Government corporations and departments of the executive branch of the Federal Government which have any bearing upon them. Under the general executive direction of the Federal Home Loan Bank Board, the primary purpose of the Federal Savings and Loan Insurance Corporation is to insure the individual savings accounts of Federal savings and loan associations, as well as the savings accounts in State-chartered associations which are eligible and can meet qualifying standards. In carrying out these functions, the work of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation are both aimed at the objective of making the savings accumulations in these institutions more attractive to the public and savers to assist in building up adequate pools of savings in the communities all over the country to take care of the home financing needs of these communities. 4. Give any recommendations you may have for changing the functions or relationships of the FHLBB and the FSLIC The interrelationships and objectives of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Coproration are identical and the closest integration of the Insurance Corporation with the Board is desirable and necessary. 5. State any recommendations you may have with reference to the following activities: (a) Chartering of new Federal associations There are relatively few areas in the United States where the services of local thrift and home-financing institutions are not available. However, we recognize the fact that there are some communities where such institutions would be or might be desirable. It is our intention to continue to cooperate fully with local groups desiring to establish associations, either Federal or State-chartered, where needed, and we shall endeavor to encourage healthy competition in those localities which have inadequate facilities. However, we must continue to be cautious and deliberate in applying the criteria of community representation, necessity, and probability of success without an unduly adverse effect on existing institutions, and without creating any unusual or undesirable insurance risk for the Insurance Corporation. (b) Establishment of branch offices Branch offices of associations generally provide a needed and desirable facility for the public. We recognize that some areas which need savings and loan facilities cannot support an independent institution. We also recognize the increasing trend toward decentralization of American cities and towns which makes it necessary for businesses of all types to seek, follow, and serve the people. Therefore, under appropriate conditions, we favor authorizations for branch offices to sound, well-managed associations where there is an established necessity, probability of success, and no evidence of an unduly adverse effect on existing institutions of similar types. (c) Formulation and promulgation of regulations, legal opinions, and Board decisions We believe that the Federal Home Loan Bank Board is careful and deliberate in its formulation and promulgation of regulatory changes and amendments. The requirements of the Administrative Procedure Act for notice and public procedure with respect to regulations are followed by the Board. We have no recommendation for any changes with respect to the formulation and promulgation of regulations, legal opinions, and Board decisions relating to the operation of members of the Federal home loan banks and the institutions whose accounts are insured. (d) Processing applications for insurance The officers and directors of the Federal home-loan banks are in close daily contact with savings and loan operations throughout their districts. Therefore, the methods of processing applications for insurance of accounts, which utilize the services of these individuals and require their recommendations, is not only the most economical procedure but also the most adequate from the standpoint of the Insurance Corporation. It provides equal treatment for all applicants, Federal and State chartered. Every opportunity is afforded the Insurance Corporation to base its recommendations to the Federal Home Loan Bank Board on established facts. There is close cooperation between the banks, the Insurance Corporation, and the Federal Home Loan Bank Board in the processing of applications and definite coordination and correlation of supervision in reaching decisions on insurance applications. In our opinion, the processing of applications for insurance and the determination of risk assumption is surrounded by adequate, satisfactory safeguards. It has proven to be so since the inception of the Insurance Corporation 22 years ago. We believe that the criteria for insurance of accounts must be maintained at a high level in order to protect the Insurance Corporation from unreasonable risks. Current criteria are, in our opinion, reasonable and proper. (e) (1) Liaison between the Board and the regional banks We have liaison which includes the Director of Federal home-loan bank operations, the Director of Division of Supervision, the Director of Federal Savings and Loan Operations and the General Manager of the Federal Savings and Loan Insurance Corporation who have almost daily contact with the Federal home-loan bank officers throughout the country. In addition, the bank officers as a group, or individually, have access to the Board members themselves. We have no specific recommendations for improving liaison because it is already good. There is an "open door" policy. (2) Liaison between regional banks and member institutions The banks have continuous liaison with their member institutions through individual field trips, numerous group meetings and State meetings of their members, correspondence, telephone, bulletins, et cetera. We believe that all member institutions have access to the regional bank staffs as at frequent intervals as they wish. Each bank has a majority of its directors elected directly by its members and the entire board of each bank is available for consultation with 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 governmental 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 management 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 Corporation 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 savings 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 Corporation, 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 accomplished? We recommend no change. NATIONAL SAVINGS AND LOAN LEAGUE, Hon. JOHN J. SPARKMAN, 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. |