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the nature and operations of the insured savings and loan associations, approximately one-half of which are federally chartered.

Because of the broad regulatory authority given the Board with respect to the operation of Federals and the Insurance Corporation with respect to the operation of all insured institutions, there is the possibility of substantially more conflict arising between the Board in dealing with Federals and the Insurance Corporation in dealing with insured institutions than between the Comptroller of the Currency in dealing with national banks and the Federal Deposit Insurance Čorporation in dealing with insured banks.

The Board must hold hearings on any proposed new or changed regulation materially affecting the operations of Federal associations. After all witnesses have been heard, the Board must then render judgment as to final promulgation or abandonment of the proposal.

Federal associations are examined by the Board through its examining division staff to ascertain their financial condition and to guard their adherence to statutory and administrative laws. The examination schedule for each institution is every 12 to 15 months, depending largely on the budget allowance.

The Board also administers the laws and regulations with regard to conservatorships and receiverships or other disciplinary steps which conditions may call on it to take as supervisor and guardian of the public's interest in the federally chartered associations.

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION

The third permanent responsibility for the Federal Home Loan Bank Board was created in 1934. This was the Federal Savings and Loan Insurance Corporation, a Government corporation, whose principal function is to insure the accounts in savings and loan associations against loss to the account holder. The maximum amount of $10,000 is insured for each investor.

Normal activities of the Corporation include processing the applications for insurance of accounts which are received from savings and loan institutions not yet insured. Inasmuch as the great majority of savings and loan institutions operate under State charter and insurance of accounts is optional with these State-chartered associations, there remains a considerable field from which new applicants for insurance can come and do come annually.

The Federal Savings and Loan Insurance Corporation makes rules and regulations relating to the practices of insured institutions. Thus another function of the Corporation is the analysis and evaluation of applications pursuant to these regulations.

For the safeguarding of the sound management of insured savings and loan associations, the Federal Savings and Loan Insurance Corporation from time to time adopts regulations to which all insured associations must adhere in their conduct of their everyday affairs. The members of the Federal Home Loan Bank Board as trustees of the Federal Savings and Loan Insurance Corporation make these decisions as to regulations proposed for insured associations after receiving the views of all interested parties.

A routine function of the Federal Savings and Loan Insurance Corporation is the billing and collecting of the annual insurance

premiums which insured associations pay at the rate of one-twelfth of 1 percent of their insured liabilities as set by statute.

The Corporation has the function of investing the surplus, all of which goes into Government securities. It is required to retire annually a part of the capital stock, paying back to the Federal Treasury in the annual rate of one-half of net earnings for the fiscal year. The Corporation's financial functions include also paying annually a return on its remaining capital stock at a rate determined by the Secretary of the Treasury.

The Corporation also has an insurance settlement function. It pays insurance to the investors in defaulted institutions through 1 of the 2 methods permitted by the law. It may either arrange for the investors to have an account of like amount in another insured savings and loan association, or pay the investors in cash. In either case, the Corporation has the responsibility of salvaging from the assets of the defunct insured association all possible amounts to be applied against the cost of paying out the insurance. In 1 case, the Corporation purchased the assets of a defaulted association and liquidated them; in 7 cases, it placed the institution in liquidation and paid the insurance; mergers have been arranged in other cases.

Rehabilitation of insured institutions where the trouble is not irreparable is also a function of the Corporaton. In 28 cases, cash grants have been made by the Corporation to prevent default; these cases include instances where a merger of a defaulted institution with a sound one was deemed the best solution.

A statistical function of the Corporation provides a current analysis of the financial condition of insured associations, the data as to inflow of money and the volume of mortgage lending.

GENERAL FUNCTIONS OF THE FEDERAL HOME LOAN BANK BOARD IN THE EXECUTIVE DEPARTMENT

The Federal Home Loan Bank Board initiates from time to time legislative proposals affecting all three of the activities over which it has general supervision. All legislative contacts with the Bureau of the Budget to obtain administration approval for proposed changes in the statutes governing the Federal home-loan banks, the Federal savings and loan associations, and the Federal Savings and Loan Insurance Corporation are made by the Board.

