Evolution of Bank Supervision: 1914–1939

The Federal Reserve Act of 1913 gradually phased out the OCC’s role in currency. No longer responsible for managing a complex monetary system and assessing the condition of the federal banking system primarily by counting cash, the OCC could now concentrate on bank examination and regulation. It became an organization of National Bank Examiners focused fully on maintaining the safety and soundness of the national banks they supervised.

And there were many to supervise. By 1929, there were more than 8,000 national banks—about five times the 1,601 banks that existed in 1865.

Traditional banking services became more complex. The McFadden Act of 1927 enabled national banks to make real estate loans and deal in securities. When the 1920s housing bubble popped, threatening homeowners and lenders alike, the Home Owners’ Loan Act of 1933 overhauled how banks issued mortgages. These laws expanded banking services, which meant additional scrutiny by OCC examiners.

Keeping bank exam information confidential has been important since the use of the telegraph in the early part of the 20th century. Examiners then used cipher codes, which were words, real and made up, that translated into sentences. “Imbibe” meant “If you can,” and “nautical” meant “National Bank Examiner.”

Using the codes kept information secure as it passed through mail and public telegraph lines. It also kept costs down because telegraph operators charged by the character; for example, “impurple” was much cheaper to send than “In accordance with your instructions I am leaving immediately for ___ to take charge of ___ which closed its doors on ___.”

After the stock market crashed in 1929, bank regulators undertook the task of restoring stability and public confidence in the banking system. In the early 1930s, regulators believed the banking crisis stemmed from overbanking and over-competition. Their response included requiring strict, even draconian, limitations on the numbers of banks, what they could do, and the activities they engaged in. Bank supervision went into overdrive.

On March 6, 1933, President Franklin D. Roosevelt declared a bank “holiday”—a respite designed to calm frazzled nerves, conserve assets, and start healing the banking system, which shattered during the early years of the Great Depression. The temporary shutdown of banks was no holiday for bank examiners, who worked under heavy pressure to review the condition of thousands of banks and decide whether to issue them the licenses they needed to reopen.

Nothing, perhaps, indicates in a more striking manner the fiscal growth and expansion of the country than the story, decade by decade, of the activities of the Comptroller's Office.