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That was the purpose of putting this language in. Mr. FASCELL. And that is the reason you have delineated in your statement the possible alternatives that could eliminate duplication and what not. Now, this presupposes therefore that there could be duplication, because you say it can be eliminated if you do these things.

Mr. BRUNDAGE. It presupposes that there will be a desire on the part of the Board to work it out as simply and economically as possible, with the control features which we are providing for.

Mr. FASCELL. Well, don't you think it would be a bad thing for management, and the industry to be subjected to two examinations, two inspections, both of which are related to the same ultimate desire, which is the soundness, financially of the institution.

Mr. BRUNDAGE. Well, I would certainly oppose a duplicate examination in the same year unless there was some special circumstances that called for it; yes.

Mr. FASCELL. Well, now, what would happen under the proposed plan if the Board of Trustees and the Home Loan Bank Board reached no interagency agreement?

Mr. BRUNDAGE. Well, I can't imagine that they would not agree because they have to work together.

Mr. HOLIFIELD. Will the gentleman yield on that point?
Mr. FASCELL. I will yield.

Mr. HOLIFIELD. Now, it hardly can be imagined, but it has happened. I call your attention to the case of the Board of Governors and so on versus the Trans-America Corp. (184 Fed. Stat. (2d), 311, 319, 326). In 1950 Gianninni and the Trans-America Holding Co. for the Bank of America were cited and held in contempt by the United States Court of Appeals for the Ninth Circuit because they sought to carry out the mergers of the Bank of America with various Pasadena, Santa Anna, and other smaller California banks.

The merger had been approved by the examiner who was with the Federal Deposit Insurance Corporation but it was denied by the Board of Governors of the Federal Reserve Board. There was a case that actually went to the court, where one organization rendered one decision and the other organization rendered an exactly opposite decision. It had to be carried into the high courts to be resolved, so it can happen. If it happened in the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve Board, it can happen here.

Mr. BRUNDAGE. Well, I happen to be familiar with that and that was a clash of personalities among other things.

Mr. HOLIFIELD. Yes.

That is one of the reasons, sir, we can't rely on good intentions made in a statement before the committee. We must rely on the language of the law. There is no reflection intended. We know you would do the best you could in this matter. There might be a time, however, when a different person wouldn't do the best he could. Or he might have an idea he would be completely sincere in, but which would be against the best interests of the industry.

In that case, you would have no control. The law, the plan, would give no control over it.

Mr. McCORMACK. Mr. Holifield, will you yield, please?
Mr. HOLIFIELD. Yes.

Mr. McCORMACK. Mr. Brundage, you said there might be a clash of personalities. I assume you have already found out that that is not unusual in Washington.

Mr. BRUNDAGE. That occurs sometimes, yes.

Mr. FASCELL. Mr. Brundage, now let me ask this: Do you know of any other place where the Director of the Bureau of the Budget has the duties which are prescribed in this reorganization plan?

Mr. BRUNDAGE. It is the only other one, this year.
Can you answer that?

Mr. FINAN, This type of provision has been a standard arrangement in all reorganization plans that involve the separation of agencies. It is language that has been used over the years repeatedly.

Mr. FASCELL. That is good enough.

Mr. FINAN. An example would be where we separated the United States Information Agency from the Department of State a few years ago, a reorganization which involved a major transfer. Some arrangement has to be made for separating the assets and liabilities which go with the functions separated by the reorganization plan.

Mr. FASCELL. That is provided for under section 4 of the Reorganization Act of 1949.

Mr. FINAN. Correct.

Mr. FASCELL. But the Reorganization Act of 1949 as I read it doesn't provide for functions transferred to the Board of Trustees by the provision of this reorganization shall be transferred from the Board to the Corporation at such time or times as the Director shall direct.

It doesn't say anything about functions.

Mr. FINAN. It isn't the functions, Mr. Fascell. If you read that entire section, it is assets, liabilities, contracts, commitments, properties, personnel, and so on.

Mr. FASCELL. Yes, sir; available or to be made available.
Mr. FINAN. That is right; which are related to these functions.

Mr. FASCELL. All right, then what does section (c) mean-section 4 (c) of the plan?

