cies in the Government that have housing responsibilities. We feel that a board of this type should have some representation by the top housing officials in the Government. There is a tendency toward further segmenation in housing, and that has certain weaknesses, because the program is entirely too large throughout the Government not to be properly coordinated.

We noted that the House Banking and Currency Committee has suggested that a study be made and we heartily concur in that, Mr. Chairman, and the Comptroller General has stated that our services are available to this committee, to the two Banking and Currency Committees, and any other committee of Congress that needs and wants our assistance in study of this program.

Chairman DAWSON. Mrs. Harden.

Mrs. HARDEN. Yes, I have a question, Mr. Chairman. I didn't understand how many people you think should be members of the Board.

Mr. KANE. We made that recommendation in 1948. We suggested 7 to 9. We recommended that there be representation from the Housing and Home Finance Agency, from the affected industry, and that is probably very important, and other officials in the Government. At this time, as I say, the program has completely changed. We have not given any serious consideration as to what the actual composition of the Board should be today.

Mrs. HARDEN. Thank you. That is all.

Chairman DAWSON. Mr. Brown.
Mr. BROWN. No questions.

Chairman DAWSON. Mr. Fascell.

Mr. FASCELL. I would just like to get briefly what your ideas are on the inherent conflicts. This is something that either should be discussed now or later, if it becomes a legislative proposal, but it seems to me it is important.

Mr. KANE. It is one of those things that is rather diaphanous and tenuous but potentially a concrete problem.

Mr. FASCELL. You mean it is nebulous?

Mr. KANE. Yes, but it has a basis. In our 1945 report we stated that we observed up until 1946 that there had been 28 associations which had to have assistance from the Corporation and we found that some of those associations to whom assistance had been given were not in too sound a condition when they were insured. Now we have to remember that this was early in the insurance program and the purpose then was to get the savings segment, the building and loan associations, on a sound basis.

Mr. FASCELL. This statement that you are citing now is the basis upon which the original recommendation was made and is the reason why it was carried forward year by year until 1950, and then dropped, or let us say reconsidered, not dropped or abandoned.

Mr. KANE. Primarily in 1950 we dropped it from the audit report because the Banking and Currency Committee had under consideration for quite a long time changes in both the FSLIC and the Home Loan Bank Board. Frankly, I talked to the two staffs at that time. We realized there wasn't going to be anything done at that time. It was a matter of record, and if the matter ever came up again, we would put all on notice that our position would remain the same insofar as the desirability of separating the two functions.

Mr. FASCELL. Let me ask you another question: Aren't the financial criteria fixed by law, of the applicant for a charter?

Mr. KANE. Offhand, I don't think so. The criteria are determined in accordance with the regulations of the Board and the Agency. There are certain reserves required, of course, of the association.

Mr. FASCELL. You have to start out with a certain amount of money? Mr. KANE. I can't answer that offhand. Mr. William Martin, of our Audit Division, is here with me.

Mr. FASCELL. Let us put it another way. As far as your current audits are concerned, you had no occasion to find that the same situation existed today as in an earlier situation?

Mr. KANE. We observed no manifestations of weakness which would cause us to put comments in our audit reports.

Mr. FASCELL. And that original comment was based upon an idea that an organization at the time it was insured was not as financially sound as they should have been?

Mr. KANE. That is right, and there were 28 cases.

Mr. FASCELL. And as a result of that back in those days it then became necessary for the corporation to come in and bolster this operation?

Mr. KANE. That is right; but since then, from the principle of overall government, we have reconsidered it and still think it highly desirable.

Mr. FASCELL. But it is not anything of any urgency?

Mr. KANE. Well, if we can get it in the next 10 years, after waiting this 10 years, we will be very happy.

Mr. FASCELL. O. K.; that is all.

Mr. BROWN. May I ask one question?

Chairman DAWSON. Yes, Mr. Brown.

Mr. BROWN. Do you, in the light of the question here, agree or disagree with the recommendation No. 4 of the Hoover Commission that the Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation be separated and different individuals serve on both?

Mr. KANE. We furnished a report to this committee with respect to that recommendation, as to the Hoover Commission comment, and, as I recall it, we stated that that would be a policy matter for determination by the Congress.