The Board is called on to coordinate the financial policy for which it is responsible in the savings and loan institutions with the policies of other Government agencies and departments. Careful coordination and frequent conference with the Treasury Department, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Council of Economic Advisers of the President are a part of its duties.

The Board has a corollary function to its supervision of Federal savings and loan associations where non-Federal members of the Federal Home Loan Bank System are not under a State supervisory department. The principal jurisdiction of non-Federal associations where the Board is the supervisory authority is the District of Columbia.

4. Give any recommendations you may have for changing the functions or relationship of the FHLBB and the FSLIC

The United States Savings and Loan League recommends the reorganization of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation, as shown on the attached chart and as described below. This proposal represents a substantial change, improvement and strengthening in the internal organization of the Federal Home Loan Bank Board. Basically it calls for four separate divisions, each headed by a strong executive with the title of governor, reporting directly to the Board. Such arrangement would immeasurably strengthen the administrative work of the Board as well as free the three members of the Board for policy decisions. The Board would retain its ultimate authority and would prescribe rules for the conduct of these divisions, but would be freed of the daily administration of these activities.

The four divisions would be

1. Supervision and examination, which would have a section of examination to make examinations and, if necessary, audits, as frequently as may be required and report all of the facts to the governor of the division. It would have a section of supervision with regional supervisers and necessary assistants in the field to enforce the law and regulations and to make the necessary investigations in connection with applications. A copy of all examinations and all supervisory reports should be furnished to the Insurance Corporation.

2. Federal Savings and Loan Insurance Corporation: The Governor of the Federal Savings and Loan Insurance Corporation would be the chief executive officer of the Corporation under the Board with responsibility for the determination as to applications for insurance of accounts, underwriting, rehabilitation and handling of defaulted institutions and fiscal duties of the Corporation. The Governor of the Insurance Corporation should receive copies of all examination reports and all supervisory communications. The Governor, as the chief executive officer, would be authorized to take any action that may be necessary in connection with an insured institution subject, of course, to policies as determined by the Board. In connection with policies and decisions affecting the Insurance Corporation the Board should maintain separate minutes and shall act specifically as the trustees of the Insurance Corporation.

3. Federal Savings and Loan System: This department would administer the Federal Savings and Loan System and would conduct hearings and investigations relative to the chartering of new Federal associations and establishment of branch offices and other hearings involving Federal associations. The decision of the Governor of this division would be presented to the Board when Board action is required.

4. Federal Home Loan Bank System: The head of this division would be responsible for the administration for the Board of the Federal Home Loan Bank System, including supervision of the 11 regional banks, issuance of obligations, and development of policy for Board decision and the carrying out of such Board policies.

This four-division arrangement, particularly with the Federal Savings and Loan Division having responsibility for the chartering of Federal associations, and a separate division, the Insurance Corporation, having responsibility for underwriting and processing insurance claims, provides under the Federal Home Loan Bank Board an organizational structure typical of an insurance company which has its sales division on the one hand and the underwriting division on the other hand, both reporting to the same Board-in an insurance company the board of directors or trustees-and in this case the Federal Home Loan Bank Board. This, in our opinion, substantially accomplishes the objective stated in President Eisenhower's Reorganization Plan No. 2 of separating the "promotion of savings and loan associations" from the "underwriting of risk," but provides, in our opinion, a more practical means of coordination than provided in Reorganization Plan No. 2. It should be noted in this connection that the objectives of the Bank Board and the Insurance Corporation, namely, to enable savings and loan associations to make their maximum contribution to their communities and the national economy, are the same, and therefore it is logical that the various functions now performed by the Board be maintained under the single Board.

