RECOMMENDATIONS OF THE FEDERAL HOME LOAN BANK BOARD LETTER OF TRANSMITTAL FEDERAL HOME LOAN BANK BOARD, Re Study of Federal laws relating to financial institutions and credit. Hon. A. WILLIS ROBERTSON, Chairman, Subcommittee on Banking, Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR ROBERTSON : This is in reply to your letter of July 20, 1956, requesting recommendations by this Board not later than the first week in October (this date was subsequently changed by a telephone call from Mr. Don Rogers of your staff advising that the report must be submitted not later than October 1), with respect to the elimination of obsolete and overlapping provisions of statutes administered by the Federal Home Loan Bank Board and the addition of new provisions designed to bring such statutes up to date so that financial and credit institutions may better meet the needs of the people. Attached are 30 copies of the recommendations and suggestions of the Board in the form suggested by Mr. Rogers. We would have preferred to present all recommendations in specific and detailed form; however, the time limitation imposed made it necessary that certain proposals for changes in the statutes relating to problems believed to be of basic importance to the Board be set forth in our recommendations in a less formal manner. Since the time available to the Board, and particularly to the Chairman, did not permit a completion of our study, we are continuing the same and should any additional amendments or changes in the proposals submitted be indicated we trust that the Board will be afforded an opportunity to present such amendments to your committee at a later date. In view of your request for a submission of our recommendations by October 1, they are being forwarded to you without prior clearance with the Bureau of the Budget. Accordingly, we are unable at this time to advise of the relationship of the attached recommendations to the program of the President. Copies of this report are being transmitted to the Bureau of the Budget and the Board will transmit such advice as it may receive with respect to such relationship. Sincerely yours, ALBERT J. ROBERTSON, Chairman. GENERAL STATEMENT In addition to the suggested specific changes set forth below there are also set forth, in a less formal manner, certain changes or pro posals for changes in these statutes relating to problems which is believed will be of basic importance to the Federal Home Loan Bank Board in carrying out its responsibilities in the supervision of federally chartered savings and loan associations, the chartering of new associations, the granting of insurance by the Federal Savings and Loan Insurance Corporation, and the regulation of such insured institutions. RELATIONSHIPS BETWEEN SAVINGS AND LOAN ASSOCIATIONS AND AFFILIATES It is suggested that the most serious consideration be given to the question of amending the Federal Home Loan Bank Act, the Home Owners' Loan Act of 1933, and title IV of the National Housing_Act, or such of them as may be necessary, so that the Federal Home Loan Bank Board may have express power to make rules and regulations with respect to the relationships of and business transactions between members of the Federal home loan banks, and institutions the accounts of which are insured by the Federal Savings and Loan Insurance Corporation, on the one hand, and individuals, corporations, and organizations that are "affiliates" of such institutions. The need for such specific statutory authority is necessary because of the indications of instances of self-dealing on the part of such affiliated individuals and organizations in transactions and relationships with savings and loan institutions with which they are affiliated. While the specific form which such amendments might or should take is a matter which deserves careful and mature consideration, it would appear that it should include power in the Board to define what constitutes an affiliate for the purpose of such regulation; provision for information and reports by such affiliates and examination thereof by the Board's examiners; and further provision that failure or refusal by any such member or insured institution or affiliate thereof to furnish the Board all information and reports as to the condition, operation, or management of any such affiliate, or to permit examination of an affiliate as above, or violation by any such institution or affiliate thereof of any provision of statute or of regulations made by the Board with respect to affiliates shall make mandatory the termination of the institution's membership or insurance or the removal of the responsible director or officer of such institution, without regard to any other provision of law or regulation. STRENGTHENING OF EXAMINATION POWERS At present, this agency has general powers of examination under section 5 of the Home Owners' Loan Act of 1933 with respect to Federal savings and loan associations, and general powers of examination under subsection (b) of section 403 of the National Housing Act with respect to institutions the accounts of which are insured by the Federal Savings and Loan Insurance Corporation. It does not have comparable powers of examination with respect to institutions which are members of a Federal home loan bank but are not federally chartered or so insured. With respect to those member institutions the Board's powers of examination in the absence of further legislation, would, in general, be limited to cases where there was no State examination (there is only one remaining State in which there is no State ex amination of savings and loan associations) or where the Board might deem the State examination inadequate as set forth in section 8 of the Federal Home Loan Bank Act. Nevertheless, the Board has been charged with definite responsibilities with respect to Federal home loan bank members, regardless of whether the particular member is or is not an insured institution. Among these is the responsibility of administering section 5 of the Federal Home Loan Bank Act, which places certain limitations on interest and similar charges with respect to home mortgage loans, and of administering section 5A of that act, which provides that no member institution shall make or purchase any loan when its cash and obligations of the United States are not equal to the amount prescribed by the Board under that section. It is felt, therefore, that the Federal Home Loan Bank Act should be amended so as to vest in the Board power to examine every savings and loan or building and loan association, homestead association, or cooperative bank that is a member of a Federal home loan bank, and so as to provide that each such institution shall pay to the Board the cost of such examination, as determined by the Board. It is also felt that, by suitable amendment to the Federal Home Loan Bank Act and title IV of the National Housing Act, the examiners of the Board should be given ample power to examine the books, records, and affairs not only of member and insured institutions but of any and all "affiliates" (as that term may be