Mr. WILLE. I will be quite brief.

The Jesuit loan showed up on the books of the bank as a loan to the Jesuit Order in 1967, and we had been reviewing it since then.

Mr. ST GERMAIN. Are you telling me that the tabs were kept on this loan. I mean, this has appeared in the Texas newspapers, right?

Mr. WILLE. Let me just say, sir, that the loan to the Jesuits was known to us in 1967 and from thereon. What your question, however, implies is that there was some sort of conspiracy on the part of the order and the controlling owner of the bank to use this loan, or the proceeds from this loan, for some sort of stock purchase.

That inference is not that clear from the examinations, and I, for one, would not want to assume that that was the case with the Jesuit Order.

Mr. ST GERMAIN. Does it not indicate the money was borrowed by the order, it was then deposited in the bank and a check was made out for $3 million to the Sharpstown Realty Co. ?

Mr. WILLE. We would have no knowledge of the check, sir. The books and records of the bank would show the loan to the Jesuit Order. The Jesuits made it clear on repeated occasions that they considered this to be their loan and that they were good for it, and I would say, in answer to your question as to whether or not a check made specifically to the order of the company you named was drawn on that account, that that information would not be uncovered during the regular course of examination.

Mr. ST GERMAIN. I have one other question.

It has also been reported that quite a few bank examiners. FDIC examiners, were obtaining loans from the Sharpstown Bank. Now, doesn't this smack of conflict of interest on the part of the examiner? Mr. WILLE. Not only that, but it is against the law. I would like to be a little bit specific about my answer.

It was brought to our attention that one of our examiners had an overdraft, which is considered a loan, at the Sharpstown State Bank in his checking account. This was brought to our attention by a law enforcement agency in November of 1970.

We immediately started an investigation which resulted in that examiner's separation from the FDIC by action of our Board of Directors on December 23, effective January 5. It is, as I say, against the law for an FDIC examiner to accept that kind of a loan.

I might also say that we have some hearsay to the effect that an examiner of ours who resigned in June of 1969-quite some time ago, 18 months ago-may have had a similar overdraft or loan situation with the Sharpstown State Bank. We are looking into that case now, but so far as I know, the references in the papers have been basically to State examiners, with the one exception.

Mr. ST GERMAIN. Did any examiners resign from FDIC and then go to work for Sharpstown?

Mr. WILLE. Not that I know of; no, sir.

Mr. ST GERMAIN. One last question: The thing that is bothering me. in this hearing today is the fact that we are all aware of the fact that many, many banks have been infiltrated by organized crime. In the 19 failures that are mentioned, you mention reasons in general for the failures, no illusion whatsoever to the fact that organized crime is infiltrating the banking industry.

I am wondering if there is a reason for avoiding this entirely. Perhaps because investigations going on might be prejudiced or subsequent prosecutions might be prejudiced, or is it because perhaps FDIC doesn't feel this is the case?

Mr. WILLE. I would not subscribe, I don't think, to your general statement about widespread infiltration. As far as we can tell at this point, none of the 19 banks which closed had been infiltrated by organized crime.

Mr. ST GERMAIN. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Gonzalez.

Mr. GONZALEZ. Along this line, of the 19 banks that were listed, six happened to be from Texas. So this is clearly an indication there is something wrong and it is one of the reasons some of us have been concerned for sometime.

Now, if by 1967, which was the date that the Jesuits made the loan to Frank Sharp, the fact that this type of questionable loan or practice was known to the regulatory agency, should that not have been cause for some action, because this is precisely the reason why these hearings were being demanded in January and asked for? The credit union, for example, in my city that deposited $300,000 in Sharpstown asked this very simple question. They said, "Well, now, Mr. Gonzalez, you are a member of the House Banking and Currency Committee, why should we not have faith in our examined bank, in an insured bank?"

After all, this is the way the advertisement is made. Advertisements that attracted $3 million worth of credit union funds in Massachusetts. $250,000 from Dallas, and $300,000 from our city. Now, that is a good question. Who is to warn the otherwise trusting depositor?

Isn't there responsibility there, that perhaps regulatory agencies. either because they don't have sufficient authority or because there is a vacuum in the law, should be exercising this? I mean after the fact is one thing, but what about at the time these practices begin to percolate and are noticeable to the regulatory agencies?

