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REORGANIZATION PLAN NO. 2 OF 1956
(Federal Savings and Loan Insurance Corporation)

TUESDAY, JUNE 26, 1956

HOUSE OF REPRESENTATIVES,
EXECUTIVE AND LEGISLATIVE REORGANIZATION SUBCOMMITTEE,
OF THE COMMITTEE ON GOVERNMENT OPERATIONS,

Washington, D. C. The subcommittee met, pursuant to notice, at 10 a. m., in room 1501, New House Office Building.

Present: Representatives Dawson (presiding), Jones, Fascell, Hoffman, Harden, Brown, and Jonas.

Also present: Representatives Henderson Lanham, Chet Holifield, Lester Johnson, Brent Spence, and Robert W. Mollohan.

Chairman Dawson. The subcommittee will come to order.

A quorum is present to proceed. Our hearings this morning are on House Resolution 541 introduced by the Honorable Dante Fascell, a member of the Committee on Government Operations and of this subcommittee. His resolution urges the House to disapprove Reorganization Plan No. 2 of 1956 transmitted by the President to the House on May 17, 1956. This reorganization plan would separate the insurance functions of the Federal Savings and Loan Insurance Corporation from the Federal Home Loan Bank Board and provide the Federal Savings and Loan Insurance Corporation with its own independent management. A board of trustees composed of three members would be created.

Transcripts of these hearings will be available for correction Wednesday morning at 10 a. m. in the committee office, room 1501. Because of the limited time available, transcripts must be returned corrected by 4 p. m. of the same day.

(The resolution referred to follows:)

(H. Res. 541, 84th Cong., 2d sess.)

RESOLUTION Resolved, That the House of Representatives does not favor the Reorganization Plan Numbered 2 transmitted to Congress by the President on May 17, 1956.

(Reorganization Plan No. 2 of 1956 (H. Doc. 406) follows :)

[H. Doc. 406, 84th Cong., 2d sess. ] MESSAGE FROM THE PRESIDENT OF THE UNITED STATES TRANSMITTING REORGANI

ZATION PLAN No. 2 OF 1956, PURSUANT TO THE REORGANIZATION ACT OF 1949, "AS AMENDED

To the Congress of the United States:

I transmit herewith Reorganization Plan No. 2 of 1956, prepared in accordance with the provisions of the Reorganization Act of 1949, as amended. The reorganization plan is designed to provide the Federal Savings and Loan Insurance Cor.

1

poration with its own management, independent of the Federal Home Loan Bank Board. This organizational change accords with a recommendation of the second Commission on Organization of the Executive Branch of the Government.

The management of the Federal Savings and Loan Insurance Corporation has been merged with and identical to that of the Federal Home Loan Bank System since the Corporation was established in 1934. It may well be that this identity of management was useful during the formative years of the Federal Home Loan Bank System and of the program of the Federal Savings and Loan Insurance Corporation. I am satisfied, however, that the time has come to separate the two agencies. Reorganization Plan No. 2 of 1956 establishes, separate from the Federal Home Loan Bank Board, a new board of trustees of the Federal Savings and Loan Insurance Corporation ; vests the management of the Corporation in that board of trustees; and makes appropriate transfers of the functions of the Federal Home Loan Bank Board to the board of trustees and to the Corporation.

The present responsibilities of the Federal Home Loan Bank Board are principally (1) supervision and regulation of the 11 home-loan banks established pursuant to the Federal Home Loan Bank Act of July 22, 1932, and of member institutions thereof, (2) chartering, supervision, and regulation of Federal savings and loan associations, under the Home Owners' Loan Act of 1933, and (3), beginning in 1934, management of the Federal Savings and Loan Insurance Corporation, together with related supervision and regulation of insured institutions.

The reorganization plan is directed at the third of the foregoing, which is essentially a responsibility for the insurance of individual accounts in institutions of the savings and loan type, including concomitant supervision and regulation of insured institutions. Thus, the Federal Home Loan Bank Board will retain both its original functions relating to home-loan banks and their member institutions, and its functions, under the Home Owners' Loan Act, of chartering, supervision, and regulation of Federal savings and loan associations.

The financial soundness of the insurance program of the Federal Savings and Loan Insurance Corporation is of major and increasing interest to the Government. Under the law the Treasury may be called upon to purchase up to $750 million in obligations of the Corporation. The volume of savings insured by the Corporation has increased nearly sixfold in the last 10 years and now stands at approximately $28 billion.

In its audit reports submitted to the Congress from time to time the General Accounting Office has questioned 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 the insurance underwriting. The General Accounting Office has stated that experience has shown that the responsibility for those functions are inherently conflicting and has recommended that the Congress consider separating the Federal Savings and Loan Insurance Corporation from the Home Loan Bank Board. The second Commission on Organization of the Executive Branch of the Government, in its report to the Congress on the subject of lending agencies, stated that there should be a clear separation of the management of the two agencies.

