsteredby a 2.0 percent increase in demand deposits,compared to an 0.8 percent increase in 1974, but1975's 5.2 percent increase in time and savingsdeposits was only about 30 percent of the previousyear's increase. Despite the small increase in totaltime and savings deposits, the proportion of suchdeposits relative to total deposits continued toincrease to a new high of 78.3 percent. In 1972, thatfigure was only 54.5 percent.

For the third consecutive year, the rate of increasein total assets was less than the prior year. At year-end 1975, total assets of National banks had reached$553,427 million, a figure 3.6 percent above the De-cember 1974 amount. The three previous year-end in-creases were 9.2 percent (1974), 12.6 percent(1973), and 15.5 percent (1972).

The most striking change in the composition ofNational bank assets was in the securities category.For the first time in many years, National bank hold-ings of United States Treasury securities increasedsubstantially; holdings in Treasury securitiesincreased 60.9 percent from year-end 1974 to

year-end 1975. Of the $18,405 million increase in totalsecurities, $17,723 million or 96.3 percent was in U.S.Governments. Holdings of state and local securitiesactually fell by a small amount from previous year-endfigures. As the recession brought about a slackeningof loan demand, the need for purchased fundscorrespondingly fell. As a result, Federal fundspurchased and securities sold under agreements torepurchase increased only a nominal 4.8 percent.

The impact of the recession can be readily seen inthe composition of National bank assets for 1975.Loans relative to total assets were 52.9 percent, downfrom 55.7 percent in 1974. Securities rose from 20.0to 22.7 percent of total assets.

Despite the difficulties that National banks facedin the recession year, total loan reserves rose 1.3 per-cent. Since loans had actually fallen, the loan reserverose to 1.8 percent of loans outstanding as comparedto 1.7 percent the previous year. Total capital of Na-tional banks reached $38,979 million at year-end1975, reflecting an 8.8 percent increase over the prioryear's figure of $35,830 million. Capital notes anddebentures increased $33 million during thisrelatively poor year for bank securities in the openmarket. Despite the difficult times, total capitalaccounts of National banks increased to 7.0 percentof total assets compared to the 1974 figure of 6.7percent. The recession and the increasinglyconservative position of banks resulted in a capitalrelative to risk assetstotal assets minus cash,Treasury securities, and other U.S. Governmentagenciesratio of 9.5 percent in 1975 compared to8.7 percent a year earlier.


Table 1

Assets, liabilities, and capital accounts of National banks, 1974 and 1975(Dollar amounts in millions)

AssetsCash and due from banksU.S. Treasury securitiesObligations of other U.S. Government agencies

and corporationsObligations of States and political subdivisionsOther securities

Total securitiesFederal funds sold and securities purchased

under agreements to resellDirect lease financing . . . .LoansFixed assetsCustomers' liability on acceptances outstandingOther assets

Total assetsLiabilities

Demand deposits of individuals, partnerships,and corporations

Time and savings deposits of individuals, part-nerships and corporations

Deposits of U.S. GovernmentDeposits of States and political subdivisions ..Deposits of foreign governments and official in-

stitutions, central banks, and international in-stitutions .

Deposits of commercial banksCertified and officers' checks, etc

Total depositsDemand depositsTime and savings deposits

Federal funds purchased and securities soldunder agreements to repurchase

Liabilities for borrowed moneyAcceptances executed by or for account of re-

porting banks and outstandingOther liabilities

Total liabilitiesMinority interest in consolidated subsidiaries

Reserves on Loans and Secur i t iesReserves on loansReserves on secur i t ies . . . .

Capital AccountsCapital notes and debenturesPreferred stock . .Common stock . .SurolusUndivided profitsReserves

Total capital accountsTotal liabilities and capital accounts

Dec. 31, 19744,708 banks

Amount

$76,55729,081

16,78857,2963,835

107,000

23,7512,426

297,8529,0527,037

10,747

534,422

137,829

207,7942,711

40,206

7,47229,552

5,662431,225180,391250,834

36,3233,286

7,14215,424

493,4002

5,11970

2,25813

8,33614,06710,652

50335,830

534,422

Percentdistribution

14.335.44

3.1410.72

.7220.02

4.44.45

55.731.691.322.02

100.00

25.79

38.88.51

7.52

1.405.531.06

80.6933.7546.94

6.80.61

1.342.89

92.32

.96

.01

.42

1.562.631.99.09

6.70100.00

Dec. 31, 19754,744 banks

Amount

$78,05046,804

17,24857,1614,192

125,405

23,2962,972

292,54610,3345,003

15,821

553,427

143,363

222,5502,194

38,321

6,57128,8285,886

447,713183,962263,751

38,0492,826

5,05615,546

509,1901

5,18374

2,29114

8,80914,71812,782

36538,979

553,427

Percentdistribution

14.108.46

3.1110.33

.7622.66

4.21.54

52.861.87.90

2.86100.00

25.91

40.21.40

6.92

1.195.211.06

80.9033.2447.66

6.88.51

.912.81

92.01

.94

.01

.41

1.592.662.31

.077.04

100.00

Change, 1974-1975

Amount

$1,49317,723

460-135

35718,405

-455546

-5,3061,282

-2,0345,074

19,005

5,534

14,756-517

-1,885

-901-724

224

16,4883,571

12,917

1,726-460

-2,086122

15,790- 1

644

331

473651

2,130-1383,149

19,005

Percent

1.9560.94

2.74-.249.31

17.20

-1.9222.51-1.7814.16

-28.9047.21

3.56

4.02

7.10-19.07-4.69

-12.06-2.45

3.963.821.985.15

4.75-14.00

-29.21.79

3.20-50.00

1.255.71

1.467.695.674.63

20.00-27.44

8.793.56

NOTE: Data may not add to totals because of rounding. Dashes indicate amounts less than 0.01 percent. Data reflect consolidation ofall majority-owned bank premises, subsidiaries, and all significant domestic majority-owned subsidiaries, with the exception of Edge Actsubsidiaries.


//. Income and Expenses of National BanksOne of the effects of the recession was that total

operating income of all National banks fell 3.8 per-cent during 1975 while net income rose 5.3 percent.Thus, the increase in National bank profits thatoccurred was not the result of increased operatingincome, as is usually the case, but was occasionedby the decrease in expenses of National banks duringthe year by $1,624 million, or 4.6 percent.

Applicable income taxes continued to decrease in1975 to $1,069 million, a decrease of 4.8 percent forthe year. So, despite all the recessionary pressures,net income of National banks actually increased to$4,259 million in 1975 from $4,045 million in 1974, anincrease of 5.3 percent. The all important rate of returnon assets, 0.77 percent for 1975, was essentially thesame as it had been the preceding year. The return onassets was sustained because the rate of increase ofnet income was somewhat greater than that for totalassets.

Interest and fees on loans totaled $25,476 millionin 1975, a decrease of 10.4 percent compared to1974. The recession also affected income on Federalfunds sold and securities purchased underagreements to resell; that figure decreased 36.3percent to $1,384 million. Loan related income fell to65.5 percent of total operating income. Total revenuefrom securities holdings were 17.0 percent of totaloperating income in 1975, compared to 13.8 percentin 1974. That reversed the trend of decreasing incomefrom securities found in previous years.

