In his audit of the Federal Savings and Loan Insurance Corporation for the year ending June 30, 1954-submitted on October 10, 1955, 84th Congress, House Document 276-the Comptroller General pointed out that the present premiums paid by insured building and loan associations are one-twelfth of 1 percent per annum of the total amount of all accounts plus creditor obligations. When Congress in 1950 reduced the amount from one-eighth of 1 percent to one-twelfth of 1 percent per annum it was the intention of Congress that net earnings of the Corporation should be accumulated in a reserve fund until they equaled 5 percent of all insured accounts. In addition the Federal Savings and Loan Insurance Corporation can levy a further charge on members to cover administrative costs and losses of not more than one-eighth of 1 percent annually. This has never been levied.

The Comptroller General presented in his report a table showing the ratio of insured liabilities of associations to the reserve of the FS&LIC. This table showed that the ratio had declined from 0.88 percent in 1949, the year the reassessments were reduced, to 0.65 percent in 1954. After presenting this table showing this reduction, the Comptroller General went on to observe:

The above table shows the continuous increase in the insured liability of all associations. It also shows the relatively small amount of the insurance-fund reserve in relation to the insured liability of over $22 billion. The ratio of the reserve to the insured liability has decreased every year since the insurance premium rate was reduced one-third effective July 1, 1949. If the insurancefund reserve of 5 percent referred to in the National Housing Act is ever to be accumulated, it appears that the insurance premium rate will have to be increased.

It is significant to note that, in the case of the Federal Deposit Insurance Corporation, which performs a similar function for banks, the ratio of reserves to insured liabilities was about 1.3 percent as compared to 0.65 percent for the Federal Savings and Loan Insurance Corporation.

Accompanying me is Dr. Harold W. Metz, research director of the citizens committee, who is available in case the committee should have questions on the technicalities of this matter.

Senator KENNEDY. As I understand it, it is the opinion of the citizens committee that this reorganization plan would implement one of the Hoover Commission recommendations?

Dr. METZ. That it is in accord with the recommendation, sir.

Senator KENNEDY. Even though it may go against another one of the recommendations of the Hoover Commission that deals with limitation on establishment of additional independent agencies reporting directly to the President?

Dr. METZ. I doubt whether there was a conflict that the Commission thought of in those two recommendations, because the recommendations about agencies reporting to the President was to cover those not in the departments, and did not, I believe, Senator, preclude the creation of other ones that might not be in that category.

Senator KENNEDY. It has been suggested by Senator Sparkman that it might be well that, rather than consider this complicated issue as a reorganization plan, it would be better if it were considered by legislative committees in the normal process, which might be done next year. Would you have an opinion on that?

Dr. METZ. We have no opinion as to whether it should have been done by legislation or by reorganization plan, because, Senator, the Commission expressed no opinion on how it should be done.

Senator KENNEDY. It would not be in conflict with such a course of procedure?

Dr. METZ. We would be very glad to see it done with dispatch, but neither the Commission nor the citizens committee have expressed any opinion as to which is the way that it must be done.

Senator KENNEDY. Thank you very much.

Our next witness is Mr. Henry A. Bubb, of the United States Savings and Loan League.

Mr. Bubb is accompanied by Mr. Horace Russell, general counsel, and Mr. Stephen Slipher, manager.

Would you care to summarize your statement? We would be glad to place it in the record at this time, if you would like to summarize it.

STATEMENT OF HENRY A. BUBB, CHAIRMAN, LEGISLATIVE COMMITTEE; ACCOMPANIED BY HORACE RUSSELL, GENERAL COUNSEL; AND STEPHEN SLIPHER, MANAGER, WASHINGTON OFFICE; UNITED STATES SAVINGS AND LOAN LEAGUE

Mr. BUBв. I appreciate that very much, Mr. Chairman. (The statement of Mr. Bubb is as follows:)

STATEMENT OF HENRY A. BUBB, CHAIRMAN, LEGISLATIVE COMMITTEE, UNITED STATES SAVINGS & LOAN LEAGUE

I am Henry A. Bubb, of Topeka, Kans., and I appear here today as chairman of the legislative committee of the United States Savings & Loan League. I am also president of the Capitol Federal Savings & Loan Association of Topeka, and a past president of the league.