In addition to the four executive divisions as outlined above, there would be five or more service departments as follows: (1) legal department; (2) controllers department; (3) auditing department; (4) economics division, which includes statistical and research; and (5) office of information.

In dealing with the savings of about 15 million people and $40 billion, a chief concern of the Board must be with high-grade executive personnel. For this reason the governors' positions mentioned above should be established by law and salaries of $20,000 per annum should be provided.

An earlier report of the United States League set forth a broad program for the improvement and enlargement of the Federal Home Loan Bank System, particularly as a source of additional home financing credit to the Nation. Insofar as this report is translated into actual being, the Federal home-loan bank presidents will have greatly enlarged responsibilities in the credit and banking field. This suggests that they may be unable to continue satisfactorily their present duty as regional supervisory agent for the Federal Home Loan Bank Board. Accordingly, serious consideration should be given now to the development and training of regional supervisors and assistants who can at some later date assume the responsibilities of supervisory representative for the Board in the various bank districts. These men, when trained and employed, would be employed by the Board and report to the governor of the supervision division.

It should be noted that in the examination and supervision of State bank members of the Federal Reserve System the Federal Reserve Board uses officers of the various Federal Reserve banks as its supervisors. The Home Loan Bank Board has followed a similar practice which, as in the commercial banking field, has been in general, satisfactory. The United States League feels, however, that the time will come when it will be preferable to have district supervisors independent of the Federal home-loan banks but that such district supervisors should not be used until an adequate force of men trained and able to assume positions of responsibility are available, and unless

these positions can command salaries adequate to assure the retention of men of good judgment and experience comparable to that of the present bank presidents.

With high-grade executive direction under it, the Board will be relieved of much of the present detail and will have an opportunity to meet regularly and promptly to decide the legislative, judicial, and executive questions which it must consider.

5. State any recommendations you may have with reference to the following activities

With respect to the 7 areas indicated under question 5, aside from the question of the relationship of the FSLIC with the Federal Home Loan Bank Board, there is substantial room for improvement in the manner in which a number of the Board's activities are carried on by the Board.

One basic problem is that of personnel. The savings and loan business has grown from $10 billion to $40 billion in the last 10 years. It should be obvious that the task of adequately supervising the rapidly expanding $40 billion business is substantially greater than that of dealing with a $10 billion business. Yet, during that period the number of employees of the Board had dropped from 167 to 164. To put it another way, the number of Federal Home Loan Bank Board employees per billion dollars of assets had dropped from 16 to 4.

Obviously the inadequacy of personnel stems primarily from an inadequate budget. The budget problem is a twofold one. In the first place, the Federal Home Loan Bank Board has for a number of years prided itself on presenting a tight budget. While there is always justifiable pride in economy, it appears at least in hindsight that this attitude was overdone. In the second place, as with all Government agencies the tendency of the Bureau of the Budget and the Congress is to base each budget on the previous year's budget, with only minor adjustments. At no time has the Board presented, nor the Budget Bureau requested, a true budget; that is, a budget based on actual needs rather than mere adjustment of previous budgets.

Specifically, we recommend that the Board present a fresh or true budget which will provide adequate personnel and expense to enable the Board to efficiently and effectively carry out its functions. In this respect, a recommendation or statement of policy by the Senate Banking Committee as to the need for such enlarged budget would be extremely helpful.

The enlarged budget should provide for 4 divisions, each with an experienced and able executive head as outlined in the answer to question 4 above, as well as a substantially enlarged legal department and an enlarged supervisory and examination force. It is recommended in another United States League study dealing with the Federal Home Loan Bank System that provision be made in the budget for the establishment of a division of economics which would include a greatly enlarged statistical and research department.

(a) Chartering of new Federal associations

The Board appears to have established a reasonable balance in the chartering of new Federal associations in most instances; neither unduly encouraging the formation of new associations, nor placing any undue restraint on their establishment. However, as in most of these

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