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the Federal Home Loan Bank Board has never been stronger or better, and the institutions themselves are sound and efficiently operated and managed.

6. The creation of two separate agencies with overlapping duties and functions, tends to weaken Government administration rather than strengthen it. Any reorganization plan involving as it does an industry of $40 billion and of such great importance to the American people in the field of thrift and home financing should not be effected until it has had very careful study and thought. There is no impending emergency or crisis that would demand the adoption of any plan without careful study.

For the foregoing reasons it is respectfully submitted that Reorganization Plan No. 2 of 1956 should be rejected by Congress.

Chairman Dawson. Mr. Highsmith.



My name is Albert W. Highsmith, of Arlington, Va. I am organizational director for the Citizens Committee for the Hoover Report, 441 Lexington Avenue, New York.

The acting chairman of the citizens committee, Julian S. Myrick, has asked me to present the following statement to your committee on behalf of Reorganization Plan No. 2.

Reorganization Plan No. 2, submitted to Congress by President Eisenhower, on May 17, 1956, is in accord with a recommendation of the Commission on Organization of the Executive Branch of the Government submitted to Congress in its report on lending, guaranteeing, and insurance activities.

In recommendation No. 4 of this report, the Commission proposed : 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.

Mr. Brown. May I interrupt right there. As a member of the Commission I think I recall this recommendation No. 4, and I have, of course, read this reorganization plan with a great deal of interest.

The Commission recommended 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; but this plan provides that the Chairman of the Home Loan Bank Board shall serve.

Mr. HIGHSMITH. I realize there is some inconsistency.
Mr. Brown. Then it isn't fair to say this is exactly the same.
Mr. HIGHSMITH. No, I think the word "accord” is probably adequate.
Mr. Brown. That is all, Mr. Chairman, thank you.

Mr. HIGHSMITH. At present, the Federal Savings and Loan Insurance Corporation is controlled by the Federal Home Loan Bank Board. It is desirable and in the public interest that the management of these two agencies should be separately operated and administered. Such a separation is desirable, because their purposes and objectives might in some circumstances be in conflict. The objectives of the Home Loan Bank Board include promoting and encouraging home financing through making money available for mortgages while on the other hand that of the Federal Savings and Loan Insurance Corporation is to insure the deposits in savings and loan associations and similar institutions.

Since the latter's objective is to protect the interests of the depositors, its main concern must be the preservation of the assets of the savings and loan associations and other similar insured institutions.

Obviously, it is possible that conflicts might develop between an agency designed to protect the interest of the depositors in such associations and an agency concerned with the promotion of home building through making money available for mortgages. To protect more adequately the interests of depositors in such lending institutions, these two agencies of the Federal Government should be separated.

For reasons similar to these, the Comptroller General of the United States in his report of audit of the Federal Savings and Loan Insurance Corporation submitted to Congress on February 13, 1950 (81st Cong., 2d sess., H. Doc. 467, p. 8) recommended that Congress consider separating the Federal Savings and Loan Insurance Corporation from the Home Loan Bank Board. The Comptroller General in his report to Congress said:


We believe that there is a serious question as to 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 insurance underwriting. Experience has shown that the responsibilities for these functions are inherently conflicting.

We recommend that Congress consider separating the Federal Savings and Loan Insurance Corporation from the Home Loan Bank Board.

Such a separation of functions exists in the commercial banking field. The Federal Deposit Insurance Corporation is ind pendent of the Federal and State bank supervisory authorities, but coordination is an objective of the requirement that the Comptroller of the Currency, is a member of the Board of Directors of the FDIC.

FDIC and FSLIC perform the same functions in different fields of banking and undoubtedly belong in the same group.

In his audit of the Federal Savings and Loan Insurance Corporation for the year ending June 30, 1934 (submitted on October 10, 1955, 81th Cong., H. Doc. 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 raito of insured liabilities of associations to the reserve of the FSLIC. 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. Áfter 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 insurance fund 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.

Chairman Dawson. Thank you.
Mrs. Harden?
Mrs. HARDEN. No questions.
Chairman Dawson. Thank you.
Mr. Brown?

