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individual member institutions. We have no recommendations as we believe liaison is highly effective. (f) Present supervisory procedures both with respect to FHLBB

and regional bank As a reserve banking system, the Federal home-loan banks have a paramount interest in the safe and sound operations of their members. This is an active and continuing interest paralleling the interest of the Insurance Corporation in the soundness of member institutions. Therefore, it is desirable that the banks' officers should act as agents for the Federal Home Loan Bank Board in its supervisory capacities. The supervisory staff of the Federal Home Loan Bank Board provides adequate coordination to protect the public and the interests and responsibilities of the banks, the Insurance Corporation, and the Federal Home Loan Bank Board. (g) Coordination of policies by the FHLBB with other govern

mental agencies, including the Treasury and the Federal

Reserve Board The Federal Home Loan Bank Board has developed and is strengthening contacts with other agencies of the Government having to do with monetary policies and housing matters which involve the Treasury, Federal Reserve System, Council of Economic Advisers, Housing and Home Finance Agency, Veterans' Administration, Federal National Mortgage Association, and Federal Housing Administration. It is the practice of the Board and the banks to supply all interested agencies with statistics and details of bank and member operations. QUESTIONS RELATING SPECIFICALLY TO THE DESIRABILITY FOR

SEPARATE MANAGEMENT OF FHLBB AND FSLIC 1. What are the advantages and disadvantages of creating separate man

agement for the Federal Home Loan Bank Board and the Federal

Savings and Loan Insurance Corporation? Inasmuch as the objectives of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation are so nearly identical and intertwined, we see no advantage to a separation of the management of these two organizations. We see many disadvantages arising from a separation including duplication of personnel, increasing costs, possible conflicts in regulations and a need for multiplicity of liaison between two organizations working in the same field. Separation would result in confusion on the part of the member institutions and the general public. The record of 22 years of successful operation on the present basis justifies its continuance. 2. Does the existing identity of management contribute to or detract from

the purpose of protecting deposits? We believe for the reasons set out in No. 1 that the existing identity of management immeasurably contributes to the purpose of protecting the insured savings accounts of the general public. It might well be noted that the Federal Home Loan Bank Board's respect for soundness of member institutions transcends that of any other consideration. The intelligent use of reserve credit for insured institutions aids in the protection of insurance of accounts.

3. In what ways would separate management of the Board and the Cor

poration promote public confidence in the savings and loan insurance program, or safeguard the interests of the Corporation and of

the Treasury? Public confidence is based upon performance. There has been 22 years of successful performance under the present procedures and we believe the interests of the Insurance Corporation and of the Treasury are being properly and adequately safeguarded. -4. What evidence can be cited to illustrate the contention that the existing

identity of management is less desirable at the present time than it

has been since the creation of the Insurance Corporation? We can cite no evidence to illustrate the contention that the existing identity of management is less desirable. On the contrary, in a recent case the president of a district bank, acting on behalf of the Federal Home Loan Bank Board, the Insurance Corporation, and all interested parties, was able to effect a sale of the assets of an impaired institution to another local insured institution without loss of ngs or dividends to the association's members, and with only a small potential loss to the Insurance Corporation. These results were accomplished without interruption of public confidence and without delay. It is doubtful whether the settlement could have been effected without adverse public reaction or whether the public interest could have been served as well in the settlement of this case under any organizational plan which fails to give the Federal Home Loan Bank Board supervisory authority and direction of the Insurance Corporation. 5. In considering the relationship between the Board and the Corporation,

of what significance is the $750 million borrowing authority of the

Corporation? We can see no reason to believe that members of the Federal Home Loan Bank Board, appointed by the President of the United States and approved by the Senate, would have any less integrity or any less desire to protect all of the public interest involved than if other individuals were appointed as trustees of the Insurance Corporation.

The integration of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation makes possible the best use of credit, as provided by the bank system, prior to the use of the borrowing authority of the Insurance Corporation for whatever purpose in the judgment of the Board may be required. 6. Does the present identity of management contribute to or detract from

the Board's ability to encourage local thrift associations? The objective of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation is to maintain the operation of sound thrift and home-financing institutions in the public interest. The present identity of management does not detract but contributes to the Board's ability to encourage local thrift associations. This was one of the reasons why the vast majority of the savings and loan associations were opposed to Reorganization Plan No. 2.

7. What are your best estimates of changes in operating expenses which

would result from separate management of the Board and the Corpo

ration, both long-range and short-term changes? We are not in a position to render an accurate estimate as to such changes in operating expenses which would result from separate management of the Board and the Corporation. The Federal Home Loan Bank Board is in much better position to do this. While we consider increased expenses as one of the valid reasons against the proposed separation of management, it is, in our opinion, by no means the most compelling one. 8. In what ways would separate management tend to reduce expenditures

of the Federal Government as a whole in the long run? We see no reason to believe that the operation of the Insurance Corporation by a separate board of trustees would safeguard the public interest any better than the present system. 9. If it is your conclusion, based upon your answers to the foregoing and

any other considerations, that some change should be made in the relationship between the FHLBB and the FSLIC, what are your recommendations for change and how may such change be accom

plished? We recommend no change.

NATIONAL SAVINGS AND LOAN LEAGUE,

Washington, D. C., October 24, 1956. Hon. JOHN J. SPARKMAN, United States Senate,

Washington, D. C. DEAR JOHN: In conformity with your letter of request of August 14, 1956, and in the light of personal discussions which we have had prior to and subsequent to your letter, and in conformance with the lengthy discussions I have had with the staff director of the subcommittee, Mr. Jack Carter, I am happy to enclose the official views of the National Savings and Loan League. We have followed the outline of the questions submitted to us with answers listed for each.

