Mr. JONAS. Well, now if that is true then why isn't it equally true that there would be practical advantage in having a difference in directorate?

Mr. MCALLISTER. Because the conclusions of the staff, the bank board staff, and the insurance staff, all merge, flow right out through the Board, itself.

In other words, if the Board had to pass on an application for a permission to organize a Federal association and approved it and the application went over to another Board representing the Insurance Corporation, it would mean a duplication of work and a delay in connection with it. Certainly the Home Loan Bank Board wouldn't, even if it could, issue permission to organize a Federal association unless concurrently the Insurance Corporation would grant insurance to the group.

Mr. JONAS. Well, that could easily be one of your conditions. You grant a charter under the following conditions, namely one, that insurance is granted. That wouldn't be difficult, would it?

Mr. MCALLISTER. That is right.

Mr. JONAS. I don't believe I have any other questions.

Mr. FASCELL. I have one further question. Isn't the basic reason, Mr. McAllister, that both of these units have the same ultimate objective, they have to go about it the same way, they have to arrive at the same conclusion and there is no reason to separate them?

Mr. MCALLISTER. Our fundamental purpose is to make it possible for people to effectively use the savings and loan associations as a repository for savings and to make those savings, in turn, available to people who want to acquire a mortgage on a home.

Mr. FASCELL. Isn't it further true that because the commercial banks have a system whereby you have to run the gantlet twice is no reason why you should have to do it in the savings and loan business. Mr. MCALLISTER. I would think so.

Mr. FASCELL. That is all I have.

Chairman DAWSON. Thank you very much, Mr. McAllister. You have been on the hot seat for an hour and half.

Mr. MCALLISTER. I just want to say again in conclusion, Mr. Chairman, and members of the committee, that if this is adopted, that the Home Loan Bank Board will certainly conscientiously try its best to see that it works efficiently.

Mr. JONAS. One further question. Of course all State building and loan associations have to run this gantlet twice that Mr. Fascell talks about.

Mr. MCALLISTER. Yes.

Chairman DAWSON. Mr. Holifield, do you want to ask any further questions?

Mr. HOLIFIELD. I don't want to ask any questions.

Chairman DAWSON. You are the next witness.

Mr. HOLIFIELD. Well, before I become a witness, I will keep my hat on as a committee member and say I have watched the function of the Home Loan Bank Board for years now and I want to join Mr. Brown in commending Mr. McAllister as one of the finest public servants we have had in that position.

(Discussion off the record.)

Chairman DAWSON. Our next witness is one who has had great experience with the the Home Loan Bank setup, the distinguished

gentleman from California, one who has given this subject much thought, Mr. Holifield.

Mr. BROWN. Mr. Chairman, before the gentleman from California proceeds, I think that the Chair should also point out that he was a member, a very able member-sometimes I wonder whether we should say of the remarkably good or remarkably bad second Hoover Commission. He and I sat at the same corner of the table and agreed more often than we disagreed.

Chairman DAWSON. I will say that this committee, the Government Operations Committee, is very, very fortunate in that it did have two Representatives on the Hoover Commission, Mr. Brown and Mr. Holifield. We will hear from Mr. Holifield, having heard from Mr. Brown previously.

Mr. JONAS. Mr. Chairman, before Mr. Holifield starts, will you let the record show that I offer my apologies for not staying to hear Mr. Holifield. I would like to hear what he has to say very much, but I will have to read it, because I don't know enough about this bill that is on the floor and I have to vote on that first and I really feel that I have to go on over there and hear some of the debate.

STATEMENT OF HON. CHET HOLIFIELD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. HOLIFIELD. Mr. Chairman and members of the committee, because of the interest I have in the matter I have requested the privilege of making a statement before the Committee on Reorganization Plan No. 2 of 1956 which would ostensibly separate the management of the Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. My interest grows out of the fact that, as a member of the second Hoover Commission, I was responsible for proposing and obtaining unanimous acceptance by the Commission of Recommendation No. 4 in the Commission's report on lending agencies presented to Congress in March of 1955.