Mr. BROWN. But you just stated a while ago you wanted to help Congress reach these decisions. Now we are trying to get a little help from you.

Mr. KANE. Frankly, Mr. Brown, we have not really made a study as to what the composition of the Board should be.

Mr. BROWN. Do you still audit or check some of the work of this Board and Bank?

Mr. KANE. Yes; we do; under the Government Corporation Control Act, we audit the Corporation and the banks.

Mr. BROWN. And you find closer supervision, do you, than you did when you found some of these bad cases?

Mr. KANE. We have not had occasion to make a complaint in our report to Congress. There is one thing, though, that we have taken up administratively and mentioned in our report-that the examination reports made by the Examining Division of the Board are furnished to the presidents of the banks for the purposes of reviewing and taking whatever action is necessary from the standpoint of the

Board as the chartering institution and from the standpoint of the Corporation as an insuring institution. Now, that is an administrative matter which we have felt the president of the bank should not exercise; that there should be a responsibility on the part of the Corporation itself to take action on the recommendations or deficiencies mentioned in the Examining Division's reports.

Mr. BROWN. You will agree, I am sure, that when we are in a boom or inflationary period, most financial institutions and business organizations have pretty easy sailing. In times of depression or trouble, they often encounter difficulties.

up.

Mr. KANE. That is right, and that is when these problems will come

Mr. BROWN. Therefore, under those circumstances, and with your knowledge of these two organizations and your knowledge that everybody in Congress, and I think everybody in the industry wants to do what they can to make these institutions safe and sound, do you feel that the Congress itself should take action to increase the charge or rate of charge for insuring these associations and build up a greater reserve?

Would you recommend that, or would you not?

Mr. KANE. We have not made such a recommendation. We have made the observation that the reserve has decreased as a result of the premium charge. We have made a recommendation, I might as well mention it, that under the Federal Deposit Insurance Corporation its premium is based on the average of the amount insured for the year, whereas the FSLIC changes on the basis of savings at the beginning of the policy year. We have recommended that it be done on the average basis, which would have increased the reserve approximately $7 million over a period of 4 or 5 years.

Mr. BROWN. Congress reduced this rate at the time things were just a little slow.

Now, I am just wondering if, in your opinion, you think Congress should increase the contribution, when business is a little brisk.

Mr. KANE. You have to consider FDIC and FSLIC in the same breath on that one.

Mr. BROWN. I am just trying to get information and advice. I did not mean to embarrass you.

Mr. KANE. We would be glad to look into it and tell you what our views would be.

(A list of General Accounting Office audit reports follows;)

General Accounting Office audit reports containing recommendation concerning separation of the Federal Savings and Loan Insurance Corporation from the Federal Home Loan Bank Board

Fiscal year

Report on audit of

Page

H. Doc. Cong.
No.

1945-46

Federal Savings and Loan Insurance Corporation.. 1945-46 Federal Home Loan Bank Administration and the Federal home

In the 1949 report on audit of Federal home-loan banks and the Home Loan Bank Board (H. Doc. 578, 81st Cong.), the recommendation was not specifically made. In lieu thereof (p. 34) was a paragraph dealing with the reorganization of the Home Loan Bank Board. This paragraph dealt with the overall plan for centralization of Government housing functions into a Housing and Home Finance Corporation, which the General Accounting Office prepared at the request of the Government Operations Subcommittee of the House Committee on Expenditures in the Executive Departments. The plan provided that HLBB would become an operating division of the proposed new Corporation to supervise the functions of the Federal home-loan banks. The functions of HLBB with respect to FS&LIC were to be relocated.

In the 1950 report on audit of the Financial Statements and Accounts of the Home Loan Bank Board and the Organizations under its Supervision (H. Doc. 169, 82d Cong.), no recommendation was included concerning the separation of these functions. The report stated (p. 7) that in view of the recency of congressional consideration given to the organic laws, no new recommendations to the Congress were being made. No reference was made to the old recommendation concerning separation of FS&LIC from HLBB.

