activities described under question 5, there has been undue delay in reaching decisions. Under the recommendations given under question 4, the Board will be relieved of much of the detail of processing applications for charters of new Federal associations and will have an adequate staff to make the necessary field investigations which relate to the need and the probability of success of the application for a new institution. We believe the aforementioned recommendation will result in more prompt action in this area. Consistent with the intent of Congress in enacting the law to provide savings and loan and home-financing services in all areas of the country, it is recommended that somewhat greater liberality might well be exercised in the granting of charters and branches in the smaller towns and cities and areas not now adequately served, and that perhaps greater restriction should be applied in the areas now adequately served by savings and home-financing institutions. (b) Establishment of branch offices Here again there is adequate protective mechanism to insure that branches are established only under conditions serving the public interest, but weakness in actual practice. The defect in the handling of branch office applications has been that the Board has been unduly slow in reaching decision. This is particularly important because of the fact that State-chartered savings and loan associations in most States can apply for and receive permission to operate a branch even without the necessity of a public hearing, and usually receive a decision on the application for a branch very promptly. In the case of branches of Federal institutions, many institutions have waited month after month for a decision after the entire hearing has been completed. Such delay can be costly and inconvenient as it is frequently necessary to take options on office locations. While it is desirable that a thorough investigation be made, we are convinced that during much of the time that the institution is waiting for the decision the matter is simply gathering dust at the Board and the delay is not due to continuous work, investigation, or consideration of the branch. (c) Formulation and promulgation of regulations, legal opinions, and Board decisions In view of the relatively short and broad statutes governing savings and loan associations, regulations are of unusual importance and the Board has extremely wide authority to issue regulations. There is substantial room for improvement in the formulation and promulgation of regulations, legal opinions, and Board decisions. All too frequently the Board has officially proposed a regulation and has then failed to act on it for many months or even years. This causes a state of confusion in the industry, since the individual institutions have no way of knowing when, if ever, the regulation will be placed in effect officially. To cite an example, a complete revision of the regulation governing allocations to reserves was proposed in 1954. Every 6 months thereafter associations faced the dilemma as to whether to base their reserve allocation on the then existing regulation or on the then proposed regulation. This uncertainty continued for 2 years until finally a substantially different regulation was officially promulgated. At the present date regulations affecting brokers, pension plans, conversions, and loan commitments have been pending for 8 months, neither promulgated nor withdrawn. The Board should either promulgate or withdraw proposed regulations within 6 months. To date the legal opinions and Board decisions have not been generally published or made available for publication. It is recommended that such legal opinions and decisions of general interest to the business concerned should be published or made available for publication. (d) Processing applications for insurance Here again we have a system that is basically satisfactory but is marked by undue delay in decision. Since the applicants are in most cases existing institutions, it should require at the most a few months to pass judgment on the application. There is a second point with respect to applications for insurancewhich merits attention. The Board requires applicants for insurance to agree to provisions which do not apply to associations already insured. Some of these, such as allocations to reserves, relate to the safety and hence appear to be a reasonable exercise of authority. Other conditions, such as the makeup of the board of directors and maintenance of separate offices, do not appear to be related to safety and are of questionable legality. Conditions for insurance of accounts should be alike for all associations. Conditions ought not to be imposed upon applicants which would require commitments on questions which are legally questions. for future boards of directors elected by the members. (e) (1) Liaison between the Board and the regional banks The liaison now appears to be insufficient with the bank officers and the Federal Home Loan Bank Board meeting only 2 or 3 times. a year, even in time of major problems such as the period of tight. credit in the fall of 1955. Furthermore, that tight credit experience demonstrated inadequate communication in that the Bank Board was insufficiently aware of the probable credit requirements of the regional banks. Another liaison defect which now appears to have been corrected was a tendency by the Federal Home Loan Bank Board to issue public statements without giving advance notice to the regional banks. Specifically, recommendations of the league's special committee to study the Federal Home Loan Bank System also relate to the question of improved liaison between the Board and the banks. In this connection the recommendations for a reorganization of the Board noted in the answer to question 4 above might be expected to provide. substantial remedy for difficulties which have existed in this area. (e) (2) Liaison between regional banks and member institutionsIn view of the fact that the Federal Home Loan Bank Board has not always sufficiently informed the regional banks and has not. required regional banks to relay information to member institutions, there have been instances where the member institutions learned of important Federal Home Loan Bank Board developments by reading the newspaper. Some of the institutions properly complained as follows: "As the holder of stock in the bank we are entitled to direct notification of major credit policy decisions without having to read it in the paper." (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 governmental 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 management 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 Corporation 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 accomplished? 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, 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. 84258-56-7 |