As holdings in U. S. Treasury securities increasedby $17,723 million, interest earned on such securitiesincreased 37.3 percent. Further, the interest earned

on U. S. Treasuries was $1,023 million more than theearnings on Federal funds sold and securities pur-chased under agreements to resell. That also was areversal of the previous year's trend. Revenues fromobligations of States and political subdivisionstotaled $2,724 million, showing an increase of 7.6percent over 1974.

On the expense side, the recession had an ex-traordinary effect on the total cost of funds. Interest ondeposits fell by $1,335 million, or 8.1 percent. Thecost of Federal funds purchased and securities soldunder agreements to repurchase decreased $2,014million, or 47.0 percent, between year-end 1974 and1975. The total savings of $3,618 million in interestand Fed funds costs was enough to sufficiently re-duce expenses to make 1975 a profit year. Thosecosts equalled 53.3 percent of total operating ex-penses in 1975, compared to 61.1 percent in 1974.

Salaries and wages of officers and employees in-creased by 8.7 percent during the year. While the pro-portion of total expense represented by those items,18.1 percent, was higher than in the previous year, itwas still significantly lower than the 1972 figure of23.1 percent.

One of the largest increases in expenses in 1975was the additional $832.5 million provided for loanlosses; that produced a 59.8 percent rise over theprior year's total. Cash dividends totaling $1.8 billionwere paid by National banks during 1975. That wasan increase of 9 percent over the previous year. In1975 dividends reflected a pay-out ratio of 42.8percent as compared to 41.3 percent in 1974.


Table 2

Income and expenses of National banks,* 1974 and 1975(Dollar amounts in millions)

Number of banksOperating income:

Interest and fees on loansIncome on Federal funds sold and securities

purchased under agreements to resellInterest and dividends on investments:

U.S. Treasury securitiesObligations of other U.S. Government

agencies and corporationsObligations of States and political

subdivisionsOther securities

Trust department incomeService charges on deposit accountsOther service charges, collection and exchange

charges, commissions, and feesOther operating income

Total operating incomeOperating expense:

Salaries and wages of officers andemployees

Pensions and other employee benefits . . .Interest on depositsExpense of Federal funds purchased and

securities sold under agreements to re-purchase

Interest on borrowed moneyInterest on capital notes and debentures .Occupancy expense of bank premises, netFurniture and equipment, depreciation, ren-

tal costs, servicing, etcProvision for loan losses (or actual net loan

losses)Other operating expenses

Total operating expenseIncome before income taxes and securities

gains or lossesApplicable income taxesIncome before securities gains or lossesNet securities gains (after tax effect)Net income before extraordinary itemsExtraordinary charges or creditsMinority interest in consolidated subsidiaries .Net incomeCash dividends declared:

On common stockOn preferred stock

Total cash dividends declaredRatio to income before income taxes and

securities gains or losses:Applicable income taxesNet securities gainsExtraordinary charges or credits

Ratio to total operating income:Salaries and wagesInterest on depositsAll other operating expenses

Total operating expensesNet income

7974

Amount4,708

$28,418.62,173.1

1,752.7

1,018.4

2,531.3258.9853.7827.2

938.51,676.0

40,448.3

5,593.01,034.0

16,585.0

4,277.2519.3147.8

1,146.6

811.9

1,391.83,734.9

35,241.4

5,206.91,122.64,084.3

-42.44,041.9

2.8

4,044.5

1,670.21.0

1,671.2

Percentdistribution

70.26

5.37

4.33

2.52

6.26.64

2.112.05

2.324.14

100.00

15.872.94

47.06

12.141.47.42

3.25

2.30

3.9510.60

100.00

21.56-.81

.05

13.8341.0032.30R87.1310.00

1975

Amount4,744

$25,475.61,383.6

2,406.8

1,194.9

2,724.4280.2926.4883.5

1,087.02,544.9

38,907.4

6,079.41,149.8

15,249.6

2,263.4248.7149.8

1,282.2

902.3

2,224.34,068.2

33,617.5

5,289.91,068.64,221.3

16.04,237.3

21.8

4,259.0

1,820.6.8

1,821.4

Percentdistribution

65.48

3.56

6.19

3.07

7.00.72

2.382.27

2.796.54

100.00

18.083.42

45.36

6.73.74.45

3.82

2.68

6.6212.10

100.00

20.20.30.41

15.6339.1931.5886.4010.95

Change, 1974-1975

Amount36

-2,943.0

-789.5

654.1

176.5

193.121.372.756.3

148.5868.9

-1,540.9

486.4115.8

-1,335.4

-2,013.8-270.6

2.0135.6

90.4

832.5333.3

-1,623.9

83.0-54.0137.058.4

195.419.0

214.5

150.4- .2

150.2

Percent0.8

-10.36

-36.33

37.32

17.33

7.638.238.526.81

15.8251.84-3.81

8.7011.20-8.05

-47.08-52.11

1.3511.83

11.13

59.818.92

-4.61

1.59-4.81

3.35137.74

4.83678.57

5.30

9.00-20.00

8.99

* Includes all banks operating as National banks at year-end, and full year data for those State banks converting to National banks dur-ing the year.

R Restated

NOTE: Dashes indicate amounts of less than $500,000. Data may not add to totals because of rounding.


///. Structural Changes in the NationalBanking System

National banks increased in number from 4,708 to4,744 during 1974. Of that number, 2,683 were unitbanks and 2,061 operated 16,269 branches. That is agrand total of 21,013 offices, up from 20,273 the prioryear. During the year, the number of branches in-creased 4.5 percent, and the total number of officesincreased 3.7 percent. Three unit banking states,Texas, Illinois and Florida, led in total number of Na-tional banks, with 584, 421 and 295, respectively.California had the largest number of branches, 2,647,down 0.6 percent from the prior year. New York, with1,631, up 5.6 percent for the year, and Pennsylvaniawith 1,354, up 2.6 percent, were second and third innumber of branches.

The National Banking System gained 750 de novobranches in 1975. Mergers and conversions led to theentry of 155 additional branches while 203 brancheswere closed. Of the 750 de novo branches, 520, or

over 69 percent, were opened in communities withpopulations of less than 100,000 persons. Bankswith total resources of less than $100 million estab-lished 368, or 49 percent, of the de novo branches. Atthe same time, 175, or about 23 percent, of thosebranches were opened by banks with over $1 billionin total resources. New York led the states with 78 denovo branches; California, with 59, and Michigan,with 53, ranked second and third. It is interesting tonote that in California, 85 existing branches were dis-continued or consolidated.

During 1975, 76 National banks were chartered.That compares with 92 charters issued in 1974.Texas, with 15, and Florida, with 11, account for 34percent of the total. An additional 37 banks werechartered for the purpose of effecting corporate reor-ganizations, and 12 State banks converted to Nationalbank status.


Table 3National banks and banking offices, by States, Dec. 31, 1975

National banks

Total UnitWith

branches

Numberof

branches

Numberof

officesUnited States

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of ColumbiaFlorida

4,744 2,683 2,061 16,269

Georgia .Hawaii ..Idaho . . .Illinois ..Indiana ..IowaKansas ..KentuckyLouisianaMaine . . .

MarylandMassachusetts .MichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire

New JerseyNew Mexico . ..New YorkNorth Carolina .North Dakota .. .OhioOklahomaOregonPennsylvania ..Rhode Island . .

South CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashington ..West VirginiaWisconsin . . .Wyoming

Virgin IslandsPuerto RicoFDIC National banks*

9563

7557

13224514

295

6426

421120100171805320

427712020139112551204

44

113361502643

219194

7244

5

193275

5841216

1082410312845

112

3311

1911

107323

242

1701

318345212725121

91020181

66150841

12

137

345

2353143

1910

62011

58374156

858545

012

6252

5646252131153

4725

103864844554119

33671002033515

363

32

100291162120166516

1535

1312641512931818430

100

29066

300160

2,64725

25849853

31811

1611034698363

204242128

35750474925

210655

507785

963111

1,63176721

97251

2991,354114

29875

3681

9848

66151918830

700

21,01338572

303235

2,704157282

9112348

38213

167524589183234284295148

3995818692262491776017081129

1,076147

1,78179364

1,191245306

1,598119

31710744358511064

76954312121145

District of Columbia - allf 16 13 128 144* Deposit Insurance banks are formed by the FDIC under Section 11 of the Federal Deposit Insurance Act for a limited period of time,t Includes National and nonNational banks in the District of Columbia, all of which are supervised by the Comptroller of the Currency.


Table 4

Applications 1

United StatesAlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of ColumbiaFlorida

GeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaine

MarylandMassachusettsMichiganMinnesota . . .MississippiMissouriMontanaNebraskaNevadaNew Hampshire

New JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaRhode Island

South CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming . . .

Virgin IslandsPuerto Rico

*or National bank charters,

Received^209

700184002

51

000

19502140

01851

1000

3350115000

101

432030563

4+

Approved72300041001

10

0006102110

00630

1000

0100011000

000

180020021

0

* and charters issued,* by States, calendar 1975

Disapproved61300111000

20

00070000100101100000

1020001000

001

15001002o01

Withdrawn0O

OO

OO

OO

OO

CO

00

oo

oo

oo

oo

0000000000

0100000000

00000000001

00

PendingDec. 31, 1975

71100032001

18

0006400020

0021000000

2130103000

100

102000521

00

Chartered76210135001

11

2002002010

204013*0000

021000CM

O CM

O

200

151012222

n0

* Excludes conversions and corporate reorganizations.t Includes 143 applications pending as of December 31, 1974.X Includes 1 Deposit Insurance Corporation National bank.


Table 5Applications for National bank charters issued pursuant to corporate reorganizations,

and charters issued, by States, calendar 1975

Received* Approved Disapproved WithdrawnPending

Dec. 31, 1975 CharteredUnited States .


19 17 1 37

Georgia .Hawaii ..Idaho . . .Illinois ..Indiana ..IowaKansas ..KentuckyLouisianaMaine . . .

MarylandMassachusetts .MichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire

New Jersey . .New Mexico .New York . . . .North CarolinaNorth Dakota .OhioOklahoma . . .OregonPennsylvaniaRhode Island

South CarolinaSouth Dakota .TennesseeTexasUtahVermontVirginia . . . . . . .Washington . . .West VirginiaWisconsin .-...Wyoming

Virgin IslandsPuerto Rico ..

20001000101004000000

0120000000

0000020000

10130000000

00

20001000101003000000

0120000000

0000020000

00130000000

00

0000000000

0000000000

0000000000

0000000000

00000000000

00

0000000000

0000000000

0000000000

0000000000

10000000000

00

0000000000

0001000000

0000000000

0000000000

00000000000

00

3000000000

0003000110

0230100000

1000022010000

130010201

00

* Includes 2 applications pending as of December 31, 1974.

8


Table 6

Applications for conversion to National bank charter and charters issued, by States, calendar 1975

Received Approved Disapproved WithdrawnPending

Dec. 31, 1975 CharteredUnited States



MarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire

New JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaRhode Island

South CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyomingVirgin IslandsPuerto Rico

8 0 120000000005

1000000000

0010000000

0001000000

00000000000

00

0000000001

0000000000

0000000000

0000000000

00000000000

00

0000000000

0000000000

0000000000

0000000000

00000000000

00

0000000000

0000000000

0000000000

0000000000

00000000000

00

0000000004

1000000000

0010000000

0001000000

00000000000

00

0000000003

0000010000

0000110000

0000020000

01000011100

00


Table 7

Branches of National banks, by States, calendar 1975

Branches inoperation

Dec. 31, 1974

De novobranches opened

for businessJan. 1 to

Dec. 31, 1975

Branchesacquiredthrough

merger orconversionJan. 1 to

Dec. 31, 1975

Existingbranches dis-continued orconsolidated

Jan. 1 toDec. 31, 1975

Branches inoperation

Dec. 31, 1975

United States . . .AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of ColumbiaFlorida

Georgia .Hawaii ..Idaho . . .Illinois ..Indiana .Iowa . . . .Kansas .KentuckyLouisianaMaine . .

MarylandMassachusetts .MichiganMinnesotaMississippi . . . .MissouriMontanaNebraskaNevadaNew Hampshire

New Jersey ..New Mexico ..New YorkNorth CarolinaNorth Dakota .OhioOklahomaOregonPennsylvania .Rhode Island .

South CarolinaSouth Dakota .Tennessee . . .TexasUtahVermontVirginiaWashington ..West Virginia .WisconsinWyomingVirgin Islands

15,567*26765

265144

2,6622125148625

31110

154934417652192227124

33649269617

212513457478

917101

1,546*76116

90451289

1,320113

2896935309346625501118107

750 155 203230121759481428

1017102621112175

221053810152635

49117818533218501

7519151

33156200

01

2701100090

2000250000

0330000002

801500380020

4100011181100

0041

8501110

5000000021

11301210100

1118120328180

204000850100

16,26929066

300160

2,64725

25849853

318111611034698363204242128

35750474925210655501185

963111

1,6317672197251

2991,354114

29875368

19848661519188307

District of Columbia - allf 124 128* Adjustment of 2 in New York to correct 1974 total.t Includes National and nonNational banks in the District of Columbia, all of which are supervised by the Comptroller of the Currency.

10


Table 8

De novo branch applications of National banks, by States, calendar 1975

Received* Approved Rejected AbandonedPending

Dec. 31, 1975United States .



MarylandMassachusetts . . . .MichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew Hampshire ..

New JerseyNew MexicoNew YorkNorth Carolina . . . .North DakotaOhioOklahomaOregonPennsylvaniaRhode Island

South Carolina . . . .South DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWinconsinWyomingVirgin Islands . . . .Puerto Rico

797 530 82 14 171247

1513722604

21

11078

371

1125195

1212

11611123032

405

62124

422

1642

2

63

16750

2427

96000

225

121045

1503

11

3027

2217

16154

4710930206

233

48114

302

1236

2

63

13610

2016830

00

1110

1401001

3000201010

01

320000011

7051000100

00103001020

00

0100000001

4000000100

1000000000

4000010000

00000010000

00

1023

131001

1051

1303831

43

371300111

62900

110360

0021103

10110

00

District of Columbia - allf* Includes 192 applications as of December 31, 1974.t Includes National and nonNational banks in the District of Columbia, all of which are supervised by the Comptroller of the Currency.

