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Answer. The primary advantage of the separation is to protect the interest of depositors. This cannot be done so explicitly and clearly by a promotional agency such as the Federal Home Loan Bank Board.

Question 2. Does the existing identity of management contribute to or detràct from the purpose of protecting deposits?

Answer. The answer is that it could detract.

Question 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?

Answer. By separating the boards and managements of the two agencies, the FSLIC would be run by a board and a staff primarily 'interested in discharging its fiduciary obligations to depositors. In this way the depositors could be protected better than when the Federal Savings and Loan Insurance Corporation is run by the Board of the Federal Home Loan Bank System.

Question 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?

Answer. Among the pieces of evidence supporting the need for separation are the following: (a) Subservience

of the FSLIC to the Federal Home Loan Bank System is evidenced by the fact that the Board only meets as the Board of the Federal Home Loan Bank System. It keeps its minutes as such even when discharing the functions of the FSLIC.

(6) The staffs of the two agencies are for practical purposes identical.

(c) The regional directors are officers of local savings and loan institutions. As such they may not take too strong a line in supervising these institutions in the interests of depositors.

(d) The declining ratio between insurance resources and total deposits insured. Question 5. In considering the relationship between the Board and the Corporation, of what significance is the $750 million borrowing authority of the Corporation?

Answer. The borrowing power of the Corporation is designed primarily to protect the interest of depositors and not the interest of those concerned with promoting mortgage money. It is a contingent liability of the Federal Government designed to assist in meeting the obligations to depositors in the case of defaulting institutions.

Question 6. Does the present identity of management contribute to or detract from the Board's ability to encourage local thrift associations?

Answer. There isn't sufficient evidence available to answer this question. The answer would be irrelevant to the major reasons for separation.

Question 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?

Answer. There probably would be some slight increase in administrative costs. Obviously this would be no charge to the taxpayer.

Question 8. In what ways would separate management tend to reduce expenditures of the Federal Government as a whole in the long run?

Answer. By providing more adequate supervision of insured institutions, the likelihood of a demand upon the Treasury for any or all of the $750 million that can be borrowed from it will be reduced. In this way the taxpayers' interests are protected.

Question 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?

Answer. The position of the Commission on Organization of the Executive Branch of the Government is indicated by recommendation No. 4 in its report on lending agencies. This reads as follows:

“That no person be permitted to serve as a member of the Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation at the same time."

The Citizens Committee is interested in any constructive measures that will implement the Commission's recommendations.

TREASURY DEPARTMENT,
COMPTROLLER OF THE CURRENCY,

Washington, D. C., August 17, 1956.
Hon. John SPARKMAN,
Committee on Banking and Currency,

United States Senate, Washington, D. C. MY DEAR SENATOR: This is in reply to your letter of August 14, 1956, in which you ask for detailed information on the relationship between the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

The Comptroller of the Currency supervises national banks and banks operating in the District of Columbia. National bank examiners, under the direction of the Comptroller of the Currency, are required by law to examine every national bank at least twice annually, but the Comptroller may, at his discretion, waive not more tban í examination of a particular bank within a 2-year period. National banks operate under Federal law, with membership in the Federal Reserve System and the Federal Deposit Insurance Corporation mandatory, except national banks located in Alaska or dependency or possession of the United States.

The Board of Directors of the Federal Deposit Insurance Corporation is responsible for the performance and duties and exercises all powers vested in the Corporation. The Comptroller of the Currency is by law 1 of the 3 members of the Board of Directors of the Corporation. In connection with its deposit insurance responsibilities, it has the authority to examine any insured State bank which is not a member of the Federal Reserve System (except a bank in the District of Columbia), a State nonmember bank making application to become an insured bank, and any closed insured bank. It also has like power to make a special examination of any State bank which is a member of the Federal Reserve System and any national bank or District bank whenever in the judgment of the Board of Directors such special examination is necessary to determine the condition of any such bank for insurance purposes. In practice, the Corporation confines its visitorial examinations to insured State banks (other than those in the District of Columbia) which are not members of the Federal Reserve System. The Corporation makes at least one regular examination per year of each of these banks, if possible, although it places greater emphasis upon frequent reexaminations in cases of special need. Reports of examination of national banks prepared by examiners of the Office of the Comptroller of the Currency are made available to the Corporation for review by its Washington office staff.

When an investigation is made in connection with application to organize a new national bank, an examiner of the Federal Deposit Insurance Corporation participates with an examiner from the office of the Comptroller of the Currency. However, the final authority in approving or disapproving the application is vested in the Comptroiler.

Under the law, whenever the Comptroller of the Currency shall appoint a receiver other than a conservator of any insured national bank or insured district bank, he shall appoint the Corporation receiver for such closed bank.

There is no duplication of examinations by the Comptroller of the Currency and the Federal Deposit Insurance Corporation, and in the discharge of their supervisory functions there is a close coordination between the two agencies.

Do not hesitate to call upon us for any further information which you may desire in connection with your study on relationships between the two bank-supervising agencies. Sincerely yours,

L. A. JENNINGS, Deputy Comptroller of the Currency.

FEDERAL DEPOSIT INSURANCE CORPORATION,

Washington, August 22, 1956. Hon. JOHN SPARKMAN, United States Senate,

Washington, D. C. DEAR SENATOR SPARKMAN: This will acknowledge and thank you for your letter of August 14, advising that the Subcommittee on Housing of the Senate Banking and Currency Committee is making a study of the relationship between the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. You state that it has been suggested that the relationship between the FHLBB and the FSLIC should closely parallel the relationship between the Comptroller of the Currency and the Federal Deposit Insurance Corporation, and you request information which may help you evaluate this suggestion.

