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 interest 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 FSLIC.

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; (b) 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?

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 detract 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. (b) 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.

Hon. JOHN SPARKMAN,

TREASURY DEPARTMENT, COMPTROLLER OF THE CURRENCY, Washington, D. C., August 17, 1956.

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 than 1 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 Comptroller. 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,

Hon. JOHN SPARKMAN,
United States Senate,

Washington, August 22, 1956.

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;