Recommendation No. 4, which may be found on page 24 of the Commission's report, reads as follows: 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.

The reason I made that recommendation to the Hoover Commission derived from the fact that for several years, commencing in 1950, a special subcommittee of this committee made an extensive investigation of the Home Loan Bank Board and the Federal Home Loan Bank System. I was privileged to be the chairman of that subcommittee. The printed record of that subcommittee exceeded 2,100 pages. I have it here before me so you will know I spent some time studying the Federal Home Loan Bank Board. In the twenty-odd years the Federal Home Loan System has been in existence, I believe our review constituted the first comprehensive review of the system.

While the subcommittee prepared a report, unfortunately it was not acted on by the full committee because of sharply differing opinions on certain aspects of the matter. Furthermore, several of the differences of opinion were recognized in the enactment of amendments, when various housing and related amendments were considered by the Banking and Currency Committee during the 83d Congress. I refer particularly to provisions making the Home Loan Bank Board

an entity sueable in the courts and regulating the appointment of Conservators by the Board.

Theretofore the appointment of Conservators was without benefit of restraints or requirements of the Administrative Procedures Act. Although as I say, the full committee did not take final action on a report of the Home Loan Bank Board investigation, I outlined the background and salient features of the investigation and made what I believe to be constructive recommendations in a statement presented to the House on July 5, 1952.

At that time I proposed a list of some 14 recommendations for strengthening the administration of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation and for protecting the interest of shareholders in insured savings and loan associations. Among these recommendations were the following: Provision shall be made for independent administration of the functions and authority of the Federal Savings and Loan Insurance Corporation. This and other recommendations will be found at pages 4577 to 4581 of the permanent Congressional Record of July 5, 1952, volume 98, part 2.

The particular remedy just quoted was designed to separate control of the insurance function from the administrative and regulatory functions over Federal savings and loan associations. As you know, by present law the members of the Home Loan Bank Board serve as trustees of the Federal Savings and Loan Insurance Corporation. The subcommittee had observed that in the administration of these two agencies identical membership for both might well lead to interference by the Home Loan Bank Board with the right and duty of the insurance corporation to protect shareholders through its insurance mechanism. Although I used the word "interference," possibly

it would have been better to have used the word "dominate."

For example, the Home Loan Bank Board might decide to investigate a local institution with a Federal charter and the Federal Savings and Loan Insurance Corporation would have little choice in deciding whether or not to extend coverage once the Board decision had been made.

In other words, the promotional activities of the Board in chartering savings and loan associations might well conflict with the protective functions of the Corporation regarding insured depositors.

The argument has been made this morning that the Federal Home Loan Bank Board does not promote these charters. I regret to say that is true. It was the intent of Congress, I believe, that they should promote charters and promote the establishment of a great number of these building and loan associations.

But I believe the interest of the people has been served by having the number that we have at the present time. I think the people's interest would be served better if more of these institutions were established. Some of these institutions are getting up around 75 to 100 million dollars in deposits in one organization. I am not sure that is as good for the general welfare of the people as if there were several institutions spread out a little bit more among our communities.

Now I do not mean by that to criticize the present Board, because I realize they have duties to perform in the setting of criteria for the operation of these organizations. But as a small-business man myself, I would rather see four $25 million institutions than one $100

million institution and have them in places where they could give wider service.

That is my own personal feeling. This recommendation which I made was not original with our subcommittee. The General Accounting Office, as early as 1945 and 1946, more than 10 years ago, proposed such a separation in its audit reports to the Congress. While this early proposal of the General Accounting Office was rather unwieldy, in that it recommended for the Corporation a separate 9-member Board with various Federal and local representatives, I believe the basic idea of separation of the Board's top management and the Corporation was sound.

I believe it is still sound. I disagree with Mr. McAllister on that. point. The General Accounting Office renewed that early 1945-46 recommendation in fiscal 1947, fiscal 1948, fiscal 1949, see House Documents 706, 80th Congress; 209, 81st Congress; 343, 81st Congress; and 573, 81st Congress.

