CONTENTS Page Reorganization Plan No. 2 of 1956. Staff memorandum No. 84-2-11SR_ Statement of— Brundage, Percival F., Director; accompanied by William Finan, McAllister, W. W., Chairman, Federal Home Loan Bank Board_ Bubb, Henry A., Chairman, legislative committee, United States Letter to chairman on resolution. General Accounting Office: Audit reports concerning recommendation Kestnbaum, Meyer, Special Assistant to the President: Letter to Lehman, Hon. Herbert H., a United States Senator from the State of Maloney, Joseph F., Hicksville, N. Y.: Statement on resolution... – Morrison, W. Franklin, chairman, legislation committee, National Morse, Hon. Wayne, a United States Senator from the State of Muller, Frank, Jr., chairman, Federal Savings and Loan Advisory 55 III REORGANIZATION PLAN NO. 2 OF 1956 (Providing for the Establishment of the Federal Savings and Loan Insurance Corporation as an Independent Agency of the Federal Government) THURSDAY, JUNE 27, 1956 UNITED STATES SENATE, SUBCOMMITTEE ON REORGANIZATION, OF THE Washington, D. C. The subcommittee met, pursuant to call, at 10:05 a. m., in room P-63, the Capitol Building, Senator John F. Kennedy (chairman of the subcommittee) presiding. Present: Senator John F. Kennedy, Democrat, Massachusetts; Senator Thomas A. Wofford, Democrat, South Carolina; Senator Margaret Chase Smith, Republican, Maine; Senator Norris Cotton, Republican, New Hampshire; Senator Thomas E. Martin, Republican, Iowa. Also present: Walter L. Reynolds, chief clerk; Miles Scull, Jr., professional staff member; Eli E. Nobleman, professional staff member; Mrs. Kathryn M. Keeney, clerical assistant. Senator KENNEDY. The subcommittee will come to order. This hearing has been called upon Senate Resolution 291, which would disapprove Reorganization Plan No. 2 of 1956. Reorganization Plan No. 2 provides for separation of the Federal Savings and Loan Insurance Corporation from the Federal Home Loan Bank Board, of which it is now a part, and for the reestablishment of the Insurance Corporation as a separate, independent agency of the Federal Government, responsible directly to the President. The plan was submitted to the Congress by the President under authority of the Reorganization Act of 1949, as amended, on May 17, 1956. It will become effective at 12:01 a. m., July 16, 1956, unless a resolution of disapproval is approved by an authorized majority, of either the House of Representatives or the Senate. A resolution of disapproval, House Resolution 541, was introduced in the House on June 14, 1956. Senate Resolution 291 was introduced in the Senate on June 18, 1956, by Senator John J. Sparkman, of Alabama, chairman of the Subcommittee on Housing of the Senate Committee on Banking and Currency, for himself and for Senator J. W. Fulbright, of Arkansas, chairman of the Committee on Banking and Currency; and Senator Homer E. Capehart of Indiana, ranking Republican member of the Committee on Banking and Currency. Senator Sparkman will be the first witness this morning. Senators Fulbright and Capehart cannot be present but have prepared statements on plan No. 2 for incorporation in the record, which I understand Senator Sparkman will present. 1 Before you proceed, Senator Sparkman, I would like at this time to insert in the record a copy of Senate Resolution 291, a copy of Reorganization Plan No. 2 of 1956, together with the President's message which accompanied it, and staff memorandum 84-2-11SR, analyzes the issues involved. (The documents referred to follow:) which S. Res. 291, 84th Cong., 2d sess.] RESOLUTION Resolved, That the Senate does not favor the Reorganization Plan Numbered 2 of 1956 transmitted to Congress by the President on May 17, 1956. [H. Doc. 406, 84th Cong., 2d sess.] MESSAGE FROM THE PRESIDENT OF THE UNITED STATES, TRANSMITTING REORGANIZATION PLAN No. 2 of 1956, PURSUANT TO THE REORGANIZATION ACT OF 1949, AS AMENDED To the Congress of the United States: I transmit herewith Reorganization Plan No. 2 of 1956, prepared in accordance with the provisions of the Reorganization Act of 1949, as amended. The reorganization plan is designed to provide the Federal Savings and Loan Insurance Corporation with its own management, independent of the Federal Home Loan Bank Board. This organizational change accords with a recommendation of the second Commission on Organization of the Executive Branch of the Government. The management of the Federal Savings and Loan Insurance Corporation has been merged with and identical to that of the Federal Home Loan Bank System since the Corporation was established in 1934. It may well be that this identity of management was useful during the formative years of the Federal Home Loan Bank System and of the program of the Federal Savings and Loan Insurance Corporation. I am satisfied, however, that the time has come to separate the two agencies. Reorganization Plan No. 2 of 1956 establishes, separate from the Federal Home Loan Bank Board, a new board of trustees of the Federal Savings and Loan Insurance Corporation; vests the management of the Corporation in that board of trustees, and makes appropriate transfers of the functions of the Federal Home Loan Bank Board to the board of trustees and to the Corporation. The present responsibilities of the Federal Home Loan Bank Board are principally (1) supervision and regulation of the 11 home-loan banks established pursuant to the Federal Home Loan Bank Act of July 22, 1932, and of member institutions thereof, (2) chartering, supervision, and regulation of Federal savings and loan associations, under the Home Owners' Loan Act of 1933, and (3), beginning in 1934, management of the Federal Savings and Loan Insurance Corporation, together with related supervision