The Comptroller of the Currency was made a member of the Board of Directors of the FDIC in the original act creating the FDIC, being the Banking Act of 1933 (sec. 12B, Federal Reserve Act; 12 U.S. C. 264; 48 Stat. 168). The Banking Act of 1935, which created the permanent plan of Federal deposit insurance, continued the membership of the Comptroller of the Currency on the Board of Directors of the FDIC and added the following provisions: (a) in the event of a vacancy in the office of the Comptroller of the Currency, and pending the appointment of his successor, or during the absence of the Comptroller from Washington, the Acting Comptroller of the Currency shall be a member of the Board of Directors of the FDIC; and (b) in the event of a vacancy in the office of the Chairman of the Board of Directors of the FDIC, and pending appointment of his successor, the Comptroller of the Currency shall act as Chairman.

Our research, although not exhaustive, does not reveal in the legislative history of Federal deposit insurance the reason for placing the Comptroller of the Currency on the Board of Directors of the FDIC. We are advised that there are no published records of the House or Senate hearings on the Banking Act of 1933; and, although there were extensive hearings by the congressional banking committees on the Banking Act of 1935, we have been unable to find any information therein in this regard. That act continued the membership of the Comptroller of the Currency on the Board of Directors, and there was apparently no issue or controversy in respect thereto.

Although there is no published record of the congressional committees' hearings on the Banking Act of 1933, there is such a record of the hearings in 1932 before the subcommittee of the Committee on Banking and Currency of the House on H. R. (10241) 11362, which was a bill to amend the National Banking Act and the Federal Reserve Act, and to provide a guaranty fund for depositors in banks and for other purposes, which bill, in effect, was the predecessor of the Banking Act of 1933. However, that record is also silent as to the reason for placing the Comptroller of the Currency on the Board of Directors of the FDIC. Title 2 of that bill provided for the creation of a guaranty fund for the protection of depositors in banks. Section 201 of that title provided for the establishment of a Board to be known as the Federal Liquidating Board, to consist of the Secretary of the Treasury, the Comptroller of the Currency, and three members to be appointed by the President, by and with the consent of the Senate. Section 203 of the bill provided that when a bank is found to be insolvent or has been closed by order of the Comptroller of the Currency, the Comptroller of the Currency shall certify the fact to said Board, which Board shall then proceed to take over and wind up the affairs of such bank. The Board was given the same powers and duties as applied to the Comptroller in such cases. This bill is more fully discussed in the attached memorandum of the legislative history of the FDIC, prepared by the Legal Division of this Corporation.

Although the legislative history is silent on the reason for placing the Comptroller of the Currency on the Board of Directors of the FDIC, the fact that the Board was to act as a liquidating board of national banks closed by order of the Comptroller of the Currency may have been a factor considered by the committee in making this requirement. Furthermore, at the time this proposed legislation was considered by the committee, the Secretary of the Treasury and the Comptroller of the Currency were ex officio members of the Federal Reserve Board. (They continued as members of that Board until February 1, 1936 (sec. 241, title 12, U. S. C.). The requirement, that the Comptroller of the Currency be both a member of the Federal Reserve Board and the Board of Directors of the FDIC, may have been for the purpose of coordinating the policies and practices of the three Federal banking agencies.

I trust that this information will be of some assistance to you and your committee. With personal regards, I am, Sincerely yours,

H. E. Cook, Chairman.

DUTIES AND FUNCTIONS OF THE FEDERAL HOME LOAN BANK BOARD

(Supplied by Bureau of the Budget) With respect to Federal home-loan banks

Determines and readjusts limits of Federal home-loan bank districts.

Establishes in a designated city within each district a Federal homeloan bank.

Requires organization certificate of each Federal home-loan bank.
Appoints four directors of each Federal home-loan bank.
Prescribes rules and regulations for election of other bank directors.
May increase number of elective bank directors.
Designates bank chairmen and vice chairmen.
Approves amount of compensation of bank directors.
Approves exercise of corporate powers by each bank.

Approves selection, employment, and compensation of bank personnel, and may suspend or remove such personnel.

Determines, with approval of Secretary of the Treasury, minimum capital of each bank, which shall be not less than $5 million.

Determines price at which capital stock of each bank shall be sold.

May call, in whole or in part, the stock subscriptions made by the Secretary of the Treasury in any bank.

May require stock held by the Secretary of the Treasury in any bank to be paid off at par at any time.

Prescribes rules and regulations under which banks may borrow, give security therefor, pay interest thereon, and issue debentures, bonds, and other obligations.

May issue consolidated bank debentures and bonds.

May require banks to deposit additional collateral and may adjust equities between banks. Prescribes terms under which banks may accept deposits.

May require banks to rediscount the discounted notes of members held by other banks, and to make loans to, or deposits with, other banks.

Regulates investment of surplus assets and reserves of banks.
May require banks to establish additional reserves.
Approves payment of dividends by banks.

Levies semiannual assessment on banks to pay estimated Board expenses.

At least twice annually, examines each bank and requires banks to furnish periodic statements.

May liquidate or reorganize any bank. With respect to members of Federal home-loan banks and nonmember

borrowers Determines whether an otherwise qualified home mortgage loan institution shall be eligible to become a member of, or a nonmember borrower of a Federal home-loan bank on the basis of its financial condition, the character of its management, and its home-financing policy.

Adjusts amount of stock held by each member institution in its bank.

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