Mr. WILLE. There is quite a good deal in your statement, Mr. Go”zalez, that I could comment on. I would like to comment on a few c' the items that you have mentioned.

With regard to the Jesuit loan in 1967, you were not here, I believe. when I was talking with Mr. St Germain.

Mr. GONZALEZ. I heard part of it.

Mr. WILLE. The records of the bank do indicate a loan by the bank to the Jesuit Order. What the Jesuit Order did with that loan and what its arrangements were, if any, with Mr. Sharp. I don't feel should properly be answered at this time. If there were any arrangements at all, they were not clear from our examination of the bank's records. As I indicated to Mr. St Germain, the Jesuits maintained throughout this period of time that this was their loan and that they were good for its repayment.

With regard to the question of depositors placing money in insured banks. I quite agree that they are entitled to feel that there is effective and prompt regulation on the part of the regulatory agencies, and we do make every effort to see that that is the case.

I would say that with regard to depositors who place more than the insured limit in a particular bank--that is, the $20,000 for which

we, of course, are obligated-those depositors also have, it seems to me, some burden to assure themselves that the bank is well capitalized and that it is well managed, and I don't mean by that to beg off from the question that you asked.

I would say in regard to the Sharpstown State Bank and the regulatory steps that were taken over this period of time after the serious condition of the bank was known-that is, from June of 1969, when our examination indicated a somewhat clear deterioration in the condition of the bank-that we had, in cooperation with the Texas State authority made every effort to enforce on the bank a corrective

program.

We had, for example, in the fall of 1969, secured from the board of directors of the bank a full statement of its willingness and desire to cooperate in a corrective program which would reduce, eventually remove, the brokered funds from the bank and which would reduce, eventually remove, the adverse classifications.

We found in going back into the bank in February of 1970 that, in fact, very little actual corrective action had been undertaken. At that point, we discussed the situation with the board of directors—and we had been in communication with the board of directors of the bank over this period of time—and we stated to the directors that we were prepared to start a proceeding to terminate the insurance of the Sharpstown State Bank.

We did not actually start that proceedings, because the full board of directors of the bank signed a written agreement with the Corporation, agreeing to remove Mr. Frank Sharp from a position of controlling influence in the bank. In fact, a competent chief executive officer was placed in the bank for a period from March to early November. We commenced, in order to see what kind of corrective program had been undertaken by the new chief executive officer, an examination in November of 1970, which was never completed because the bank closed. We had our examiners in there during this period of time.

It was concluded that some progress had been made, but certainly not enough. It was then clear, in November of 1970, that new capital must be provided for the Sharpstown State Bank.

Mr. GONZALEZ. Excuse me for interrupting you, but actually you are using 95 percent of my time here.

Nothing was done, however, for the benefit of the people who would continue to be depositing money in that bank on the strength of their own advertising. Nobody's warning anybody. I think that there is a moral responsibility somewhere, because in the first place you never fully answered another question previously.

In the case of Sharpstown, who is paying the broker the two points they were paying-for example, the credit union in my town, the credit union said, "Sure, we saw the advertisement. They would pay 71⁄2 percent."

When they made this check out for their deposit they didn't make it to the broker. They made it to the bank. But they said they got the two points from the broker. Now, who was going to give the broker that money, which they in turn would credit to the credit union? Where is that money coming from? They weren't getting a loan. Who is paying the broker? The broker couldn't afford to be in business paying two points unless he made some money somewhere.

Mr. WILLE. In the usual type of brokered deposit transaction, the borrower who gets the loan which is made with the deposits put in the bank through the broker ends up paying the broker. It is the borrower of those funds that usually ends up paying the fee to the broker. I suspect that in the Sharpstown State Bank situation, much of this is going to be laid out on the public record, if you like, in actual litigation.

Mr. GONZALEZ. I would think so, but in the meantime, Mr. Wille, what about the banks that exist now under similar conditions, where people are continually depositing money in? Isn't there some responsibility to warn? Sure, so you were advised in 1967 and you slapped the wrist of the directors in 1969 and 1970. But all of that is in camera; that is private. Nobody knows.