I have with me today Mr. Horace Russell of Chicago general counsel of the league, and Mr. Stephen Slipher, manager of the league's Washington office. Mr. Russell will present a part of the league's testimony. Also in the room are a number of other officers and member of the United States Savings & Loan League; their presence here today is indicative of the interest in this question,

To identify our organization let me say that the United States Savings & Loan League, founded in 1892 has in its membership 4,300 savings and loan associations, building and loan associations, and co-operative banks, representing approximately 90 percent of the Nation's savings and loan assets. These member institutions are both federally chartered and State chartered and are located in every State of the Union.

The United States Savings & Loan League supports S. Res. 291 by Senators Sparkman, Fulbright, and Capehart and is opposed to Reorganization Plan No. 2. Seldom have our people been so disturbed by any legislative proposal. From all over the country we have protests to Reorganization Plan No. 2 and petitions to do everything within our power to see that the plan does not go into effect. I might cite just a few of the organizations which have already officially stated their opposition to the plan: The Federal Savings & Loan Advisory Council, Arkansas Savings & Loan League, California Savings & Loan League, Savings & Loan League of Connecticut, Kansas Savings & Loan League, Kentucky Savings & Loan League, Missouri Savings & Loan League, Nebraska League of Savings & Loan Associations, Metropolitan League of Savings Associations of New York City, North Carolina Savings & Loan League, Oklahoma Savings & Loan League, Oregon Savings & Loan League, the board of directors of the Federal Home Loan Bank of Greensboro, and the Pacific Northwest Conference of Savings & Loan Associations which includes the States of Montana, Washington, Oregon, Idaho, and Utah. This list is growing daily.

It is abundantly clear that the savings and loan business is opposed to Reorganization Plan No. 2 and that the plan was not proposed in response to any

suggestion or request from the industry. Indeed, there was no consultation with the industry prior to the submission of the plan to Congress.

Under the present organizational structure of the Federal Home Loan Bank Board the Board has jurisdiction over the Federal Savings and Loan_System, the Federal Home Loan Bank System, and the Federal Savings and Loan Insurance Corporation. The Federal Home Loan Bank System consists of 11 regional Federal home loan banks which serve as a reserve system for 4,300 savings and loan associations; the Federal Savings and Loan Insurance Corporation insures up to $10,000 the accounts of savers in insured savings and loan associations; and the Federal Savings and Loan System consists of some 1,700 associations which are chartered and supervised under Federal laws. This present organizational structure has existed since these agencies were created in the early 1930's and the record of the savings and loan business is persuasive testimony as to the effectiveness of the Federal agencies under the present organizational structure.

Reorganization Plan No. 2 would provide for a separation of the Federal Savings and Loan Insurance Corporation from the Federal Home Loan Bank Board. The Corporation would become an independent agency under a threeman board of trustees (one of whom would be the Federal Home Loan Bank Board Chairman), subject to the direction and control of the President. The plan provides for a basic, extreme, and sweeping reorganization of the Government agency. Where we now have one Board which is able to coordinate all of the complicated laws, regulations, and transactions with member institutions, there would be two completely separate organizations. To us in the savings and loan business this reorganization plan is as revolytionary as a split in the Agriculture Department would be to the farmers, or as a splitup of the Veterans' Administration would be to the veterans.

Savings and loan associations are now the largest single source of home loans making between 35 and 40 percent of all home loans. These institutions are also the fastest growing savings facility, having recorded last year a net increase in savings of $5 billion. They have assets of over $40 billion as compared to only $10 billion just a decade ago. It is not an exaggeration to say that the record home building in the postwar period is due in substantial part to the spectacular manner in which the savings and loan associations have responded to the heavy demands on our mortgage credit system. Since the savings and loan business is so important to our housing economy and to our national thrift program, it is obvious that this basic reorganization has ramifications of national importance. Now I would like to turn to some of the specific reasons why the United States Savings & Loan League is opposed to Reorganization Plan No. 2.