I am persuaded that separation of the two programs will enhance the quality of the management of the Corporation. It will promote continuing public confidence in the savings and loan insurance program, and will better safeguard the interests of the Corporation and of the Treasury in minimizing the danger of losses arising from the contingent insurance liability.

The primary responsibility of the Federal Home Loan Bank Board will continue to be the encouragement of local thrift associations and the maintenance of a stable flow of funds for home financing by its member institutions. The reorganization plan will enhance the Board's ability to perform these functions by relieving it of its present conflicting responsibility for administering Federal insurance of savings and loan associations.

Reorganization Plan No. 2 of 1956 provdes that the Chairman of the Federal Home Loan Bank Board shall be 1 of the 3 members of the Board of Trustees of the Federal Savings and Loan Insurance Corporation. That arrangement is considered desirable to foster coordination of the policies of the Corporation and of the Federal Home Loan Bank Board. Moreover, the arrangement corresponds generally to the interrelationship of the Federal Deposit Insurance Corporation, which insures deposits of commercial banks, and the Comptroller of the Currency, who charters and supervises national banks and is a member of the Board of Directors of that Corporation, but does not otherwise control it.

Relationships of the Federal Savings and Loan Advisory Council will be affected by the reorganization plan to the extent that the Council will confer

with the Corporation, in lieu of the Federal Home Loan Bank Board, on special conditions affecting the Corporation, and also will direct to the Corporation those of the Council's recommendations and requests for information which pertain to the Corporation. The plan does not otherwise affect the Council or the functions of the Federal Home Loan Bank Board with respect to the Council.

After investigation I have found and hereby declare that each reorganization included in Reorganization Plan No. 2 of 1956 is necessary to accomplish one or more of the purposes set forth in section 2 (a) of the Reorganization Act of 1949, as amended. I have also found and hereby declare that it is necessary to include in the accompanying reorganization plan, by reason of reorganizations made thereby, provisions for the appointment and compensation of officers as therein provided. The rates of compensation so fixed are those which I have 'found to prevail in respect of comparable officers in the executive branch of the Government.

I believe that the reorganizations made by the Reorganization Plan No. 2 of 1956 will in the long run tend to reduce expenditures of the Government by reason of the more effective protection of the Government's large financial interest in the affairs of the Federal Savings and Loan Insurance Corporation and of the institutions insured by the Corporation. It is not practicable, however, to itemize at this time the reduction in expenditures which it is probable will be brought about by the taking effect of the reorganizations included in the reorganization plan. There will be a modest increase in the overall operating expenses of the Corporation and of the Federal Home Loan Bank Board, which are fiņanced from the receipts of assessments, fees, premiums, and investment income of the Corporation and of the Board, and not from ordinary Government appropriations.

The insured institutions, the holders of insured accounts, and the Federal Government all have a vital stake in the insurance program of the Federal Savings and Loan Insurance Corporation. Reorganization Plan No. 2 of 1956 will substantially benefit all of them. I urge the Congress to allow the reorganization plan to become effective.

DWIGHT D. EISENHOWER. THE WHITE HOUSE, May 17, 1956.

REORGANIZATION PLAN No. 2 OF 1956 Prepared by the President and transmitted to the Senate and the House of Representatives

in Congress assembled, May 17, 1956, pursuant to the provisions of the Reorganization Act of 1949, approved June 20, 1949, as amended

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION SECTION 1. Board of trustees.-(a) There is hereby established the board of trustees of the Federal Savings and Loan Insurance Corporation (hereinafter referred to as the board of trustees).

(b) The board of trustees shall be composed of three members as follows: (1) two members, each of whom shall be appointed by the President by and with the advice and consent of the Senate and receive compensation at the rate now or hereafter prescribed by law for the chairman of the Federal Home Loan Bank Board, and (2) the chairman of the Federal Home Loan Bank Board, ex officio. The President shall from time to time designate to be the chairman of the board of trustees one of the appointive members thereof.

SEC. 2. Transfer of functions.-(a) There are hereby transferred to the board of trustees all functions of the Federal Home Loan Bank Board, including all functions of the chairman thereof, with respect to directing and operating the Federal Savings and Loan Insurance Corporation (hereinafter referred to as the Corporation) and with respect to the appointment and the fixing of compensation of officers, employees, attorneys, and agents of the Corporation.

(b) Except as transferred by the provisions of section 2 (a) of this reorganization plan, and exclusive of the function of granting approval required under section 406 (a) of title IV of the National Housing Act, as amended (12 U. S. C. 1729 (a)), which function of approval shall remain with the Federal Home Loan Bank Board, all functions of that Board provided for in the said title IV, including all functions of any member or agent of that Board so provided for, and all other functions vested in or performed by that Board by reason of its responsibility to or for the Corporation, are hereby transferred to the Corporation.

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