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(f) Present supervisory procedures both with respect to FHLBB
and regional banks In general, supervision in the savings and loan system has been as good as or better than other financial systems. There have been variations between districts which need to be corrected, as there are too many instances where an institution in one area is criticized for a practice which has been repeatedly, approved in another area. The Board also has made insufficient use of its present statutory authority to enforce supervisory orders. The law was amended in 1954 to specifically provide for intermediate steps in enforcing supervisory orders.
The Board should review its practices with respect to the examination and supervision of State-chartered associations, particularly with respect to its agreements with the State supervisory authorities, to make certain that examination and supervisory procedures are completely adequate. We understand that substantial progress has been made in this direction in the past 2 years and particularly in the last several months.
As previously indicated, the Federal Savings and Loan Insurance Corporation should receive copies of all examination reports. It is understood that all reports of examinations and all communications with respect to supervision will be supplied promptly to the Insurance Corporation. The Corporation should provide adequate machinery for examination of these reports and supervisory communications and an adequate followup with authority to take supervisory questions direct to the Federal Home Loan Bank Board when such cases require Board action. (g) Coordination of policies by the FHLBB with other govern
mental agencies, including the Treasury and the Federal
Reserve Board Coordination and cooperation between the Bank Board and other Government agencies has showed very marked improvement within the last 2 years since the Congress, by legislation, made the Board an independent agency. All agencies follow the open door policy and all of the incumbent heads have been willing to frankly and cooperatively work toward a common administration policy. The lone exception has been the White House and the Bureau of the Budget in the instance of Reorganization Plan No. 2, which plan was submitted to the Congress without the proper consultation with the Federal Home Loan Bank Board.
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? Any advantages of a separation are far outweighed by the disadvantages. The disadvantages are (1) duplication of Board membership dealing with the same type of functions and problems and a tendency to create entirely parallel staffs including counsel, examination, supervision, statistics, information and other departments and divisions, all of which apparently would result in perhaps a million dollars per annum increased expense, all to be borne by the savers and homeowner borrowers of the country; (2) confusion of regulation, examination and supervision by two agencies working on the same objective, namely, the protection of savers and homeowner borrowers; and (3) the institutions concerned would inevitably find themselves subject to conflicting and confusing regulations, examination and supervision which would necessitate their expenditure of very much more time, effort and money than is involved in the expense referred to above. It is believed that the recommendations being made in this report will greatly improve the situation and will accomplish the broad objectives of Reorganization Plan No. 2. 2. Does the existing identity of management contribute to or detract from
the purpose of protecting deposits? The present system contributes to the protection of savers and investors through the process of chartering, granting of branches, examination, supervision, insurance of accounts, and liquidation. It is just human nature that when the same authority performs all of these functions it will and must consider its complete responsibilities throughout the process. This would not necessarily be true if the agencies were separated, and an opportunity existed to "pass the buck." 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? None. The high level of public confidence in the savings and loan system is abundantly clear from the record growth of savings and loan associations from $10 billion to $40 billion in the last decade and by the constantly increasing proportion of savings of the American people entrusted to these institutions. This confidence has been developed under the present system. 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? None. 5. In considering the relationship between the Board and the Corporation,
of what significance is the $750 million borrowing authority of the
Corporation? At present the Insurance Corporation is entitled to borrow from the United States Treasury $750 million if "required for insurance purposes.". If there were a separate management presumably this borrowing authority would continue. The present system is more likely to operate on its own responsibility and not require Treasury Department support than would be true by separate management as indicated above. The gravest danger to the Insurance Corporation is conflict in connection with liquidations. The greatest protection to the Insurance Corporation is cooperation in mergers, consolidations, and liquidations as may be best for all concerned and this requires the liquidating authority and the Insurance Corporation to cooperate.