11


Table 9De novo branches of National banks opened for business, by community size and by size of bank,

calendar 1975

Population of cities BranchesTotal resources of banks

(millions of dollars) BranchesLess than 5,0005,000 to 24,999 . . . .25,000 to 49,999 . . .50,000 to 99,999 . . .100,000 to 249,999 .250,000 to 499,999 .500,000 to 1,000,000Over 1,000,000

Total

1172051197987554147

Less than 10.0 .10.0 to 24.925.0 to 49.9 . . . .50.0 to 99.9 . . . .100.0 to 999.9 ..1,000.0 and over

Total ..

4313311379

207175750

750

Table 10Mergers*, calendar 1975

Applications received, 1975:MergersConsolidationsPurchases and Assumptions

Total received

Approvals issued, 1975:MergersConsolidationsPurchases and Assumptions

Total approvalsDenials issued, 1975:

MergersConsolidationsPurchases and Assumptions

Total denialsTotal decisions

Abandoned, 1975:MergersConsolidationsPurchases and Assumptions

Total abandonedConsummated, 1975:

MergersConsolidationsPurchases and Assumptions

Total consummated

Transactionsinvolving

two or moreoperating banks

323

1348

284

14

46

001

147

oo

co

3

223

1439

Others pursuantto

corporatereorganization

2100

21

3400

34

oo

o

034

4004

3600

36

Total

533

1369

624

14

80

0011

81

7007

583

14

75

* Includes mergers, consolidations and purchases and assumptions where the resulting bank is a National bank.

12


IV. Bank Examinations and RelatedActivities

The National Bank Act requires that all Nationalbanks be examined twice in each calendar year butthe Comptroller, in the exercise of his discretion, maywaive one such examination in a 2-year period or maycause such examinations to be made more frequently,if considered necessary. Also, the District Code au-thorizes the Comptroller to examine each nonNationalbank and trust company in the District of Columbia.

For the year ended December 31, 1975, the Officeexamined 6,011 banks, 21,182 branches and facili-ties, 1,926 trust departments, and 353 affiliates andsubsidiaries and conducted 867 special examina-tions and visitations. The Office received 228 applica-tions to establish new banks, including 19 corporatereorganizations. Also, the Office processed 605 ap-plications to establish de novo branches and 8 appli-cations to convert State banks to National bankingassociations.

The bank examination process is considered thefact-finding arm in discharging the Office's respon-sibility for bank supervision. The examination reportand related data are used to determine a bank'ssoundness and performance, and whether its opera-tions are within the framework of applicable bankinglaws and regulations. The appraisal of a bank's loansand investments, the determination of the adequacyof its loan and investment policies and procedures,and the assessment of the ability and capacity of itsmanagement represent the most demanding phasesof the examination process.

As of December 31, 1975, the Office employed2,281 examining personnel; 2,117 commercial ex-aminers and 164 trust examiners.

The review headed by Haskins & Sells, referred toin the 1974 Annual Report, has been completed. Im-

plementation of various recommendations containedin this study are now in process. New examiningmethods and procedures and increased career de-velopment programs are but two of many areas re-ceiving attention.

The basic 5-day EDP seminar, inaugurated in1970, was continued in 1975. Eight such seminarswere conducted during the year, with approximately200 examiners attending. Instruction covers EDP sys-tems capabilities and limitations and what impactthey have on the commercial and trust examinationfunction. The Office uses a select group of EDP ex-aminers in each region to examine EDP operations.Those individuals have received specialized trainingin EDP, including in-bank training in EDP operations.To improve the skills of those specialized examinersand to keep them abreast of changes in the bank com-puter environment, a major National accounting firmwas contracted to develop and present an advancedEDP seminar. Four such seminars were presentedduring the last 6 months of 1975 and all EDP exam-iners attended. Continued EDP training is projectedfor the coming year, including pre- and post-sessionsto complement the current in-bank training programfor those selected to become EDP examiners and anannual update seminar for EDPvexamining personnel.

Ninety-seven National banks, with 664 foreignbranches require examiners trained in internationalfinance procedures and policies. Personnel from theWashington Office International Division, togetherwith outside international experts, conduct periodicseminars to provide that training.

The Office continues to encourage its examinersto attend and participate in educational programs re-lating to banking and finance.

13


V. Law DepartmentThe Law Department provides legal advice and

supportive research to the Comptroller and his staffconcerning any matters falling within the scope of theofficial duties of his Office, including interpretationsof banking laws and regulations. The Department alsoresponds to litigation in which the Office may becomeinterested, and exercises certain direct responsibili-ties in enforcement and securities disclosure. Someof the major activities are described below.

A LitigationOn January 1, 1975, there were 20 cases pending

in which the Comptroller was a defendant. During theyear, ten of those cases were concluded; three bystipulation of the parties, one by dismissal by thecourt, two by dismissal of the Comptroller as a de-fendant, one by denial of certiorari by the SupremeCourt, and four upon the merits. None of the caseswas decided adversely to the Office. Half of the caseschallenged the Comptroller's decisions on new bankcharters, a main office relocation, and branch bankapplications. The most significant decision was thedecision of the United States District Court for the Dis-trict of Columbia upholding the Comptroller's inter-pretation of the Glass-Steagall Act to permit the offer-ing of an automatic investment service by Nationalbanks, New York Stock Exchange Inc. and InvestmentCompany Institute v. Smith, Civil No. 74-1405 (D.D.C.,Dec. 5, 1975).

During 1975, 38 new cases were filed in which theComptroller was a defendant.

B. Enforcement

During 1975, there were five final cease and de-sist orders issued by the Office to National banks.Eighteen formal written agreements in lieu of ceaseand desist orders were utilized during the sameperiod. Those agreements and orders brought aboutsignificant changes in the affected banks. Specifi-cally, they called for such things as improvement of

the bank's capital structure, alteration of the bank'smanagement structure through removal and hiring ofvarious personnel, correction of Truth-in-Lending Actviolations, improvement in the bank's audit and otherinternal control functions, alteration and improvementof the bank's relationship with its affiliates, alterationof the composition and quality of the bank's loan port-folio, and correction of various violations of statutoryprovisions contained in Title 12 of the United StatesCode.

The enforcement effort should be strengthened inthe coming year if Congress passes the legislativeproposal recommended by the regulatory agencieswhich would authorize them to bring actions to im-pose civil, monetary penalties against banks and in-dividuals and would enable the Comptroller to re-move officials from banks under his jurisdiction whentheir conduct amounts to gross negligence.

C. Securities DisclosureThe Securities Acts Amendments of 1975 greatly

extended the purview of the Federal securities lawsto, among other things, bank municipal bond dealing,bank transfer and clearing agency functions, and dis-closure by institutional investment managers (includ-ing bank trust departments). The Law Departmentconsulted, coordinated, and cooperated with theSecurities and Exchange Commission, the MunicipalSecurities Rulemaking Board, the Federal ReserveBoard, the Federal Deposit Insurance Corporation,and other interested parties in carrying out myriadnew responsibilities required by those amendments.An excess of 200 registration forms from Nationalbank municipal securities dealers were reviewed bythis Office. Many additional inquiries were answered.A registration rule and form for National bank transferagents was promulgated by the Comptroller in Octo-ber 1975. The Office continues to provide input onvarious rules promulgated by the Securities and Ex-change Commission and the Municipal SecuritiesRulemaking Board.

