There is much the Board can do to carry out its new policy. The circulation of this policy within the community of savings and loan associations is, of course, a necessary first step. The Board further indicates that examinations will be utilized to discover whether discriminatory practices are carried on by the institutions it supervises. This can be an important implementing step. As the staff notes, the Board can take measures to have objectionable loan transactions or practices corrected. Significantly, the staff advises: "With relatively few exceptions, illegal, defective, or unsound practice is revised upon supervisory request.' The Board can use this informal exertion of supervisory authority as a further means of implementing its new policy against discrimination.

The Board's staff, strangely enough, is not in favor of extending the scope of examination for purposes of implementing nondiscrimination. For one thing, the staff appears to question whether examination may properly be used for this purpose. It advises that the purposes of examinations in general "are to assure sound financial condition and practice and adherence to law and to prevent, detect, and correct financial practices that are illegal and unsound." " With particular reference to mortgage loans, the staff advises, the purpose of examination "is to ascertain and report the facts as to any violation of law or regulation and as to any material failure to pursue safe and sound financial practices." " But an effective policy of nondiscrimination involving a wider scope of examination would not appear to be necessarily inconsistent with either of these purposes. Furthermore, in view of the fact that the Board has indicated its intention of extending the scope of examination for this purpose, it would appear that the Board, if not the Board's staff, is in accord with this conclusion.

It should be noted that the Board's staff does believe that the Board presently has legal authority to require federally chartered associations and member associations of the Federal Home Loan Bank System (though not State-chartered insured associations) to conduct their mortgage loan business on a nondiscriminatory basis." If this is so, then clearly the Board has authority to help implement its new policy against discrimination by extending the scope of examination of these institutions to include discrimination. The Board has indicated that it intends to do just that.

The staff also had reservations about the desirability of a regulation requiring nondiscrimination in mortgage lending. The administration of such a regulation, the staff explained, would require recording the race, creed, and color of each denied application; the specific reasons for denial; and a supervisory determination as to whether the particular application should have been approved." Therefore, while the staff believes that the Board has the legal authority to require nondiscrimination, it also believes that such a requirement would be undesirable because it "would be unenforceable and ineffective and probably would

operate to obstruct rather than to promote the objective sought to be attained." " The staff concluded:

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In our opinion such a regulation would inevitably effectuate a "segregation" of borrowers by race, color, or creed where no such differentiation now exists or has any cause to exist, and would therefore impede, rather than facilitate, progress toward the desired objective.

But an effective requirement of nondiscrimination need not involve listing the race, creed, and color on mortgage loan applications. Considerable progress has been made in the elimination of discrimination in such matters as Federal employment, even though the keeping of racial records was explicitly forbidden." On the other hand, even if a listing is required, the consequences need not be adverse. A required record of race should do no more than make known to the examiner information which has been previously available only to the association's loan officers. It is not entirely clear how this would "impede" progress toward nondiscrimination.

Between the initial step of circulating a statement of its policy and the ultimate step of requiring and enforcing nondiscrimination, there is a broad array of means available to the Board whereby it can utilize its prestige and powers of persuasion to encourage the associations to halt discrimination. As will be seen in the case of the banking agencies, the Board already exerts a good deal of its authority through less formal means than the issuance and enforcement of regulations and requirements.

The Board's resolution of June 1, 1961, opposing discrimination as a matter of policy is a significant beginning. The FHLBB is the only Federal agency involved in supervising the financial community that has taken any action in this regard. If the Board carries forward by undertaking and making an effective examination into discrimination (and Chairman McMurray indicates that this is the Board's intention), it will be a move of momentous significance.

The Federal Government and commercial banks

Commercial banks, unlike savings and loan associations, are involved in various lending activities other than home mortgages. Nevertheless, at the end of 1960 the 13,456 commercial banks in the country (with assets of over $258 billion) had more than $20 billion invested in nonfarm residential mortgage loans.80 Nearly all of these institutions are benefited and supervised by one or more of three administrative agencies of the Federal Government: the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation. These three separate agencies exercise,

in the world of commercial banking, roughly the same three functions that the Federal Home Loan Bank Board exercises in the separate world of savings and loan associations. Of the several categories of commercial banks, national banks are most highly regulated and benefited by the Federal Government. They are also, perhaps not by mere coincidence, the dominant institution in the commercial banking community.

Comptroller of the Currency (national banks).—Between 1935 and the end of 1960 the total assets of national banks more than quintupled, jumping from $26 billion to $140 billion. They constitute only 34 percent of the Nation's 13,456 commercial banks, yet they presently account for 54 percent of all commercial banking assets. In the area of mortgage lending, they occupy a similarly dominant position. In 1939,82 the total holdings of national banks in nonfarm residential mortgage loans were $1.2 billion, 46 percent of the total held by all commercial banks. By the end of 1960, the holdings of national banks had leaped more than tenfold to $11.4 billion, and their share of the expanding commercial bank holdings in nonfarm residential mortgages had grown to 56 percent.

The importance of national banks goes beyond the sizable resources at their command. They are leaders in the financial community and, as a group, enjoy perhaps the highest prestige and public confidence of all the Nation's financial institutions. Furthermore, their importance in the home mortgage market is growing.