6. Does the present indentity of management contribute to or detract from
the Board's ability to encourage local thrift associations? There has been some criticism of the Board for its failure to promote Federal savings and loan associations in rural areas not now adequately served, either through the creation of new associations or the establishment of branches. However, there is no assurance that a separate agency would do any better job in this respect. It is the duty of the Board to provide facilities in areas not adequately served and it is also the duty of the Insurance Corporation to protect savers in the same areas. There is no conflict with respect to these functions and we see no practical purpose to be served by having separate agencies. 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? Our best estimate is that the overall expenses of the Board and the orporation would be increased by 50 percent under separate managements. A major portion of such increase would have to take place promptly, but in the manner of all bureaucracy the increase would continue with two organizations instead of one. 8. In what ways would separate management tend to reduce expenditures
of the Federal Government as a whole in the long run? There would be no possible reduction in Federal expenditures, present or future. On the other hand, Federal expenditures would be greater in dealing with two establishments than in dealing with one. 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? The basic relationship should be continued, with the strengthening and improvement provided by the major reorganization of Board activities as described under question 4.
CITIZENS COMMITTEE FOR THE HOOVER REPORT,
Washington, D. C., October 15, 1956. Mr. JACK CARTER, Subcommittee on Housing, Committee on Banking and Currency,
United States Senate, Washington 25, D. C. DEAR MR. CARTER: Attached are the answers to the questions forwarded to the Citizens Committee for the Hoover Report with your letter of October 5, 1956. Please accept our apologies for the delay in this matter. Very truly yours,
ROBERT L. McCORMICK.
PROPOSED ORGANIZATION AND FUNCTION CHART OF THE FEDERAL HOME LOAN BANK
BOARD AND FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
FEDERAL HOME LOAN BANK SYSTEM
Question 1. State your opinion of the primary purposes of the FHLBB and of the FSLIC under existing law and administration.
Answer. The Federal Home Loan Bank Board was primarily designed to promote the flow of capital into home mortgages. Its activities are primarily promotional and secondly regulatory. The Federal Savings and Loan Insurance Corporation, on the other hand, was created to insure the deposits of savings and loan institutions. Thus its role is primarily a fiduciary one to insure that the assets of the savings and loan institutions are so managed as to protect the interests of depositors.
Question 2. State your opinion of what these primary purposes should be, if in your opinion they should be changed.
Answer. When the FSLIC is combined with the FHLBB, the former can hardly be primarily a fidiciary institution designed to protect the
nterest of depositors. As administered by the Federal Home Loan Bank Board it can tend to become secondary to promoting the flow of capital into the mortgage market through the savings and loan institutions.
Question 3. State your understanding of the present functions and relationships of the FHLBB and the FŠLIC.
Answer. This is largely covered by No. 1 above. The FSLIC is essentially run by the Federal Home Loan Bank Board and not as a trustee of the FSLIC. The headquarters and field organization of the FSLIC is essentially the same as that of the Federal Home Loan Bank Board. The principal regional officer of the Board is an official of a savings and loan institution. As such he is hardly the official most likely to be chosen for administering objectively a corporation designed to insure deposits in the interest of the depositors.
Question 4. Give any recommendations you may have for changing the functions or relationships of the FHLBB and the FSLIC.
Answer. The Commission recommended that the Board of the two agencies be completely separated. Implicit in this is the idea that the operating staffs of the two agencies be separated. Devices for coordination of the two institutions are imperative. The President's reorganization plan provided such devices.
Question 5. State any recommendations you may have with reference to the following activities: (a) Chartering of new Federal associations; (6) establishment of branch offices; (c) formulation and promulgation of regulations, legal opinions, and Board decisions; (d) processing applications for insurance; (e) (1) liaison between the Board and the regional banks; (2) liaison between regional banks and member institutions; (f) present supervisory procedures both with respect to FHLBB and regional banks; (g) coordination of policies by the FHLBB with other governmental agencies, including the Treasury and the Federal Reserve Board.
Answer. The Commission expressed no opinions on the subparagraphs (a) to (g).
DESIRABILITY FOR SEPARATE MANAGEMENT OF FHLBB AND FSLIC
Question 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?