15


In response to the 1974 amendments to the Secu-rities Exchange Act of 1934, the Comptroller adopted,effective September 30, 1975, a substantial revisionto his Securities Exchange Act disclosure rules (12C.F.R. 11) making those rules substantially similar tothose of the Securities and Exchange Commission.The Securities Disclosure Division reviews all changesin those Securities and Exchange Commission rulesand regulations in order to assure that Part 11 remainssubstantially similar.

The Law Department reviewed approximately 425annual reports, 625 proxy statements, 1,175 quarterlyreports, 825 current reports, and 10,000 ownership re-ports filed by National banks pursuant to the Secu-rities Exchange Act of 1934. The Department was alsoinvolved in an increased number of tender offers,election contests, and other take-over attempts. At therequest of the Securities and Exchange Commission,the Law Department commented on numerous regis-tration statements filed with them and proposed re-leases relating to banks or bank holding companies.

Attorneys from the Law Department participated inthe Securities and Exchange Commission-FederalBanking Agencies Task Force on statistical disclo-sure by bank holding companies which was respon-sible, in part, for substantial revisions in bank callreports. Much of the work in that area related to cor-porate accounting, and a significant change in theaccounting for the reserve for loan losses wasachieved. Other changes in accounting are expectedin 1976. The Department has undertaken a study ofthe Comptroller's regulation on offering circulars (12C.F.R. 16) in connection with additional disclosuresnow being made by National banks.

D. Interpretations and RegulationsDuring 1975, the Law Department responded to

well over 2,000 requests for information, advice, andinterpretations of law and regulations received frommembers of the Comptroller's staff, banks, attorneys,bank customers, members of Congress, and otheragencies of the Federal government and the variousState governments. In addition, numerous rulings andcirculars were issued announcing new policies ormodifications of existing regulations. The followingrepresents a partial digest of that activity.

1. Banking Bulletin 75-3. In late 1974, the Office re-ceived information that an offer of large deposits char-acterized as Arab in origin had been made to at leastone bank on the condition that no member of the Jew-ish faith sit on the bank's board of directors or control20 percent or more of the bank's outstanding stock.Because the Comptroller believes that such businesspractices, if accepted, constitute a threat to the per-sonal rights of American citizens, the banking indus-

try, and individual banks, he issued Banking Bulletin75-3 on February 24, 1975, advising all Nationalbanks of his intention to assure their adherence topolicies of nondiscrimination in their dealings withAmerican citizens. The bulletin read in part:

One of the major responsibilities of this Office isto ensure that each National bank meets theneeds of the community it was chartered to serve.While observing those credit and risk factors in-herent to the banking business, all activities of allNational banks, indeed of all banks regardless ofthe origin of their charters, must be performedwith this overriding principle of service to thepublic in mind. Discrimination based on religiousaffiliation or racial heritage is incompatible withthe public service function of a banking institu-tion in this country.

2. Banking Bulletin 75-8. Over the years, theOffice had considered mobile home loans to be in theconsumer credit category. As a result, the charge-offpolicy employed by the examiners had been some-what similar to that used for other consumer loans. Forexample, mobile home paper delinquent in excess of180 days was charged off unless there was a recordof recent regular payments, and repossessed mobilehomes were charged off at the time of repossessioneven though the delinquency was less than 180 days.

Recognizing the changed role of mobile homes inthe existing housing market, the Office, on July 10,1975, amended its charge-off policies for such loansto more closely parallel the treatment afforded delin-quent real estate loans and foreclosed real property.This change of policy does not apply to loans securedby recreational vehicles or trailers which remain in theconsumer loan category.

3. Banking Bulletin 75-10. On July 2, 1975, theEmergency Housing Act of 1975, Public Law 94-50,became effective. The Act is designed to assist home-owners who have suffered a significant loss of incomeand are financially unable to meet their mortgagepayments. One of the primary objectives of the legis-lation is to have the Federal supervisory agenciesprovide support and encouragement to lenders sub-ject to their jurisdiction by encouraging a policy offorbearance with respect to home mortgage foreclo-sures. A secondary objective is to provide assistancethrough an insured loan program or a direct loan pro-gram when forbearance is no longer feasible unlessoutside help is provided. The Department of Housingand Urban Development is responsible for providingfinancial assistance on a stand-by basis.

Section 110 of the Act directed this Office to takeappropriate action to waive or relax limitations withrespect to mortgage delinquencies in order to encour-age forbearance and to request each National bank,until July 2, 1976, to notify it, the Secretary of HUD,and the mortgagor at least 30 days prior to instituting

16


foreclosure proceedings. Therefore, Banking Bulletin75-10 was issued on August 28, 1975, informing theNational banks of the essential elements of the legis-lation and announcing the adoption of a policy tem-porarily modifying loan classification criteria and cer-tain statutory interpretations with respect to mortgageloan delinquencies.

E. Legislative

Because of the increase in activity in Congressaffecting banking and bank regulation, the Law De-partment expanded its staff and responsibilities in thelegislative area.

During the year the Law Department assisted inthe drafting of legislation jointly proposed by theComptroller, the FDIC, and the Federal Reserve to im-prove the Financial Institutions Supervisory Act. TheDepartment also assisted in the drafting of the Finan-

cial Institution Act of 1975, which passed the Senateon December 11, 1975.

During 1975, the Comptroller appeared beforecommittees of Congress on seven different occasionson matters relating to pending legislation or commit-tee investigations. The subjects included proposedamendments to the Glass-Steagall Act, the effect onthe National Banking System of a default by New YorkCity on its debt obligations, bank regulatory agencyrestructuring, disclosure of financial data, and elec-tronic funds transfers.

During the last three months of 1975, the Law De-partment coordinated preparation of the agency's re-sponses to the House Banking Committee's study onFinancial Institutions and the Nation's Economy (FINEStudy). The responses to the Committee's questions,submitted to the Committee in December, providedan extensive review of the Comptroller's Office. Theresponses were bound and circulated for use byagency personnel, Congress, and the public.

17


VI. Fiduciary Activities of National BanksDuring 1975, 57 National banks applied for per-

mission to exercise fiduciary powers. Of that number,31 were approved. That includes 5 conversions fromState charters. At year-end, 2,010 National banks hadthe authority to exercise trust powers.

In March 1975, a school was held for Assistantsand Associates in Trusts, the entry and intermediatelevels of trust examiners, in Washington, D. C. Thecurriculum covered all aspects of trust departmentoperations and fiduciary law and other laws and regu-lations.

The number of trust examiners increased duringthe year, so that by the end of 1975 there were 53Representatives in Trusts, 22 Associates in Trusts,and 67 Assistants in Trusts on the rolls.

Enactment of the Securities Acts Amendments of1975 brought new statutory and administrative dutiesto the Office. National banks acting as transfer agentsfor issuers subject to the Securities Exchange Actwere required to register with this Office. Regulation 9was amended to provide for that registration and FormTA-1 (CC-7510-06) was developed jointly with theother banking agencies and the SEC. In addition,work was begun during the year, in coordination withthe other agencies, to effectuate other sections of theAct relating to safeguarding of securities and clearingagencies.

Acceptance of recommendations made by Has-kins & Sells resulted in the initiation of their imple-mentation. Several of the accepted recommendationsrelate to the examination process. It was decided topublish an internal controls questionnaire to be com-

pleted by the examiner at each examination. It at-tempts to identify those policies, procedures and con-trols which experience has shown would be presentin a well-managed trust department. Based upon theinformation developed from that questionnaire, theexaminer will decide the direction, scope and empha-sis of his examination. Supplementing the question-naire will be an examination procedures checklistalso to be completed by the examiner at the time ofexamination. That checklist sets forth the procedureshe followed and indicates why any were omitted. Thatshould result in better standardization of proceduresand permit better quality control.