However, in order that you may be fully informed about our views on related matters not specifically mentioned in your questions, I am also enclosing a copy of the latest report of our Federal home-loan bank system committee which was accepted at our board of governors meeting in New York, October 15, 1956, for submission to the members. We were happy to have Mr. Carter present at that meeting to hear the discussion and to talk with us subsequently about the various features of that report.

I respectfully draw attention to the outstanding record of the savings and loan industry in providing the largest single part of the home financing for America's homes. This is a vigorous, fast-growing industry but within the limits permitted by Congress and the Government, it has given a good account of itself in fulfilling its obligations. The crux of any discussion of future legislative action, it seems to me, is whether savings and loan associations should be given those additional business tools with which to do an even wider and more thorough job. Our view is that they should, and we welcome an opportunity to participate in studies or hearings on the subject.

It is timely, I believe, to emphasize also the generally excellent operating and supervisory situation within the industry. It is our carefully considered opinion that supervision has never been better; in fact, it has been excellent and the soundness of industry is a tribute to it. We have suggested certain improvements which we believe will enable supervision to take an even higher status with the highest type additional personnel.

Sometime later I would very much like to have the opportunity of sitting down with you to discuss possible further legislative proposals in the light of that report. Sincerely yours,

HAROLD P. BRAMAN,

Ececutive Manager.

REPLIES TO THE QUESTIONS BY THE NATIONAL SAVINGS AND

LOAN LEAGUE

QUESTIONS RELATING TO THE FEDERAL HOME LOAN BANK SYSTEM IN

GENERAL

1. State your opinion of the primary purposes of the FHLBB and of the

FSLIC under existing law and administration The primary purposes of the Federal Home Loan Bank System are to provide a permanent reservoir of credit from which home-financing institutions could (a) provide a continuous and steady flow of funds into the home-construction field and (b) meet the emergency withdrawal needs of member institutions. In our judgment the above statement of functions clearly reflects the thinking of Congress and the administration when the System was established.

Both the House and Senate Banking and Currency Committees said, in reporting the bill: "It is the purpose of this home-loan bank will, with its system of not less than 8 nor more than 12 banks, located in different parts of the country, to function as a reserve system supplying short-time and long-time funds to these institutions” (S. Rept. 837, H. Rept. 1418, 72d Cong., 1st sess.).

During the hearings on the home-loan bank bill, both Banking Committees of Congress were faced with the specific objections "(4) that the bill will encourage unhealthy home building” and “(5) that the bonds of these banks cannot be sold.” To the first of these objections the committee said, “This statement is wholly unwarranted. There is nothing in the hearings in this bill to substantiate any such a claim. Sound, conservative home-financing institutions are not going to finance a home-building boom to the detriment of investments already made which they hold.” And to the second, "If the bonds issued by these Federal home-loan banks cannot be sold, no bonds can be sold. These securities will represent prime securities.”

In the opinion of the National Savings and Loan League the crucial issue is whether the Federal Home Loan Bank System is to function as it was intended to function. We disagree with those who say home lending is to be limited by net over-the-counter savings inflow.

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION The primary purpose of the Federal Savings and Loan Insurance Corporation is to encourage savings and homeownership by insuring accounts placed in savings and loan associations. 2. State your opinion of what these primary purposes should be if in

your opinion they should be changed If our understanding of the basic purposes of the Federal Home Loan Bank System is the correct one, we have no recommendations except those designed to implement the two primary functions. These recommendations will be placed under questions where appropriate and the balance appended to the questions. 3. State your understanding of the present functions and relationships

of the FHLBB and the FSLIC The Federal Home Loan Bank System is a 3-part organization created under 3 separate acts: (a) Federal Home Loan Bank Ack of 1932, (6) Home Owners Loan Act of 1933 and, (c) National Housing Act of 1934.

The Federal Home Loan Bank Board administers directly the responsibilities imposed by the first two acts and furnishes executive direction for the Federal Savings and Loan Insurance Corporation which was created by the National Housing Act of 1934. 4. Give any recommendations you may have for changing the functions

or relationships of the FHLBB and the FSLIC The reserve functions of the Federal Home Loan Bank Board under the Federal Home Loan Bank Act, the supervisory functions under the Home Owners Loan Act, and the insuring functions under the National Housing Act should be kept separate and distinct in their administration by the Federal Home Loan Bank Board but for the purpose of economy and centralization of Government agencies should be retained under the administrative control of the Federal Home Loan Bank Board. There should be a division of assignments so that. supervision, insurance, etc., would be handled separately from the overall Board operation. Supervision and insuring functions should be removed within a reasonable time from the regional Federal homeloan banks and placed under direct control of the Federal Home Loan Bank Board in Washington with adequate provision to the supervising officer for compensation commensurate with his duties and responsibilities. 5. State any recommendations you may have with reference to the following:

activities

(a) Chartering of new Federal associations Section 5 (e) of the Home Owners Loan Act of 1933 provides: "No charter shall be granted except to persons of good character and responsibility, nor unless in the judgment of the Board a necessity exists for such an institution in the community to be served, nor unless there is a reasonable probability of its usefulness and success, nor unless the same can be established without undue injury to properly conducted existing local thrift and home-financing institutions."

The National Savings and Loan League believes this statutory language establishes sufficient criteria to insure continued chartering of new associations wherever the need exists. However, we would

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