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, 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, (b) 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 make one observation which is applicable not only to part A but to parts B, C, and D of question 5 as well. During the postwar period the savings and loan industry has expanded from a $10 billion to a $40 billion business. During the same period the number of Board employees has actually decreased. Lack of sufficient personnel results in much delay in processing applications for charters, branches, and insurance of accounts. We believe this delay could be materially decreased by the adoption by the Congress of a more realistic budget. The necessary funds would not be appropriated from tax moneys but would come from members of the Federal Home Loan Bank System. (b) Establishment of branch offices The National Savings and Loan League recommends that no statutory changes be made with respect to the establishment of branch. offices by Federal savings and loan associations. (c) Formulation and promulgation of regulations, legal opinions, and Board decisions With respect to the question of regulations, the National Savings and Loan League believes they should be limited to those necessary for the safety and soundness of the savings and loan business. As is the case with banks, savings and loan associations are chartered both by the State and the Federal Governments. We believe in the preservation of this dual system. The imposition of regulations on insured State-chartered associations, which are not necessary for the protection of the Insurance Corporation, impairs the dual system. The promulgation of legal opinions and Board decisions would be of great assistance to the effective operations of the savings and loan business. (d) Processing applications for insurance Restrictions imposed upon an applicant for insurance of accounts should be limited to those necessary for the protection of the Insurance Corporation. (e) (1) Liaison between the Board and the regional banks (2) Liaison between regional banks and member institutions The National Savings and Loan League has no specific recommendations on this part. (f) Present supervisory procedures both with respect to FHLBB and regional banks See comments under question No. 4. (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 is an important segment of the economy of the country; it should be represented on any intraagency councils or other similar bodies dealing with financial, monetary, or housing problems of the country. The Federal Home Loan Bank Board should be afforded the opportunity for formal liaison with the Treasury Department, the Council of Economic Advisers, and such other Federal agencies whose decisions may have an impact upon the operations of the Federal Savings and Loan System. 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? 2. Does the existing identity of management contribute to or detract from the purpose of protecting deposits? 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? 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? 5. In considering the relationship between the Board and the Corporation, of what significance is the $750 million borrowing authority of the Corporation? 6. Does the present identity of management contribute to or detract from the Board's ability to encourage local thrift associations? 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? 8. In what ways would separate management tend to reduce expenditures of the Federal Government as a whole in the long run? 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? (For National League current policy statements related to the above question, see question No. 4 relating to FHLB System in general. The National League, after its present study, may have further recommendations.) NATIONAL SAVINGS AND LOAN LEAGUE REPORT OF FEDERAL HOME LOAN BANK SYSTEM COMMITTEE ACCEPTED BY THE BOARD OF GOVERNORS OF THE LEAGUE, OCTOBER 15, 1956 The Federal Home Loan Bank System was originally conceived and considered as early as 1918 because of an apparent lack in adequate home-financing facilities throughout the Nation. This need was considered by Congress from time to time until the presentation of a bill before the 72d Congress. At this time, after exhaustive public hearings, the Federal Home Loan Bank System was created and brought into being. A careful study of the basic acts underlying the Federal Home Loan Bank System and its affiliated operations leads to the conclusion that the foundation has been laid for an effective system to supply the home financing needs of the country. For an analysis of the intent of Congress in creating this System, excerpts from a report made by Senator Watson in 1932 are useful and in many instances applicable today (see Sen. Rept. No. 837, 72d Cong., 1st sess., June 16, 1932). On the point of the need for higher percentage financing with the elimination of second mortgages and on the point of supplying funds in sparse areas from plentiful areas, note the following excerpt from this report: "The supply of capital for financing home owning and home building has never been sufficiently adequate to result in low cost of funds or a sufficiently liberal loan to eliminate the costly second mortgage, land contract, and other junior financing. It has been plentiful in some portions of the country, but scarce and costly in others, particularly in the South, Middle West, and West." On the point that the reserve system was intended to supply shortterm and long-term funds, note the following excerpt from this report: "The building and loan associations, cooperative banks, homestead associations, 11747 in number, together with savings banks, trust companies and other banks, and some insurance companies, have engaged in the home financing field. These institutions have never had a place to go for emergency accommodations or for long-time funds. It is the purpose of this home loan bank bill, 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." On the point that funds are to be used to provide expansion, note the following excerpt: "The Home Loan Bank System would provide a reserve agency whereby these institutions can raise funds upon their seasoned home mortgage loans. These funds will be used for several purposes: "1. To refinance existing mortgages so as to permit smaller payments and to accommodate the needs of withdrawing members and depositors. * * * "4. To provide funds for modernization, repairs, and maintenance of existing homes, thus increasing employment. *** "6. For such building of small homes as may be desired and needed in many localities, thus giving employment to those engaged in the building trades." On the organization of these banks and their joint and several liability on obligations, note the following: "All members may borrow from the Federal home-loan bank by placing mortgages with the bank to secure loans. * * * The banks cannot advance to any member an amount in excess of 12 times the amount of the capital subscribed by the member. The bonds issued by each bank are secured by seasoned real estate home mortgages, with not less than 190 percent of unpaid mortgage principal behind each dollar of bond issues. Some short-time loans out of capital subscribed by members are permitted without mortgages being placed as collateral, but funds realized from bond issues cannot be so loaned. *** "The banks are jointly and severally liable on the bonds and in order to keep the banks in proper condition to serve their membership, they are required to have an amount equal to the capital subscriptions of their members invested in (1) United States Government securities; (2) deposits in banks or trust companies; and (3) short-term loans to members. * * * "Broad powers are given to the Federal Home Loan Bank Board in regulating the activities of the banks and in providing for the orderly |