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As with Federal savings and loan associations, national banks are a Federal creation, dating back to 1863. Their status as such carries with it many substantial benefits: They hold the exclusive privilege within the banking community of using the word "National" in their titles; 85 they automatically receive the benefit of FDIC deposit insurance; they are members of the Federal Reserve System; " and they are protected by Federal statute from certain forms of State taxation.SS addition, they have been treated with great solicitude by the courts, which have noted a quasi-governmental character about them. On numerous occasions the Supreme Court has declared that "National banks are instrumentalities of the Federal Government created for a public purpose.

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The Comptroller of the Currency " is the administrative officer charged with the duty of chartering, supervising, regulating, and examining these favored institutions. The Comptroller also has authority to initiate proceedings for the removal of a director or officer of a national bank who, in the opinion of the Comptroller, has continued to violate any law or has continued unsafe or unsound practices. And under designated circumstances, he may initiate proceedings to forfeit the charter of a national bank. The great bulk of the Comptroller's pervasive authority over national banks, however, lies in the wide range of discretion he has in regulating their activities. There is little formality in the Comp

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troller's operations and almost no occasion for public hearings. One of the foremost administrative law authorities has noted, regarding the regulation of national banks: "

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Probably the outstanding example in the Federal Government of regulation of an entire industry through methods of supervision, and almost entirely without formal adjudication, is the regulation of national banks. The regulation of banking may be more intensive than the regulation of any other industry, and it is the oldest system of economic regulation. The system may be one of the most successful, if not the most successful. The regulation extends to all major steps in the establishment and development of a national bank, including not only entry into the business, changes in status, consolidations, reorganizations, but also the most intensive supervision of operations through regular examination of banks.

The Comptroller has considerable discretion in deciding whether to grant a charter to a new national bank." He has similar discretion as to whether to approve a branch application by a national bank." Moreover, the decision as to how often a national bank is examined is also discretionary with the Comptroller, so long as it is at least three times within each 2-year period."

Through regulations and these regular examinations, the Comptroller maintains effective control over the operations of national banks. For example, when the mortgage loan policies of national banks are criticized by the examiners, the Comptroller secures correction in the following way:

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Such criticisms are brought to the attention of management, and generally we experience little difficulty in obtaining its cooperation in correction of any mortgage loans which may have been made in conflict with sound credit standards or law. If, of course, the bank fails to take such action as might be within its power to bring about correction, the Comptroller has authority under the statutes to place the bank under close supervision by means of more frequent examinations or to proceed against those responsible to have them removed from office. Cause for such action is extremely infrequent.

The supervisory and regulatory authority of the Comptroller over national banks is extensive and pervasive; the prestige of his office in the community of national banks is high; the breadth of his directive and persuasive powers to influence that community's policy is wide; and national banks themselves are "instrumentalities of the Federal Government created for a public purpose." It seems clear that the Comptroller of the Currency has both the legal authority and the effective power to require the elimination of discriminatory mortgage lending practices by national banks.

This Commission requested the Comptroller's opinion regarding his present legal authority to establish a requirement of nondiscrimination by national banks. He replied: 98

Throughout the history of this office all regulatory authority granted to the Comptroller of the Currency has been directed toward legality, safety, and soundness of activities of the national banking system. We have adhered consistently to the position that our supervisory functions should be directed fully toward these objectives.

The reply appears to acknowledge the existence of sufficient authority to impose such a requirement. But it also suggests that such a requirement would be undesirable or inappropriate-a suggestion borne out by the Comptroller's other responses to the Commission's inquiries.

In response to a question as to whether his office presently maintains any policy regarding racial discrimination by national banks in the making of real estate loans, the Comptroller, Hon. Ray M. Gidney, replied: "Our office does not maintain any policy regarding racial discrimination in the making of real estate loans by national banks." " He added: "Our interest lies in the legality and credit soundness of each loan, irrespective of the race, creed, or color of the borrower." 100

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In response to a question as to whether his office has attempted to find out if national banks make loans on a discriminatory basis, Mr. Gidney replied: "[W]e do not attempt to determine whether national banks make loans on a basis which weighs any factors other than legality and sound credit." 101 The Comptroller was also explicitly asked for his opinion on the desirability of a requirement that mortgage loans be made by national banks on a nondiscriminatory basis. He replied: "We have no knowledge of discrimination by national banks in their lending practices. We are not aware of whether there is a need for a statute or administrative regulation dealing with this as a factor in the making of real estate loans. Thus, we are not in a position to express an opinion as to its advisability." 102

The Comptroller's opinion was also requested on the question of whether the race of the would-be borrower or the racial composition of the neighborhood are legitimate considerations for a national bank in determining whether to make a real estate loan. Mr. Gidney replied: "Aside from the questions of legality and the borrower's credit worthiness, mortgage lenders are generally interested in the stability of the real estate involved.” 103

Whether, in his opinion, the presence of Negroes or members of other racial minority groups necessarily affects the stability of real estate, Mr. Gidney did not say.