1. The division of the Government agency into two separate and equal agencies will result in confusion, duplication, and conflict in the relations of the Federal Government with the savings and loan business. We believe that our member associations would be confronted with conflicting regulations and directions and the frustrations of attempting to determine which agency to follow. Where 1 report now suffices, 2 would be necessary under the plan, probably in a different form and with different instructions. In short, redtape and agency buckpassing would result under the plan.

2. Under the plan the savings and loan institutions would have substantially increased operating expenses, All of the expenses of the Federal Home Loan Bank Board and of the Federal Savings and Loan Insurance Corporation are now paid by member institutions; it goes without saying that the operation of two entirely separate organizations to accomplish the purposes now achieved by a single agency would be most costly. More people would be on the payroll, more space would be occupied, more paperwork would be called for. The savings and loan institutions would consequently pay the difference. In addition, aside from the greater expense of the operation of two agencies in Washington, the prospect under the proposed plan is for a doubling of supervision and examination of the associations, since the Board and the Insurance Corporation would have their respective legal obligations, separate and distinct, to determine the soundness of the associations. Examination costs are already one of the larger items in the operating expenses of associations; this plan would increase them.

Because association managements have a primary obligation to keep strong reserves and to keep adding substantially to reserves each fiscal period, any additional operating expense imposed upon them could not be absorbed without direct impact on either the savers or the borrowers or both. Necessarily, then, an increase in the mortgage-interest rate or a decrease in the return paid to savers

would be the ultimate result of the operation of two separate agencies for the savings and loan association in their relations with the Federal Government.

3. The assumption that the establishment of separate agencies in Washington would change the quality of the examinations of our associations for the better is implicit in the plan, but no substantiation for this concept is offered. We who operate the savings and loan associations and are well acquainted with the character of examinations to which we are subjected, fail to see how separation of the agencies would make for better results; after all, examination are conducted by individual men hired and paid according to civil-service standards, and the same type of personnel generally would be engaged in the work, whether they were working for one agency or the other, or for the two jointly.

The above disadvantages to the savings and loan associations are particularly significant since the savings and loan associations own all of the capital_of_the Federal Home Loan Bank System and pay all of the costs of operating the Federal agency. In spite of this fact, the associations were not consulted nor given any opportunity to submit their views prior to the transmittal of the reorganization plan.

I would also like to enumerate some of the resons why the plan should not be adopted from the point of view of the Congress and the general public interest. 1. The plan violates the basic philosophy of the Reorganization Act of 1949. As we understand the purpose of reorganization plans, it is to permit greater efficiency and economy in Government operations. The establishment of 2 agencies in lieu of 1 cannot possibly be economical, but on the contrary represents an increase in expenses. The two agencies now share in the expenses of such activities as a common legal department, statistical department, public relations division, office of secretary, and budget officer. As separate agencies each of these activities would have to be separately staffed. Similarly, the establishment of 2 agencies is in exactly the opposite direction of avoiding duplication and overlapping, one of the stated objectives of reorganization plans. Congress has recognized that the reorganization plan procedure is a major delegation of legislative authority and it would appear that only reorganizations supported by clear and compelling reasons or of an emergency nature are appropriate for treatment under this procedure.

2. The plan is substantially different than the recommendations of the Hoover Commission report and is exactly opposite to the recommendations of the Commission's Task Force on Lending Agencies. The single sentence recommendation of the Hoover Commission report was that no person should serve on the Federal Home Loan Bank Board and on the Board of Trustees of the Federal Savings and Loan Insurance Corporation. There was no substantiating data or documentation. The Task Force on Lending Agencies which conducted a thorough study and consulted with the affected agencies, included in its report a substantial section on the operation of these activities and concluded:

"It [The Federal Home Loan Bank Board] supervises a system of privately owned Federal home loan banks and their member institutions which are local thrift and home-financing institutions of the savings and loan type. Also, it supervises the Federal Savings and Loan Insurance Corporation. This appears to

be a natural grouping of functions which requires no change." [Emphasis provided.] Under the heading of "Recommendation-Federal Savings and Loan Insurance Corporation" we find the following single sentence:

"Except for the general recommendations on management presented earlier in this report, the task force has no recommendation to offer with respect to the organization and operation of this mutual insurance trust." [Emphasis provided.]