Mr. Brown. Mr. Highsmith, I, of course, am very happy that we have an organization such as the Citizens Committee for the Hoover Report to try to make effective as many of the reforms as possible which have been recommended by the second Hoover Commission.

However, I want to call your attention to the fact, that the Hoover Commission in none of its recommendations ever charted exactly the method, or means, or way, that should be followed in accomplishing these reforms. Therefore, I assume, and if I am wrong I want you to say so, that your organization is primarily interested in seeing these reforms made effective, rather than in the method which might be followed.

In other words, you wouldn't care particularly would you whether this was done by a reorganization plan or by an enactment by Congress?

Mr. HIGHSMITH. The time element of course, plays some part in it. We want as many as quickly as possible implemented.

Mr. Brown. You heard, of course, some of the criticisms made of this reorganization plan.


Mr. BROWN. In spite of those criticisms, you still feel that the Reorganization Plan No. 2 has been well prepared and should be put into effect?

Mr. HIGHSMITH. Well, sir, you are placing me in an embarrassing position.

Mr. Brown. I hesitate to do that but I am placed in an embarrassing position every day dozens of times, when I have to vote on rather controversial issues, and consider rather controversial matters just like this.

Mr. HIGHSMITH. My main function with the committee is not a policy function. As you will note, most of this statement is the statement of our accounting chairman. I am here merely as a mouthpiece, if you will, sir, to present this statement.

Mr. Brown. Well, you have been a very able mouthpiece.
Mr. HIGHSMITH. Thank you, sir.
Chairman Dawson. Mr. Fascell!

Mr. FASCELL. I have no questions. I just would like to thank Mr. Highsmith for having the spirit and interest to come to the committee to present the views of his organization.

Chairman DAWSON. Mr. Henderson?
Mr. HENDERSON. No questions.
Chairman DAWSON. Thank you very much, Mr. Highsmith.

We will now hear from Mr. Kane of the General Accounting Of fice. The General Accounting Office has been quoted often in this hearing



Mr. KANE. Mr. Chairman, the Comptroller General, Mr. Joseph Campbell, furnished you a report dated June 22 on the proposed reorganization plan. I will not read the letter but ask that it be inserted in the record.

Chairman Dawson. Unless there is objection, that will be inserted in the record at this point. (The letter referred to is as follows:) COMPTROLLER GENERAL OF THE UNITED STATES,

Washington, June 22, 1956. B-128288 Hon. WILLIAM L. DAWSON, Chairman, Committee on Government Operations,

House of Representatives. DEAR MR. CHAIRMAN : Reference is made to your letter dated June 15, 1956, acknowledged June 18, 1956, requesting our comments on House Resolution 541, a resolution of disapproval of Reorganization Plan No. 2 of 1956.

Reorganization Plan No. 2 would establish, separate from the Federal Home Loan Bank Board, a new Board of Trustees of the Federal Savings and Loan Insurance Corporation; vest the management of the Corporation in the Board of Trustees; and transfer the insurance functions of the Federal Home Loan Bank Board to the Board of Trustees and to the Corporation. The Board of Trustees would be composed of two members appointed by the President, with the advice and consent of the Senate, and the Chairman of the Federal Home Loan Bank Board, ex officio, as the third member. The Chairman of the Board of Trustees would be appointed by the President from one of the two appointive members.

Under the plan the Federal Home Loan Bank Board would continue supervision and regulation of the 11 Federal home-loan banks, and the chartering, supervision, and regulation of Federal savings and loan associations. The management and functions of the Federal Savings and Loan Insurance Corporation would be exercised by the new Board of Trustees of the Corporation.

In the President's message to the Congress on the purpose and desirability of the reorganization plan, reference is made to the recommendation in the General Accounting Office audit reports that the Congress consider complete or partial separation of the agencies.