Mr. FINAN. Section 4 (c) is to enable the Director to work out any other incidental details that may be necessary in order to provide for an orderly separation.

Mr. FASCELL. Is that authorized by the Reorganization Act?
Mr. FINAN. We understand it is, yes.
Mr. FASCELL. That is your legal opinion..

Mr. Finan. That is the legal opinion that has been provided to us. But to make myself clear, nowhere in this plan is there authority for the Director of the Bureau of the Budget to make a transfer of a function. The plan makes the transfers of the functions.

Mr. FASCELL. Then why was it necessary for him to delineate the functions within the Board and the Corporation in his statement?

Mr. Finan. This is merely a clarifying statement that explains what the plan does.

Mr. FASCELL. No; he is answering a contention which has been raised; that is, that under the plan you would have duplication of functions and he is saying that is not satisfactory cause, and then he lists them: What each one of the Board would do and the Corporation would do and so I am asking how are those functions delineated in the plan?

Mr. FINAN. They are delineated by the simple reference to the statute. The plan, like all reorganization plans, has its roots in a specific statute which spells out the functions. In other words, the plan, as you know, cannot create the function, and the references in the plan in section 2 (a) and 2 (b) merely cite the provisions of the United States Code which are involved in the transfer.

Now, it is clear from the reading of this that it is a mere bare bones text and you have to refer back to the provisions of the law itself.

Mr. FASCELL. In other words, you go back to the basic act and pull out all of those functions, and those functions in your contention are transferred by this plan.

Mr. FINAN. Yes, sir.

Mr. FASCELL. Só that while it is possible that there is a complete separation of functions by this plan and it is also possible, therefore, that the Corporation and the Board could provide and must by law provide whatever is required for them to carry out the responsibilities of the basic act which created them

Mr. FINAN. That is correct.

Mr. FASCELL. Unless, as is pointed out in the plan, there is some coordination or unless as pointed out by the plan, there is an interagency agreement, am I correct in assuming, therefore, Mr. Brundage, that the present supposition that goes with this plan is that all of the functions of examination and supervision and inspection will be on a cooperative basis? Mr. BRUNDAGE. I think that is reasonable, yes. Mr. HOLIFIELD. But it isn't mandatory, Mr. BRUNDAGE. That is what we intended certainly. Mr. HOLIFIELD. It is permissive but not mandatory. Mr. FASCELL. But that is the administration's desire. Mr. BRUNDAGE. Yes.

Mr. FASCELL. And if that is true and since that is now being done by one board why go to the trouble of creating two new jobs; namely, the two own trustees.

Mr. BRUNDAGE. Well, it seemed to me that there should be an independent review of the cases where the Corporation underwrites or issues the insurance and that the same agency, the same Board which approves the chartering of the savings and loan association should not be responsible for deciding that the deposits of that institution should be insured.

Mr. FASCELL. Now, this is the conflict of interest that you are talking about.

Mr. BRUNDAGE. That is the whole point.

Mr. FASCELL. That you think exists and that you think might possibly exist-possibly be bad?

Mr. BRUNDAGE. This is an extra protection that would be desirable, I think.

Mr. FASCELL. But you don't have any specific provision-specific experience on which to base this statement.

Mr. BRUNDAGE. There has been nothing come to my attention which would require us to have immediate concern but it seemed to me that the situation was getting that the volume was so tremendous, our insured liabilities so large, when it gets into a $31 billion bracket, that some step should be taken to provide additional protection for the future.

Mr. FASCELL. But we are all agreed that whatever protection is necessary that the administration can effect through the present Board if it so desires.

Mr. BRUNDAGE. Well, I don't think that that would give the protection that I am looking for for the public, if there is one Board who is responsible for these two different functions.

Mr. FASCELL. And you are satisfied, are you, as the President has stated in his message, that the time has come now to separate these two agencies.

Mr. BRUNDAGE. That is my feeling; yes.

Mr. FASCELL. And based upon the statement also in the message and in your statement that there might be a possibility of a conflict in that this business is getting mighty big and some other precautionary measures should be taken.

Mr. BRUNDAGE. Well, I think this is a step, and if we had an independent board that they might decide to take other precautionary measures; yes.