The trust examination report is also being modi-fied to reflect the revised procedures and to permitbetter communications with the banks. In addition, arevised examination handbook is being drafted to re-place the present one, which is somewhat out of date.It is expected that those improvements will be com-pleted by mid-1976.

Implementation of recommendations relating toother activities of the Trust Division also was initiated.Steps were taken to transfer, to the Regional Admin-istrators, the authority to grant fiduciary powers to Na-tional banks. The position of Regional Representativein Trusts is to be created to provide a means of coor-dinating trust supervisory efforts in the regional of-fices. Procedures are being established to permit bet-ter communication between the Washington Officeand field examiners. Those steps also should be com-pleted by mid-1976. It is hoped that a better super-visory product will result.

19


VII. International Banking and FinanceThe beginning of 1975 found the international

banking community continuing to experience the stillunmeasured effects of bank failures, heavy foreign ex-change losses, world-wide recession coupled withhigh inflation, and the energy crisis. At the same time,tiering in the Euromarkets and growing balance-of-payments deficits by oil-importing nations were be-ginning to force curtailment of new credit and werelimiting activity in the international money markets.That raised serious questions as to the ability of thosemarkets to recycle the still formidable OPEC sur-pluses. Many of those problems, which had seemedinsurmountable less than a year before, were effec-tively countered by changes in National policies.

Reduced oil consumption by industrialized na-tions as a result of recession, the institution of energyconservation programs by many governments, stock-piling of oil reserves in the face of possible futureprice increases, and the sharp rise in imports by theOPEC nations, were major factors contributing to thereduction of OPEC surpluses and to the easing ofmarket pressures. As the payment surpluses of theOPEC nations declined and their imports increased,the industrialized nations experienced improvementin their trade and current account balances. How-ever, oil-importing lesser developed countries wereless fortunate because markets for their exports wereadversely affected by recession while overall inflationand the continuing rise in oil prices increased theirimport costs. The problem of market support for thefinancing requirements of those countrues continuedto cause concern through year-end 1975.

By year-end, international financial markets haddemonstrated remarkable recovery from the stagnantconditions that had existed when the year began. In-ternational lending began to revive, stimulated by thewidening of interest margins and the gradual elimina-tion of tiering within the market. Banks that had cur-tailed their foreign lending during the turmoil of 1974reentered the market, encouraged by signs of eco-nomic recovery and by the easing of inflation.

During the first half of 1975, while markets were

relatively inactive, National banks advantageouslyemployed their resources toward the development ofmore selective credit policies, improved operationaland credit reporting systems, increased control overforeign exchange activities, and greater asset diversi-fication. New policies indicate the adoption of phi-losophies emphasizing "manageable" growth. That isreflected, in part, by the relatively modest growth inforeign branch assets from $99.8 billion, in 1974, to$101.2 billion, at year-end 1975. That representsgrowth of only 1.4 percent, compared to an averageannual increase of 29.6 percent for the years 1970-1974.

National banks opened 42 foreign branches andclosed 27 during 1975, compared with 15 openingsand 21 closings during the previous year. At year-end1975, seven branches were approved but unopened,compared to 22 in 1974. National banks continued tohold investments in foreign financial institutions,either directly or through their Edge Act subsidiaries.

Supervisory responsibility over the foreign activi-ties of all National banks is delegated to the Inter-national Banking Group within the Banking Opera-tions Division. Through a six-man team of examinersbased in London and experienced examiners se-lected from the 14 National Bank Regions, the Inter-national Banking Group conducts examinations of theinternational divisions, foreign branches, and foreignaffiliates of National banks. Examinations are espe-cially tailored to the organizational and geographicstructure as well as to the reporting procedures of thebank under examination. Those examinations includeevaluation of the quality of the international loan andinvestment portfolios, analysis of foreign exchangeactivities and reporting procedures, accounting andrecord-keeping systems, and adequacy of internalcontrol and audit programs.

During 1975, 153 National Bank Examiners wereassigned to conduct examinations of 80 foreignbranches and subsidiaries in 25 countries. Examina-tions of 15 foreign electronic data processing centerswere also performed. Discussions with branch and

21


subsidiary managers, as well as with central bankand bank supervisory officials, provided invaluableinsight into current economic conditions, present andanticipated exchange controls, fiscal and monetarypolicy, and political developments. In addition, over-seas examinations provided essential backgroundknowledge of local religious, cultural, and legal influ-ences on banking activities in particular countries.

A major development during 1975 was the decen-tralization of the credit supervision functions of two ofthe Nation's largest banks into overseas regionalcredit centers. Those centers, located in strategiccities throughout the world, are designed to improvethe banks' own supervision of their foreign activities.In order to adjust to the new structure, the Interna-tional Banking Group, key examining personnel, andmanagement of each bank jointly developed a foreignbranch information gathering system, a regionalcredit examination program and a revised examina-tion report format. The new examination system is de-signed to permit an intensive review to determineweaknesses in loans and internal credit review sys-tems in less time. Major emphasis is placed on verify-ing the accuracy of the reporting systems frombranches and subsidiaries to their regional centers,and then to the bank's head office.

In an effort to keep abreast of the constant changesin the international banking system and to improvethe capabilities of examining personnel, the Interna-tional Banking Group conducted quarterly seminars

covering all phases of international banking super-vision. A total of 82 examiners participated in thoseseminars. Four National Bank Examiners attended theSchool for International Banking conducted by theAmerican Bankers Association. In addition, a weeklynewsletter of relevant published articles was mailedto 255 examiners and our regional offices, as well asto the staffs of the Board of Governors of the FederalReserve System, the Department of the Treasury, andmembers of Congress.

In 1975, the International Banking Group con-tinued to work with the staffs of Congress, the FDIC,the Board of Governors of the Federal Reserve Sys-tem, and the Bankers Association of Foreign Trade indeveloping new techniques for more effective super-vision of the Nation's banking system. During theyear, the International Banking Group participated inmeetings with bank supervisors from the nine Euro-pean common market countries, as well as with thosefrom Canada, Japan, Switzerland, Australia, Thailand,Indonesia, and the Philippines. Those meetings con-tributed to the development of open and meaningfulrelationships between the Office of the Comptroller ofthe Currency and foreign bank supervisors, empha-sizing the need for mutual assistance and exchangeof ideas. In keeping with that spirit of internationalcooperation, examiners and Washington staff mem-bers conducted seminars for foreign bank supervisoryofficials in Bolivia, Colombia, Peru, and the Philip-pines.

22


VIII. Washington OperationsAs a result of the recommendations set forth in the

Haskins & Sells Study (1974-1975), completed inmid-1975, the Administrative Operations' function ofthe Office of the Comptroller of the Currency was re-organized and renamed Washington Operations.Headed by the Deputy Comptroller for WashingtonOperations, that department is now responsible for allthe operating and support functions of the 14 regionaloffices as well as the Washington headquarters.