and regulation of insured institutions. The reorganization plan is directed at the third of the foregoing, which is essentially a responsibility for the insurance of individual accounts in institutions of the savings and loan type, including concomitant supervision and regulation of insured institutions. Thus, the Federal Home Loan Bank Board will retain both its original functions relating to home-loan banks and their member institutions, and its functions, under the Home Owners' Loan Act, of chartering, supervision, and regulation of Federal savings and loan associations. The financial soundness of the insurance program of the Federal Savings and Loan Insurance Corporation is of major and increasing interest to the Government. Under the law the Treasury may be called upon to purchase up to $750 million in obligations of the Corporation. The volume of savings insured by the Corporation has increased nearly sixfold in the last 10 years and now stands at approximately $28 billion. In its audit reports submitted to the Congress from time to time the General Accounting Office has questioned the desirability of permitting an agency having the authority to promote and charter Federal savings and loan associations, which are required by law to be insured, also to administer the insurance under writing. The General Accounting Office has stated that experience has shown that the responsibility for those functions are inherently conflicting and has recommended that the Congress consider separating the Federal Savings and Loan Insurance Corporation from the Home Loan Bank Board. The second Commission on Organization of the Executive Branch of the Government, in its report to the Congress on the subject of lending agencies, stated that there should be a clear separation of the management of the two agencies. I am persuaded that separation of the two programs will enhance the quality of the management of the Corporation. It will promote continuing public confidence in the savings and loan insurance program, and will better safeguard the interests of the Corporation and of the Treasury in minimizing the danger of losses arising from the contingent insurance liability. The primary responsibility of the Federal Home Loan Bank Board will continue to be the encouragement of local thrift associations and the maintenance of a stable flow of funds for home financing by its member institutions. The reorganization plan will enhance the Board's ability to perform these functions by relieving it of its present conflicting responsibility for administering Federal insurance of savings and loan associations. Reorganization Plan No. 2 of 1956 provides that the Chairman of the Federal Home Loan Bank Board shall be one of the 3 members of the Board of Trustees of the Federal Savings and Loan Insurance Corporation. That arrangement is considered desirable to foster coordination of the policies of the Corporation and of the Federal Home Loan Bank Board. Moreover, the arrangement corresponds generally to the interrelationship of the Federal Deposit Insurance Corporation, which insures deposits of commercial banks, and the Comptroller of the Currency, who charters and supervises national banks and is a member of the Board of Directors of that Corporation, but does not otherwise control it. Relationships of the Federal Savings and Loan Advisory Council will be affected by the reorganization plan to the extent that the Council will confer with the Corporation, in lieu of the Federal Home Loan Bank Board, on special conditions affecting the Corporation, and also will direct to the Corporation those of the Council's recommendations and requests for information which pertain to the Corporation. The plan does not otherwise affect the Council or the functions of the Federal Home Loan Bank Board with respect to the Council. After investigation I have found and hereby declare that each reorganization included in Reorganization Plan No. 2 of 1956 is necessary to accomplish one or more of the purposes set forth in section 2 (a) of the Reorganization Act of 1949, as amended. I have also found and hereby declare that it is necessary to include in the accompanying reorganization plan, by reason of reorganizations made thereby, provisions for the appointment and compensation of officers as therein provided. The rates of compensation so fixed are those which I have found to prevail in respect of comparable officers in the executive branch of the Government. I believe that the reorganizations made by the Reorganization Plan No. 2 of 1956 will in the long run tend to reduce expenditures of the Government by reason of the more effective protection of the Government's large financial interest in the affairs of the Federal Savings and Loan Insurance Corporation and of the institutions insured by the Corporation. It is not practicable, however, to itemize at this time the reduction in expenditures which it is probable will be brought about by the taking effect of the reorganizations included in the reorganization plan. There will be a modest increase in the overall operating expenses of the Corporation and of the Federal Home Loan Bank Board, which are financed from the receipts of assessments, fees, premiums, and investment income of the Corporation and of the Board, and not from ordinary Government appropriations. The insured institutions, the holders of insured accounts, and the Federal Government all have a vital stake in the insurance program of the Federal Savings and Loan Insurance Corporation. Reorganization Plan No. 2 of 1956 will substantially benefit all of them. I urge the Congress to allow the reorganization plan to become effective. DWIGHT D. EISENHOWER. THE WHITE HOUSE, May 17, 1956. |