Mr. FASCELL. Do you find all cases of self-insurers as being unsound management from an accounting standpoint ? Mr. BRUNDAGE. No. Mr. FASCELL. Is this a self-insurance proposition?

Mr. BRUNDAGE. Well, it would be if they didn't have to call on us for a guaranty. That is where the Government comes in. That is what concerns me. If the savings and loan depositors insured themselves, it wouldn't involve this issue at all.

Mr. FASCELL. I don't have any further questions, Mr. Chairman.
Chairman Dawson. Mr. Jonas.

Mr. Jonas. Yes; I have one. Mr. Brundage, you said something in your statement to the effect that the General Accounting Office had commented to the Congress in some of its reports on the possibility of a conflict of interest.

Mr. BRUNDAGE. They had recommended exactly the separation we are proposing; yes, sir.

Mr. Jonas. You mean the General Accounting Office has, in effect, recommended this plan.

Mr. BRUNDAGE. They recommended
Mr. Jonas. Or the division, the breaking up.
Mr. BRUNDAGE. The division of the responsibilities; yes.

Mr. Jonas. The General Accounting Office is a creature of the Congress, and not the executive department.

Chairman Dawson. They will testify.
Mr. Jonas. I understand but I want to get this on the record.
Mr. BRUNDAGE. That is right.

Mr. Jonas. When, if you have a reference to it, were those recommendations made?

Mr. BRUNDAGE. The audit for the fiscal years ended June 30, 1945 and 1946, calls attention to this fact:

We believe that there is a serious question of the desirability of permitting one agency to exercise the function of supervision of insurance underwriting as well as the functions of promoting and chartering Federal savings and loan associations.

Again, in 1947– in order to protect more adequately the insurance fund, the administrative responsibility for examination of insured institutions and enforcement of insurance

regulations, now operating functions of the Home Loan Bank Board, should be transferred to the Insurance Corporation.

Mr. Jonas. What year was that?

Mr. BRUNDAGE. And so on. There are a number of these reports. Again, 1948. Chairman Dawson. That was before the Hoover Commission sat. Mr. BRUNDAGE. That is right.

Chairman Dawson. They didn't do anything about it then when they recommended it. Whoever was in power in the executive department didn't do it then, do anything about it then.

Mr. BRUNDAGE. This administration was not in power then.
Mr. JONAS. Just for the record, Mr. Brundage

Chairman Dawson. Since you have issued your plan, do they recommend your plan?

Mr. BRUNDAGE. I do not think we checked this with them.

Mr. Finan. I am not sure what their current views are on this plan. I understand they are scheduled to testify.

Chairman Dawson. Certainly many people can agree that there ought to be a separation of powers. Some might think it ought to be a bipartisan board and there are different ways to do it, but you attempt to do it by this plan. They haven't 0. K.'d this plan, have they, this plan No. 2, have they?

Mr. BRUNDAGE. Not to my knowledge.
Chairman Dawson. Thank you.

Mr. Jonas. What is the arrangement between FDIC and the Comptroller's Office with respect to the examinations of commercial banks.

Mr. BRUNDAGE. Well, they have agreement for a single examination which is used by both agencies.

Mr. Jonas. And that is by agreement between the two agencies. Mr. BRUNDAGE. That is right.

Mr. Jonas. Under the law could the FDIC conduct independent investigations and examinations of banks, I would certainly assume

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Mr. BRUNDAGE. Yes; I believe they could.

Mr. Jonas. If they don't have that authority I think they should be given that authority because they have a very direct and pertinent interest in the soundness of the institutions.

Mr. BRUNDAGE. That is very true.

Mr. Jonas. But you think it is by agreement between the two agencies by which the Comptroller's Office makes the examination and has the information made available to FDIC?

Mr. BRUNDAGE. The reports go direct to Federal Deposit Insurance Corporation.

Mr. Jonas. They go to both offices.

Mr. BRUNDAGE. Yes; but they go direct to the Federal Deposit Insurance Corporation.

Mr. JONAS. That is all.

Chairman Dawson. The President's message speaks of promoting confidence in the savings and loan program. Hasn't the public shown its confidence in it by the growth of the various loan associations? They have grown from $10 billion to $40 billion in the last 10 years. The public seemed to have confidence in them, did they not?

Mr. BRUNDAGE. Yes.

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