The Washington Operations Department is com-prised of six operating divisions: Bank Organizationand Structures; Systems and Data Processing; Re-search and Analysis; Human Resources (personnel);Finance and Administration; and Financial Account-ing and Reporting.

A Bank Organization and StructureDivision

During 1975, the processing of applications in-volving charters, branches, conversions, mergers,fiduciary powers, operating subsidiaries, titlechanges, relocations, and capital were consolidatedinto the newly formed Bank Organization and Struc-ture Division.

The Division's first major undertaking was to worktoward implementation of the recommendationsemanating from the Haskins & Sells Study of the cor-porate area. In late 1975, work commenced on theformulation of written policies for the various corpo-rate activities. Those statements of policy are in-tended to provide the public and the banking industrywith a better understanding of the bases for deci-sions. Additionally, the Division has revised and con-tinues to review all forms, instructions, and internalprocedures. The objective of the Division is to gradu-ally delegate greater responsibility for the processingof applications to the regional offices. In 1975, eachregional office appointed a Regional Director of Cor-porate Activities to assist the Regional Administratorin meeting that increasing level of responsibility.

It is anticipated that the statements of policy de-veloped for corporate activities will be published forcomment in the Federal Register in mid-1976. Com-plete implementation of new forms and procedures isexpected by the latter half of 1976.

It is hoped that the restructuring of this Divisionwill result in a more responsive and accessible deci-sion-making process, that will better serve the needsof the public and the banking industry.

B. Systems and Data Processing Division

During the past year, substantial effort was di-rected toward the implementation of the Haskins &Sells management study recommendations. Two im-portant segments of those efforts were the develop-ment and implementation of computer programs forthe National Bank Surveillance System (NBSS), amajor component of the regulatory system, and effortsin support of the Office's Financial and AdministrationDivision.

To put the National Bank Surveillance System intooperation, professional personnel from each of theDivision's three functional areas, systems and pro-gramming, data operations, and management analy-sis, worked with members of the NBSS group and staffpersonnel from Research and Analysis, Economics,Strategic Studies, and Statistics. NBSS is designed toprovide both background and current information onthe status of each National bank. A comprehensivebank data base utilizing call reports, past due loanreports, and examination reports for input has beendeveloped. That data base, and a set of more than100 ratios representing predetermined variations fordata items, allows the production of a variety of com-puter-generated analysis reports. Those reports pro-vide an effective means of continuous, close super-vision of every aspect of the banks' operations.

As a part of the NBSS and regulatory systems de-velopment, the December 31, 1975 Call Report pack-age was redesigned by the Division's graphic func-

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tion to assist the banks in responding to the reportingrequirements. For the first time, the package was astandard size and was produced as a self-mailer.

Specific plans for the restructuring of the Financialand Administration Division were mapped out andpreliminary steps for the implementation of new sys-tems were completed during the year. Workingclosely with the Fiscal Management Branch andmembers of the Haskins & Sells implementationgroup, Systems and Data Processing Division person-nel are currently developing a computer-based sys-tem to streamline and simplify the Office's accountingfunctions and to produce many of the Office's finan-cial reports. That system should be fully operationalduring 1976.

Another important project completed in 1975 wasthe Consumer Complaint Information System whichwas designed to collect and edit data relating to con-sumer-bank disputes, complaints filed, and decisionsrendered. Periodic computer reports are produced,providing the Consumer Affairs Division with data onthe current status of consumer complaints as well asan historical file including data on the type of com-plaints received and a regional analysis of those data.

A variety of other projects varying in scope from anew graphics program to the development of a high-speed microfilm public information service have beena part of the Division's on-going support during 1975.

C. Research and Analysis DivisionIn September 1975, the Department of Banking

and Economic Research became the Research andAnalysis Division under the administrative direction ofthe Deputy Comptroller for Washington Operations,and operational control was delegated to a newly ap-pointed Director. The structure was streamlined andthe Department's objectives were reevaluated interms of recommendations in the Haskins & SellsStudy. The primary objectives of the reorganizationwere to increase the Division's usefulness to the restof the Office and to establish an ongoing researchprogram which would result in publication in variousbanking, economic, and academic journals. Essentialto that effort was bringing the Washington staff com-plement to full strength while maintaining quality anddiversity, revitalizing the Regional Economist pro-gram, and enhancing the Division's computer capa-bilities. By the end of the year, the Division was wellon its way to meeting each of those goals.

Restaffing had first priority in 1975. By the end ofthe year, three senior research economists had beenhired for the Washington Office, bringing the comple-ment to four with an expectation of the hiring of twomore economists in early 1976. The Division also up-graded the hiring requirements for research assis-

tants giving special emphasis to a high level of ex-pertise in computer operations.

While research projects initiated in 1975 have notyet led to publication, the Washington staff showed adramatic increase in research productivity in theyear's final quarter. Studies on such timely issues aspast due loans, bank liquidity, and fair housing havebeen started. Attempts are being made to determinewhat significant variables affect bank examiner pro-ductivity, to analyze worker mobility relative to bank-ing markets in the United States, and to build a modelto measure and analyze the size and growth potentialof individual bank markets.

The Regional Economist program which had atro-phied over the past decade was revived and, by De-cember 31, 13 regions were staffed with an econo-mist. The regional staff was recruited, in part, so thattheir skills would supplement the operations of theWashington Office. The Division now has readyaccess through the various regions to recognized ex-perts in such areas as survey research, trust opera-tions, computer operations, and banking structure. Al-though not every Regional Economist is involved inresearch in conjunction with or at the direction of theWashington Office, three projects currently underwayhave National implicationsa study on electronicfunds transfer systems and National banks, a study onclassified loans incorporating data from regional of-fices in Memphis, Boston, New York, Chicago, andSan Francisco, and a risk/return analysis of commontrust funds throughout the entire banking system.

The Division's computer capability has been en-hanced through the Bureau's relationship with BoeingComputer Services and the Division's arrangementwith Data Resources, Inc. The latter service was usedto develop the first executive economic forecast ex-clusively for the Comptroller's use. That forecast isscheduled to be repeated every 6 weeks under thedirection of one of the senior Washington Officeeconomists.

D. Human Resources Division

In the fall of 1975, in response to recommenda-tions in the Haskins & Sells Study, the Office of Per-sonnel Management, under the new organizationaltitle of the Human Resources Division, establishedfive branches. Those branches are: Employee Rela-tions, Position and Pay Management, Staffing andPlacement, Employee Development, and PersonnelOperations. That realignment led to the initiation ofmany new programs, policies, and guidelines.

The Employee Relations Branch, in an effort toeffect the Haskins & Sells recommendations, com-pletely reviewed all grievance and adverse actionpolicies and reviewed all employee benefit programs.

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This branch proposes to develop, for the first time inthe Comptroller's Office, uniform performance stan-dards and evaluations, uniform work rules, employeeappeal and management review procedures and aneffective system of personnel research.

The most notable innovations by this branch in1975 were:

The advent of a new preventive dental careprogramBlue Cross/Blue Shield Dental In-surance. This program is open to all full-time permanent employees and provides in-surance coverage for the dental expenses ofemployees and their families. Coupled withother health insurance programs and the Fed-eral life insurance program, the program al-lows the Office to provide employees with themost comprehensive health coverage pos-sible.

The broadening of the applicability of thephysical examination program. The programis now available, both in Washington and theregions, to all GG13's and above who are atleast 40 years of age and have 5 years of ser-vice with the Office. Employees receive up to$100 in expenses toward the cost of a com-plete physical examination.