In our reports on the audit of the Federal Home Loan Bank Administration, the Federal home-loan banks and the Federal Savings and Loan Insurance Corporation for the fiscal years ended June 30, 1945, and June 30, 1946, we stated that there was a serious question as to the desirability of permitting one agency to exercise the function of promoting and chartering Federal savings and loan associations as well as the supervision of insurance underwriting. We recommended that the Congress consider complete or partial separation of the Corporation from the Board, which would necessitate the creation of a Board of Trustees or Directors for the Corporation. We made suggestions concerning the composition, tenure, and qualification of the Board membership. The recommendation was repeated in substance in subsequent audit reports for the fiscal years 1947, 1948, and 1949.

We believe that the separation of the responsibilities for chartering and supervising Federal savings and loan associations and for insurance underwriting is highly desirable. The exercise of the two responsibilities is inherently conflicting. However, there are several considerations which, in our opinion, are not adequately covered by Reorganization Plan No. 2.

First, the plan does not provide a definite tenure of office for the appointive members to the Board of Trustees. In contrast, the term of office of the members of the Federal Home Loan Bank Board is 4 years, as provided by Reorganization Plan No. 3 of 1947.

Second, no provision is made as to the qualifications of the appointive members of the Board of Trustees.

Third, although the Chairman of the Federal Home Loan Bank Board would be an ex officio member of the Board of Trustees, there would be no provision for representation on the Board by other Government agencies having responsibilities and functions in the Government housing programs. The matter of Board representation by other Government agencies is an important element in achieving well-balanced and coordinated Federal housing and finance programs, particularly since enactment of the Housing Amendments of 1955, which removed the Federal Home Loan Bank Board (including the Federal Savings and Loan Insurance Corporation) from the jurisdiction of the Housing and Home finance Agency and made it an independent agency.

Also, we have noted that House Committee on Banking and Currency in reporting the Housing Act of 1956, H. R. 11742, has included a provision preventing Reorganization Plan No. 2 from going into effect, or nullifying the plan if it has become effective by the time the Housing Act is enacted. The committee explained in its report (H. Rept. No. 2363) that any basic change in the organizational structure of the agencies involved should only come about after adequate consultation with the Congress, the Board, and the industry, and stated that it had serious question as to the basic merits of the plan and its possible effect on the savings and loan associations of the country. H. R. 11742 directs the Federal Home Loan Bank Board to study methods of achieving improvements in the operation of the Federal Home Loan Bank System and to report its findings and recommendations to the House and Senate Committees on Banking and Currency by January 31, 1957.

A somewhat similar position was taken in the Senate by the sponsors of Senate Resolution 291, which disapproves Reorganization Plan No. 2. See Congressional Record of June 18, 1956, pages 9392–9393.

In view of the above, we believe that interests of the Congress will be better served if the proposed separation of the agencies is considered under the normal legislative process rather than by the reorganization plan method. Accordingly, it is our recommendation that Reorganization Plan No. 2 be disapproved. Sincerely yours,


Comptroller General of the United States. Mr. KANE. As you know, the plan referred to the fact that the General Accounting Office made recommendations in the early audit reports under the Government Corporation Control Act of the Home Loan Bank Board and the FSLIC. The first report was made in 1948 for the fiscal years 1945 and 1946. It contained a recommendation that Congress consider the desirability of separating completely or partially the functions of the two agencies. We made suggestions with respect to the composition, tenure, and qualifications of the board or board of directors that would be necessary to be established in the event of such separation.

We would be very happy if the plan had been submitted to the Congress in a form that we could endorse, because we still feel that it is highly desirable from the standpoint of proper checks and balances in Government operations that these two functions at the policy level be separated. The plan is deficient insofar as the board composition is concerned. There is no mention made of tenure and qualifications of the Board which we think are necessary.

Some reference was made to the fact that our 1945-46 report stated that the Board should consist of 7 to 9 members. Now there has been a lot of water over the dam since that recommendation was first made; and there has been a tremendous increase in the complexity and magnitude of the total housing program in the Government. In addition, Congress has acted with respect to the status of the Home Loan Bank Board by making it an independent agency. Therefore, at this point we feel that before this plan be adopted, it should have more consideration by the Congress. It is too important at this time to put such a tremendous change in operation without normal congressional consideration not only in the light of the Board and the Corporation itself, but in relation to the entire housing program. The United States Government is involved in billions of dollars' worth of housingdefense housing and civilian housing—and there are numerous agen

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