3. Just last year administration spokesmen opposed the creation of two separate boards. There appears on page 392 of the 1955 hearings before the House Committee on Government Operations, the "Comments of the Housing and Home Finance Agency on the Lending Agencies Report." Administrator Albert M. Cole had this to say about the Hoover Commission recommendation:

"I do not agree that the Home Loan Bank Board should be separate and distinct from a board or other managerial body administering the affairs of the Federal Savings and Loan Insurance Corporation. [Emphasis provided.] Both the Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation are concerned with the operations of savings and loan associations, and the existence of two boards could result in conflicts of policy and confusion in the industry. Furthermore, such organization would be much less economical than the present one wherein the HLBB and FSLIC have common administrative services, utilize the services of one examining division, and accumulate jointly knowledge and information

about the industry as a whole and about the operation of specific savings and loan associations."

Similarly, on September 13, 1955, the Chairman of the Federal Home Loan Bank Board transmitted an official letter to the chairman of the Senate Banking and Currency Committee expressing his opposition to the principle of the separation of the Insurance Corporation and the Board.

One of the most amazing things about the plan is its complete inconsistency with the administration's own statements last year regarding the creation of independent agencies. In signing the Housing Amendments of 1955, President Eisenhower stated:

"I also have serious objections to the provisions of the bill which would create still another independent agency in the exective branch by detaching the Home Loan Bank Board, including the Federal Savings and Loan Insurance Corporation, from the Housing and Home Finance Agency.'

Earlier, administration spokesmen, speaking of the establishment of an independent Federal Home Loan Bank Board, made the following statement before the House Banking Committee:

"The administration believes that new independent agencies reporting to the President should be created only upon the showing of clear and compelling reasons for such action and of persuasive advantages to be derived from it."

4. The plan injects an unfortunate partisanship into the agency by failing to require bipartisanship on the Board of Trustees of the Corporation. The Federal Home Loan Bank Board is, by law, a bipartisan board.

5. The reorganization plan fails to provide for any term of office for the trustees. The Federal Home Loan Bank Board, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and virtually all similar Government agencies make provision for specific terms of office.

We feel that these disadvantages to our associations and to the Congress are compelling reasons for the approval of the resolution to disapprove Reorganization Plan No. 2. Let me emphasize, however, that our objection to the plan goes right to the basic idea; that is, a separation of the two agencies. I want the committee to understand that even if it were possible to correct some of the other defects in the plan we could not support it as long as it would splinter our Federal agency into two parts.

Let me assure the committee that we do not take the position that there is no need for improvement in the savings and loan business, or in the Federal agencies governing such associations. On the contrary, we recognize the need for constant study and improvement. A special United States Savings and Loan League committee to study the Federal Home Loan Bank System, headed by the league's Past President Ralph Crosby, of Providence, R. I., has been engaged for the past 4 months in an intensive study of the Federal Home Loan Bank System and will in the near future issue a comprehensive report. This report will set forth a complete program designed to assure an effective Federal Home Loan Bank System which makes its maximum contribution to the safety and soundness of the savings and loan business and to our national fiscal policy and housing program. The president of the United States Savings and Loan League, Mr. Walter Dreier, of Evansville, Ind., has written to President Eisenhower assuring him of our willingness to cooperate in developing and advancing any needed improvements in the functioning of our Federal agencies or the savings and loan associations. We have given similar assurances to the House and Senate Banking and Currency Committees which have over the past years so carefully and wisely dealt with legislation in this field.

In this connection, we are greatly encouraged when the House Banking and Currency Committee in reporting the housing bill, included a section clearly stating the committee's intent to nullify Reorganization Plan No. 2,

I thank the members of the subcommittee for this opportunity to testify on this important matter and we are hopeful that after the subcommittee's hearings and deliberations it will favorably report the resolution of disapproval.

Mr. BUBB. I will just take 5 minutes to cover 2 or 3 of the main points. I would like to refer, briefly, to the testimony yesterday, if I may.

Senator KENNEDY. Before the House committee?

Mr. BUBB. The House committee.

As you know, Mr. Chairman, I represent the United States Savings and Loan League, which has 4,300 savings and loan association