The issuance of an innovative policy statementon alcoholism and drug abuse. AdministrativeCircular 71, dated July 29, 1975, entitled"Alcoholism and Drug Abuse," has added newdimensions to the counseling aspect of theEmployee Relations Branch. Professionalcounseling and a referral service is now avail-able for all Office employees.

Employee performance was emphasized when 78Special Achievement Awards were presented to Of-fice employees and 10 employees received financialremuneration for suggestions they made which wereaccepted and adopted. The Treasury Department'sAnnual Awards Ceremony on October 17, 1975, washighlighted by the Comptroller's acceptance of the1974 Annual Treasury Safety Award. That award rec-ognized a 70 percent reduction in disabling injuriesin the Comptroller's Office for the period.

The Position and Pay Management Branch high-lighted its functions with the publication of a PositionManagement Classification Handbook and PersonnelGuide for Supervisors. Position management andclassification surveys and reviews were conductedfor five major organizational segments of the Officethis year. Job descriptions and desk audits pertain-ing to hundreds of positions were completed, result-ing in standard position descriptions for non-profes-sional jobs in both the headquarters and the regionaloffices. The Bureau now has position descriptions forthe majority of jobs. During 1975, the Position and PayManagement Branch processed approximately 5,000personnel actions. The Position and Pay Manage-

ment Branch will administer the new salary plan pro-jected for 1976. That plan is geared toward providingsalaries that are competitive with the professional,non-governmental financial community and that areequitable in relation to other positions within the or-ganization. The new system will also provide forsalary adjustments based upon individual per-formance.

One of the most important new fields encom-passed by Human Resources, is the active recruit-ment and employment of the handicapped. In con-junction with that effort, during 1975, the Staffing andPlacement Branch concluded a survey on existingfacilities and their accessibility to handicapped indi-viduals. The results of the survey indicated that theOffice is easily accessible to handicapped em-ployees and applicants. The branch processed over4,000 personnel actions and applications, more thanin any past year. That total reflects not only applica-tions being processed, but also posting of vacancies,testing of applicants (including administering thebank examiner's qualifying examination), interview-ing, checking references and records, and monitor-ing the merit promotion plan.

The Employee Development Branch, with a newemphasis on training all Office personnel, focused itsefforts on three major areas, two related to trainingexaminers and one to training organizational con-cepts. During 1975, 57 experienced examiners par-ticipated in a special instructional program in ad-vanced electronic data processing examinationtechniques. Another examiner-oriented program isscheduled for 1976The Assistant National BankExaminers' School for Advanced Study. All Assis-tants are eligible for participation within 6 months oftheir commissioning. Specific educational and train-ing needs for each level of responsibility have beenidentified, and career educational lattices have beendesigned for all levels of examiners, supervisors andmanagerial personnel. Previously established, in-house, formal training programs reached 998 of ourfield personnel, or approximately 35 percent of theBureau staff. Interagency and non-government train-ing accounted for 15 percent of the training spon-sored by the Bureau.

The Personnel Operations Branch resolved in-numerable problems pertaining to pay administration,leave, life/health insurance, and taxes. To assist inthat effort, a new and innovative system of personnelrecords control was established in compliance withFPM 29.6-31. Under the new system both expedi-ency and accuracy are assured.

It is anticipated that, by 1976, the Human Re-sources Division will implement one of the most criti-cal recommendations made by the Haskins & SellsStudythe consolidation of its branches into three

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major organizational segments: Employee Relations,Personnel Development, and Washington Operations.

E. Finance and Administration Division

This Division is charged with the responsibility forall fiscal operations, purchasing, property manage-ment, and office services for the Office of the Comp-troller of the Currency. It has two organizationalbranches: Fiscal Management Branch and Adminis-trative Operations Branch.

The Fiscal Management Branch's functions andactivities are covered in "Financial Operations of theOffice of the Comptroller of the Currency" elsewherein this Annual Report.

The Administrative Operations Branch, in their ef-forts to respond to the recommendations of the Has-kins & Sells Study, has been primarily concerned withthe space requirements both at the Washington head-quarters and at each of the 14 regions. Space man-agement activities in 1975 included the relocation ofthe regional headquarters offices in Richmond, Va.,and Denver, Colo., and the expansion of the regional

offices located at Portland, Oreg., and Memphis,Tenn. Three additional sub-regional offices havebeen established.

The Administrative Operations Branch has beenresponsible for the Bureau's contribution to the bicen-tennial celebration. In that connection, the productionof exhibits on the history of banking and the role of theComptroller of the Currency are now on display inbanks throughout the country. The Bureau's participa-tion in the Treasury Department's bicentennial exhi-bitions and related activities has also emerged fromthis branch.

F. Financial Accounting and ReportingDivision

Currently, the responsibilities charged to this Divi-sionform and content of bank financial reports,bank accounting principles and compliance withsecurities actsare being handled through variousother divisions. Ultimately, those responsibilities willbe consolidated and transferred to this Division.

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IX. Consumer AffairsThe Consumer Affairs Division is charged with the

responsibility of protecting the rights of the publicdealing with banks under Office jurisdiction. Through-out 1975, the Division was actively involved in pro-grams geared toward making ourselves more acces-sible and responsive to the public. Implementation ofthose programs through communication techniquesaffords the public the opportunity to voice complaints,seek information, and present their views. Some of theactivities during 1975 are listed below.

A Compliance

The Office of the Comptroller of the Currency hasthe responsibility of enforcing compliance with Stateand Federal consumer laws and regulations as theyapply to National banks. Administration of that obliga-tion is accomplished through the bank examinationprocess and through the review and resolution ofcomplaints, received from whatever source, allegingviolations of law. The Consumer Affairs Division hastaken an increasingly active part in the administrationof that responsibility with the development of evalua-tive criteria and measurement techniques designedfor enforcing compliance. As part of a managementstudy conducted recently, the examination report isbeing revised and the Division is preparing compre-hensive checklists and work papers to examine forbank compliance with consumer protection laws.

Whenever a violation is discovered during bankexaminations, the matter is immediately called to theattention of bank management and a report is for-warded to the appropriate regional office and to theWashington Office. Appropriate procedures are sub-sequently taken to correct the violations. Variouschecklists are used by the examiners as aids duringthe examination process. Numerous tests are per-formed on selected loans, policies, procedures andadvertising to determine whether banks are in com-pliance. In cases of continual and extreme violations,we have used our cease and desist authority and havemade referrals to the United Stated Department ofJustice. During 1975, two formal written agreementsand one cease and desist order were issued andnumerous referrals were made to the United States

Department of Justice in connection with violations ofconsumer laws and regulations.

Complaints against National banks cover a widevariety of consumer banking activities. Among thecompliants we receive, either in Washington or in oneof the 14 regional offices, are ones dealing with checkcashing privileges, interest charges, deposits notcredited, rebates, and individual credit decisions. Acomputer program has been established to catalogthose compliants. When a complaint is received, it isimmediately referred to a staff attorney who investi-gates the facts of the situation and prepares as com-plete a response as possible. Inquiry is made to thebank concerned through letter

compcurr_1975

Documents

national bank charters

expenses of national

federal reserve bank

national banking system

size of bank

bank regulatorysystems

bank examinations

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