defined by the Board under statutory authority) of such member and insured institutions, with power in such examiners to administer oaths and to examine, under oath, any of the directors, officers, employees, and agents thereof and to make a full and detailed report to the Board of the condition of the institution and its affiliates. Further, it is felt that failure or refusal by any such institution or affiliate, or by any director, officer, employee, or agent thereof, to submit its books, records, and affairs to examination or inspection by any examiner or lawful agent of the Board, or concealment by any of them of any of its books, records, or affairs from any such examiner or agent, should be grounds for termination by the Board of the institution's bank membership or insurance, without regard to any other provision of law or regulation, and that such action by the Board be final. REGULATION OF FEDERAL HOME LOAN BANK MEMBERS It is suggested that serious consideration be given to the question whether uninsured members of the Federal Home Loan Bank System should not be subject to the same regulation as insured institutions with respect to advertising, sales plans and practices, and other operating practices. The Board has recently promulgated regulations restricting, with respect to insured institutions, the practice of making gifts for the opening or increasing of share accounts or deposits, a practice which has gone to extreme lengths in the case of some few institutions; and the Board has given notice of a proposed regulation to impose a strict limitation on the amount of brokerage commissions which may be paid by insured institutions in connection with investments in such institutions. For insured institutions to be subjected, in the public interest, to these types of regulation while at the same time uninsured institutions. which are members of the Federal home loan banks and which are in competition with such insured institutions are not subjected to corresponding regulation raises a serious problem which, as is indicated above, deserves serious consideration. REMOVAL OF DIRECTORS OR OFFICERS The attached suggested amendments to the Home Owners' Loan Act of 1933, as amended, include, in connection with subsection (d) of section 5 of that act, a proposed provision authorizing the Board, under procedure therein prescribed, to remove a director or officer of a Federal savings and loan association who has violated or is violating any law or regulation relating to such association or who has engaged or is engaging in unsafe or unsound practices in conducting the business of such association, or has violated his duty to such association as an officer or director. This provision is comparable to that contained in section 677 of title 12 of the United States Code with respect to the removal by the Board of Governors of the Federal Reserve System of a director or officer of a national bank, a bank or trust company doing business in the District of Columbia, or a State member bank of the Federal Reserve System. The Board suggests that, in the consideration of this proposal, serious consideration be given to the question whether similar provision should not be made with respect to directors and officers of institutions which are not federally chartered but are Federal home loan bank members or institutions the accounts of which are insured by the Federal Savings and Loan Insurance Corporation. PERSONS CONVICTED OF CRIMINAL OFFENSES INVOLVING DISHONESTY OR BREACH OF TRUST It is also suggested that serious consideration be given to the enactment of a provision that, except with the written consent of the Federal Home Loan Bank Board, no person shall serve as a director, officer, or employee of a Federal home loan bank member or an institution the accounts of which are insured by the Federal Savings and Loan Insurance Corporation if such person has been convicted, or is convicted after the effective date of such provision, of any criminal offense involving dishonesty or breach of trust, and that, for each willful violation of such provision, the institution involved shall be subject to a penalty of not more than $100 for each day the prohibition is violated, which penalty may be recovered by the Board for its use. Such a provision would be parallel to section 1829 of title 12 of the United States Code, which is applicable to banks which are insured by the Federal Deposit Insurance Corporation. CONVERSION OF MUTUAL SAVINGS AND LOAN ASSOCIATIONS INTO STOCK COMPANIES The Board has under active consideration the adoption of regulations laying down procedures and standards for cases in which Federal savings and loan associations, which are mutual institutions, undertake to convert into State-chartered nonmutual institutions, variously known as stock companies, permanent stock associations, and guaranty-stock associations. The same problems arise, however, where the conversion which is undertaken is a conversion from a Statechartered mutual association into a State-chartered stock company, and it is suggested that consideration be given to the question whether the Federal Home Loan Bank Board should be given power to impose comparable regulations where the institution which proposes to convert from mutual to stock-type operation is not a Federal savings and loan association but is a State-chartered mutual institution to accounts of which are insured by the Federal Savings and Loan Insurance Corporation. Existing law FEDERAL HOME LOAN BANK ACT 116. GENERAL AMENDMENT Federal Home Loan Bank Act, as amended (too long for complete reproduction here). Recommendation Amend the Federal Home Loan Bank Act, as amended, by striking the word "board" wherever the same appears therein (except where used with reference to a board of directors) and inserting in lieu thereof in each place the word "Board." Section 2 of the Federal Home Loan Bank Act, as amended: “As used in this Act— "(1) The term 'board' means the Federal Home Loan Bank Board. "(2) The term 'Federal Home Loan Bank' means a bank established by the board under authority of this Act. "(3) The term 'State' includes the District of Columbia, Guam, Puterto Rico, the Virgin Islands of the United States, and the Territories of Alaska and Hawaii. "(4) The term 'member' (except when used in reference to a member of the board) means any institution which has subscribed for the stock of a Federal Home Loan Bank. "(5) The term "home mortgage loan" means a loan made by a member or a nonmember borrower upon the security of a home mortgage. "(6) The term 'home mortgage' means a mortgage upon real estate, in fee simple, or on a leasehold (1) under a lease for not less than ninety-nine years which is renewable or (2) under a lease having a period of not less than fifty years to run from the date the mortgage was executed, upon which there is located a dwelling for not more than four families, and shall include, in addition to first mortgages, such classes of first liens as are commonly given to secure advances on real estate by institutions authorized under this Act to 83668-56- -11 |