In 1950 the General Accounting Office dropped the recommendation, without necessarily abandoning it, because the Congress had enacted certain legislation affecting the agencies in question without acting upon the GAO's recommendation in this particular respect.

Frank Weitzel, then assistant to the Comptroller General of the United States, appeared before our subcommittee investigating the Home Loan Bank Board in June of 1951 and discussed the status of the GAO recommendation for separating the management of the Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. Mr. Weitzel stated that in the event GAO renewed the recommendation, it would like to reexamine the details and determine what the composition of the Board should be.

In other words, the GAO was not necessarily standing on its early recommendation for a 9-member Board for the Corporation. I think that was a recommendation which was unwieldy. It proposed too many members and I believe they have come to that conclusion also. This recital of the origin of the recommendation will serve to indicate my interest in the matter. It was interesting to me personally, that of the hundreds of possible reorganization plans that could be based on Hoover Commission recommendations, the President saw fit to select as the second reorganization plan of the year that particular proposal which I had made to the Hoover Commission.

I would have preferred to state, that I approve it without qualification, both as a former member of the Hoover Commission and as a member of the Committee on Government Operations. I rather would have come before you and testified in favor of a separation. Unfortunately I do not believe that the plan, as it is drafted, carries out the recommendation of the Hoover Commission in the full and proper sense of the word.

Consequently, I must oppose it and stand with the disapproving resolution submitted by our colleague from Florida, Mr. Fascell. You will note first of all, the Hoover Commission recommendation stated no person should 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.

Section 1 (b) of the reorganization plan the President has sent down provides for a 3-member Board of Trustees of the Federal

Savings and Loan Corporation composed of 2 new members but retaining the Chairman of the Home Loan Bank Board, ex officio, as the third member.

This is not clear-cut separation or independent management since the Chairman of the Board, who is by law its chief executive officer and understandably carries the might and prominence of the chairman, could hardly be expected to be a figurehead as a member of the Board of Trustees of the Corporation.

The President in his recommendation of the plan points to the Hoover Commission recommendation that there should be a clear separation of the management of the two agencies. The retention of the Chairman of the Home Loan Bank Board as ex officio member of the Board of Trustees of the corporation hardly constitutes a clear separation.

I want to depart from my regular statement at this point and talk for a few minutes about the confusion that could result from a lack of clarification in the President's message and in the plan as it pertains particularly to a confusion in having two examining powers.

The Federal Savings and Loan Insurance Corporation for more than 20 years has been a part of the Home Loan Bank Board. The Board members, whether 1, 3, or 5, at all times have been and yet are the sole trustees and governing authority of the Insurance Corpora

tion.

Supervision is the essence of the Federal Home Loan Bank Board's impact upon savings and loan associations and their millions of savings depositors and borrowers. Supervision consists of examinations, criticisms, orders to do or stop doing various things, and finally life and death powers of conservatorships, liquidations, and dissolutions. Abuse or misuse of such powers has immediate and disastrous consequences not only to the supervised savings institutions, but especially to their savings depositors and homeowner borrowers.

Fortunately I don't believe this power has been abused very often, but I know of some instances where it has been. Congress, by the Housing Act of 1954, has subjected such drastic powers to review by the United States district court in the home district of each Federal savings and loan association. Prior to the adoption of that amendment in 1954, the Board of the Home Loan Bank Board held the power of life and death over these financial institutions and their business involving millions and millions of dollars in the community. The men who had formed those institutions and had built them in the communities were helpless in the face of arbitrary actions of the Home Loan Bank Board. The courts had decided that these people were subject to the Board's administrative decisions which in effect could destroy an association if they wanted to use it that way.

Mr. BROWN. Further than that, it would destroy the community. Mr. HOLIFIELD. These are matters of court record. Now in one case in which I speak of, I know that a representative of the Department of Justice, who was acting for the Federal Home Loan Bank Board, stated that the Home Loan Bank Board did not have to answer to the courts nor did they have to answer to the Congress of the United States for their administrative acts.

That was completely within their discretion. There was no legal right to review those decisions unless the Home Loan Bank Board agreed to let the courts review. Of course, you know what that would