While at the same time you are charged with knowledge that that bank is advertising nationally for the deposits and that it is getting money from innocent or well-intentioned or greedy depositors, however you want to define them, but nevertheless the citizens, it seems to me, have a right to say well, why should I not have felt that this was a bank properly regulated, therefore assume that it is properly run and managed, and that the money is safe?

I think it is a very valid question which I couldn't truthfully answer. This is the reason I feel that the question is now one of emer

gency.

I think that when the record shows that of the 19 banks closed, about 33 percent come from one State, there is something wrong somewhere. Maybe it is State regulatory authority that needs help, but we must remember every one of these banks, with one exception, is insured by the Federal Government, which to the layman means it is OK, it is a safe bank.

Mr. WILLIAMS. Mr. Chairman, I would like to ask you a question. The CHAIRMAN. I think the gentleman's time has expired. hasn't it? Mr. WILLIAMS. I would like to ask

The CHAIRMAN. Mr. Brown.

Mr. WILLIAMS, Mr Brown, will you yield to me for a question?

I have no objection to Mr, Gonzalez just having used almost 1:3 minutes. I have been here yesterday morning and I have been here since 10 o'clock this morning.

I would like the chairman to state that he will continue this hearing this morning until all the Congressmen have had a chance to ask questions, or until the bell rings in the House for a quorum call er roll call

vote.

The CHAIRMAN. Well, I have a luncheon-the Speaker is giving a luncheon for some Members, and I am invited, and I want to go at 12:30. I will probably have somebody to preside. My intention is to permit every member to ask questions. I think that we are getting along pretty well. Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman.

In view of the questions that have been asked, Mr. Wille. I think it would be good for you to furnish to the committee a breakdown of those who have been the most substantial victims of bank failures.

For instance, depositors holding deposits in excess of the insured amount, et cetera. Would that be too difficult?

Mr. WILLE. It may be difficult to classify depositors who had more than $20,000, or whatever the insurance limit was, at the time a bank closed. My statement did indicate that even on the excess amount over $20,000, depositors, on the average, eventually got back 90 percent of their deposits in the bank.

Now, beyond that, it is a little bit difficult. Some record has been kept of the amount of public deposits, that is, deposits of States and municipalities that are in closed banks, and we may be able to provide that breakdown. But we tend, I think, not to break down deposits of individuals, partnerships, and corporations.

Mr. BROWN. To the extent your records will permit, I think it will be valuable for the committee to know, and I think that the public doesn't have any idea who really gets hurt in a bank failure.

The people that are hurt know, but it generally isn't known. (In response to the information requested by Mr. Brown the following letter with attached tables was received from Mr. Wille :)

FEDERAL DEPOSIT INSURANCE CORPORATION,
Washington, D.C., March 23, 1971.

Hon. GARRY BROWN,
House of Representatives,

Washington, D.C.

DEAR MR. BROWN: During the course of my testimony concerning recent bank closings on March 9, 1971 before the House Committee on Banking and Currency, you asked for a breakdown of those who have been the most substantial victims of bank failures.

Our research indicates that for the period January 1, 1960 through March 15, 1971, there were many more excess depositors classified as individuals in payout transactions than classified in any other category. At the same time, the depositors classified as "Savings and Loans" had the greatest dollar amount of excess deposits.

Attached is a table showing a summary of excess depositors in closed insured banks for the period January 1, 1960 through March 15, 1971, and a second table showing the same detail, by bank, for the same period.

The figures on the summary table, of course, are the excess deposit amounts as of the time the banks closed and are limited to banks in which FDIC paid out the statutory insurance limit (in assumption transactions, all depositors receive 100% payment). The Corporation's experience has been that approximately 90% of the excess deposit amounts in payout transactions ultimately are paid as the Corporation liquidates the assets of the closed bank. This recovery pattern is evident in the table showing detail by bank.

I hope this information is responsive to your inquiry, and that it will be helpful to you and the other members of the Committee. Sincerely,

FRANK WILLE,

Chairman.

SUMMARY OF EXCESS DEPOSITORS IN CLOSED INSURED BANKS FOR THE PERIOD JAN. 1, 1960, THROUGH MAR. 15, 1971

Note: From Jan. 1, 1934, through Dec. 31, 1969, the Corporation has paid, out of proceeds of liquidations, approximately 90 percent of the total collar amount of excess deposits. In individual banks, the payments may be greater or less than 90 percent.