The recommendation has not been included in subsequent audit reports. Beginning with the 1953 report, however, the reports have contained an observation concerning the desirability of separating certain supervisory activities of the home-loan bank presidents. These activities include both normal bank lending activities and supervisory functions over insured institutions. See page 5 of the 1953 report on audit of the Financial Statements and Accounts of the Home Loan Bank Board and the Organizations under its Supervision (H. Doc. 371, 83d Cong.). Also, see page 3 of the 1954 report on audit of Federal homeloan banks (H. Doc. 277, 84th Cong.).

Chairman DAWSON. Thank you very much, Mr. Kane.

We have reversed the usual procedure. Usually, the author of a resolution is the first witness.

The author of the resolution objecting to this plan was Mr. Fascell and we have saved him to close up our hearings.

Mr. Fascell.

Mr. FASCELL. Thank you, Mr. Chairman.

I will summarize this very briefly. I had intended originally to take all of the arguments sent down in the message and analyze them one by one, and show what I felt were the reasons why the arguments could not be sustained and therefore why I had introduced the resolution to disapprove the reorganization plan.

I think the testimony before the committee has been such today that there should be no doubt in anybody's mind that this reorganízation plan should be disapproved and that the disapproving resolution should be adopted.

The plan is so vague, so indefinite, it creates so many changes and puts so much responsibility upon the industry, which at this point, its delineations and its objectives are not really yet known because they are not set forth in the plan.

The plan creates a new agency. We would have 2 instead of 1. It creates new positions, at least two, and maybe more goodness knows how many more.

There is no term of office fixed for the trustees. There is no bipartisanship provided for in the new Board. It is not consistent with the Hoover Commission report, and we find, in fact, that the task force reported one thing and the Commission itself reported something else.

We find that it divests Congress of whatever control it might have and changes the complexion of a so-called independent agency to one that would be completely without any doubt subservient to the

control and direction of the President, and I am not so sure that is a good thing. And whether it is or not certainly should be the question of intense legislative study on the part of Congress.

It gives powers to the Bureau of the Budget with which I have never been familiar before, and I think some of my older colleagues have expressed the same question as to whether or not this is a wise course to set down in a reorganization plan the power of the Bureau of the Budget to delineate beyond those things which were proposed in the original Reorganization Act of 1949.

It is my personal belief, after listening to the testimony and the explanation of the plan, that that is exactly what the plan does. It gives a broad grant of authority to the Bureau of the Budget to delineate functions because of the fact that they could not be expressed clearly and definitely in the plan itself, and therein, in my opinion, lies a great danger, if Congress were to pass and approve or allow this reorganization plan to be approved.

Then, there is the question of the burden upon management, and I can envision and I think all of the management of the industry can envision exactly what I envision, with inspectors running all over the place, two sets of examinations, all kinds of forms, with no clear understanding as to exactly what would happen, and yet the expression in the plan itself and the statement outside of the plan that contemplates the fact that only at the policy level would this thing have two heads and all the way down it would be joined. That is what it says, but we do not know whether it would actually be that way

or not.

We have objections which I would like to get in the record at this point from the Federal Savings and Loan Advisory Council. I will submit a certified copy of their resolution, also from the Federal Home Loan Bank of Greensboro, with a letter of the president, together with a resolution of the board of directors opposing the plan.

Also opposition by the-and I am just picking some of these at random; there are many, many more from the industry-Savings & Loan Association, Dallas, Oreg.; The Bay Ridge Savings & Loan Association of Brooklyn, N. Y.; Jefferson Federal Savings & Loan Association, Louisville, Ky.; First Federal Savings & Loan Association, Austin, Tex.; Union Federal Savings & Loan Association, Baton Rouge, La.; and Florida Savings & Loan Association.

(The documents referred to follow :)

Hon. DANTE B. FASCELL,

House of Representatives,

House Office Building, Washington, D. C.:

ORLANDO, FLA., June 23, 1956.

Members of the executive committee of the Florida Savings & Loan League meeting today at Orlando express high praise for your leadership in introducing House Resolution 541, disapproving Reorganization Plan No. 2. They congratulate you on your understanding of the issues; are grateful to you for the interest you are showing in the welfare of the savings and loan business and the public they service and are pleased that the leadership on this issue before the Congress is in such able hands.

FLORIDA SAVINGS & LOAN LEAGUE,
CARL F. DISTELHORST,

Executive Vice President.