LETTER OF TRANSMITTAL UNITED STATES SENATE SUBCOMMITTEE ON HOUSING Hon. JOHN SPARKMAN, (Pursuant to S. Res. 160) Chairman, Housing Subcommittee, United States Senate, Washington, D. C. DEAR MR. CHAIRMAN: During hearings on Reorganization Plan No. 2 of 1956, held by the Subcommittee on Reorganization of the Senate Committee on Government Operations, you indicated a desire to have the staff of the Housing Subcommittee undertake a study of the Federal programs which the reorganization plan would have affected. This study involved principally the operations of and the relationships between the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. It has seemed appropriate to extend the scope of this study to include subjects not directly related to the reorganization plan but important to the proper functioning of the agencies involved. The study and the report were conducted with the assistance and the cooperation of James B. Cash, Jr., member of the staff of the Banking and Currency Committee. The report, with staff conclusions, is forwarded for your consideration. Sincerely, JACK CARTER. STUDY OF RELATIONSHIPS-FEDERAL HOME LOAN BANK BOARD AND FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION PART I. ORIGIN OF STUDY Reorganization Plan No. 21 of 1956 was submitted to the Senate on May 17, 1956, and referred to the Committee on Government Operations. On June 18, 1956, for himself and for Senators Fulbright and Capehart, Senator Sparkman introduced Senate Resolution 291 2 a resolution which, if approved by the Senate, would have had the effect of nullifying Reorganization Plan No. 2. 3 The Subcommittee on Reorganization of the Committee on Government Operations held hearings on Senate Resolution 291 on June 27, 1956. Six of the seven members of the subcommittee voted to report the resolution favorably. One member voted to report the resolution without recommendation. 4 Concurrently with its referral to the Senate, Reorganization Plan No. 2 was also presented to the House of Representatives and referred to the Committee on Government Operations on May 17. On June 14, 1956, a disapproving resolution, House Resolution 541 was introduced by Congressman Fascell. Hearings in the House of Representatives were conducted by the Subcommittee on Executive and Legislative Reorganization on June 26, 1956. Following extensive hearings, House Resolution 541 disapproving Reorganization Plan No. 2 was adopted by the Committee on Government Operations by unanimous vote and was reported on July 3, 1956. On July 5, the House of Representatives passed House Resolution 541 by voice vote. By this action, Reorganization Plan No. 2 of 1956 was disapproved. In taking action to disapprove Reorganization Plan No. 2, both Houses expressed the need for further study of the questions raised by the plan. House Report No. 2599 states on page 8: The committee was impressed with testimony concerning the necessity for a very careful control of the huge funds being handled by the local Federal savings and loan associations and by the Government's responsibility under the insurance programs. A thorough study and investigation of these matters seems indicated, particularly in view of the evidence of laxity in examinations of which the recent embezzlement in the Commonwealth Building & Loan Association of Norfolk, Va., seems to be an example. The disapproval of Reorganization Plan No. 2 of 1956 by the Committee on Government Operations was by unanimous vote. 1 For text of Reorganization Plan 2 and President's supporting message, see p. 29. 2 For text of S. Res. 291, see p. 33. Hearings printed and available as separate document. For text of H. Res. 541, see p. 33. 'Hearings are available as a separate House document. 1 Senate Report 2388 reflected the feeling of Senators that the subject matter of Reorganization Plan No. 2 required consideration by appropriate legislative committees. On page 1, the subcommittee states: The subcommittee emphasized that its recommended action was not necessarily intended to indicate opposition to the objectives of Reorganization Plan No. 2, but rather to reflect the view of its members that reorganizations sought to be accomplished by the plan were too far reaching and important to be enacted into law by means of a reorganization plan. It was the subcommittee's position that a matter of such importance, which involves large sums of money and is likely to have repercussions in many areas of the country, should be considered by the appropriate legislative committees of the Congress. During the course of such consideration, the full import of the effect of the proposals contained in the plan can be evaluated, and a determination may be made concerning the need for enactment of legislation to correct any existing deficiencies and to bring about appropriate reorganizations, in the event that evidence developed at such hearings indicates the need for legislative action. On page 2 of Senate Report 2388, the subcommittee states: Furthermore, it is the committee's conclusion that the Committees on Banking and Currency of both Houses of the Congress which have primary jurisdiction over legislation in this field, should have an opportunity to examine thoroughly the provisions of such a reorganization affecting a large segment of the economy prior to congressional action. Colloquy between Senator Kennedy, chairman of the Subcommittee on Reorganization, and Senator Sparkman, chairman of the Subcommittee on Housing, during the hearings on Senate Resolution 291, further reflects the sentiment that further study by the appropriate legislative committee is needed. Portions of that colloquy are as follows: Senator KENNEDY. Senator Capehart, in his statement, used the word "drastic," in describing what this change would be. Therefore, it seemed to me appropriate for the Banking and Currency Committee to consider the matter as well as the Subcommittee on Reorganization and I was wondering whether, if the subcommittee did not approve the plan, we could anticipate that next year the Banking and Currency Committee, if there were any impetus on the part of the administration, might give this matter some consideration and make a decision? Senator SPARKMAN. Yes, and certainly, it seems to me that the administration could very well submit a recommendation, a legislative recommendation, relating to this; and of course, we would give it study. I will go further than that, Mr. Chairman, and say that I should be very glad on my own responsibility, to ask the staff of our subcommittee to study this during the adjournment of Congress. PART II. THE FEDERAL HOME LOAN BANK BOARD, ITS FUNCTIONS AND BACKGROUND INTRODUCTION The Federal Home Loan Bank Board, an independent agency of the United States Government, is a bipartisan Board of three members. The basic functions of the Board are (1) to provide, through the medium of 11 district Federal home-loan banks, reserve credit for member savings and home-financing institutions; (2) to direct the operations of the Federal Savings and Loan Insurance Corporation, which protects up to $10,000 the savings of each insured investor in each insured savings and loan association; and (3) to charter and regulate Federal savings and loan associations. ORGANIZATIONAL HISTORY The Federal Home Loan Bank Board, established by an act of Congress approved July 22, 1932, was originally created as an independent five-man Board. On July 1, 1939, by the terms of Reorganization Plan 1, part 4, section 402 (c), the Board was placed under the Federal Loan Agency. The size of the Board remained unchanged. The five-man Board was abolished on February 24, 1942, by the terms of Executive Order 9070, which created the Federal Home Loan Bank Administration under a single Commissioner. The Federal Home Loan Bank Administration by the terms of that order was made one of three constituent agencies of the National Housing Agency. In turn, the Federal Home Loan Bank Administration, together with the National Housing Agency, was abolished and a threemember Home Loan Bank Board was created under the Housing and Home Finance Agency by Reorganization Plan 3 of 1947, effective July 27, 1947. On August 11, 1955, the Board reacquired independent status by the terms of the Housing Act of 1955 and the word "Federal" was restored to its title. In 1956 the President advanced a plan to separate the Federal Savings and Loan Insurance Corporation from the agencies administered under the Board. This proposal was advanced to the Congress as Reorganization Plan 2 of 1956. It was defeated by House Resolution No. 541 on July 5, 1956. THE HOME LOAN BANK SYSTEM Establishment of Federal home-loan banks.-The need for a reserve credit pool to serve the borrowing requirements of savings and homefinancing institutions had been apparent long before the passage of the Federal Home Loan Bank Act in 1932. In fact, an unsuccessful attempt to establish a reserve credit system was made in 1919. At |