As to the more detailed features of the bill, the Board doubts the advisability of the provisions of the bill as to the composition of the new Board. Under the bill, this Board would, after the intial terms, be composed of three members with staggered 6-year terms. One would at all times be a person the major part of whose business or professional experience had been in commercial banking, with alternating appointments between members with experience primarily with Statechartered banks and members with experience primarily with national banks. The other member (besides the chairman, the major part of whose business or professional experience could not have been with any phase of the banking or the savings and loan industries) would be a person the major part of whose business or professional experience had been with savings institutions, with alternating appointments between members whose experience had been primarily with savings and loan associations and members whose experience had been primarily with savings banks. Since the bill provides that two of the members of the new Board shall be selected from persons whose primary experience has been in the field of specified industries, those members might feel that they were appointed to represent those industries, rather than to represent the public interest. Also, there might be persons of substantial competence and knowledge in the area of financial institutions who would be precluded from serving on the Board by the restrictive language contained in the bill. Further, it is not clear whether, under the bill, the Federal Deposit and Savings Insurance Board would be obligated to grant insurance to a Federal savings and loan association duly chartered by the Federal Home Loan Bank Board. In view of the provision of subsection (a) of section 403 of the National Housing Act that it shall be the duty of the Federal Savings and Loan Insurance Corporation to insure the accounts of all Federal savings and loan associations, we are inclined to the belief that it would be, but the matter is nevertheless not clear. Also, it is to be noted that section 408 of the National Housing Act vested in the Federal Home Loan Bank Board a number of functions in the field of savings and loan holding companies, including specific functions relating to insured institutions which are controlled by such companies. It is not clear whether these functions would pass to the new Federal Deposit and Savings Insurance Board, and we believe that this lack of clarity would be likely to produce conflicts and difficulties of administration, and I presume if you would enact this, you would like this perfectly clear. With reference to H.R. 5874, we see an entirely different set of problems. The problems arise out of the fact that the structure of regulatory control over banks in the Federal sector reflects the history of the development of such controls. The national banking system, the Federal Reserve System, and the Federal Deposit Insurance Corporation were created at different times with varying objectives and powers. By mutual agreement, the three agencies avoid overlapping in their supervisory functions as nearly as possible. Nevertheless, differences in the basic statutes, separate grants of authority, and variations in interpretation can lead to probIems. Generally, coordination and cooperation among the several agencies appears to have been good. However, it appears that the degree of uniformity in approach has varied over time, depending on the views and temperaments of the responsible officials. Looking at the results of the present structure might suggest that nothing further is required, since the strength and effectiveness of the banking system would merit a substantially favorable rating. Yet a conclusion in favor of the status quo is probably not fully justified. As the financial system has become more complex and critical in the affairs of the Nation, problems and programs have developed requiring quite close coordination. Disparate views on such topics as mergers, branches, charters, the competitive structure of the banking industry, portfolio practices, trust powers, capital adequacy, and a host of other questions could generate centrifugal forces which might prove damaging, in the long run, to the fabric of the banking system. It is conceptually possible to rely on informal or quasiformal arrangements to achieve the goals implied in these comments. Indeed, the majority of the Committee on Financial Institutions favors such an approach, at least initially. On the other hand, that report recognizes that coordination and cooperation have not always been fully satisfactory based on the present informal arrangements. The discussion of structural characteristics, chapter VII of the report, also suggests some areas of actual or potential duplication. To cure these problems, the Commission on Money and Credit recommended consolidation of examination and supervision of the commercial banking system under the Board of Governors of the Federal Reserve System. The important part of this recommendation is consolidation. Certainly, consolidation under the Board of Governors would have some obvious advantages, but there may be valid grounds for a separate body from the point of view both of the Federal Reserve and of the needs of the Nation. Whatever approach is selected, it is essential to test that approach against the increasing need for assuring resolution of diverse views. Diversity is an essential characteristic of a democracy, but differing views about regulation of our institutions must be reconciled or blended at some point. The issue that impresses us is whether Congress should endorse an informal arrangement by encouraging greater coordination and cooperaton among existing agencies or seek a more formal structure through consolidation. Our own experience recommends the latter course to us, but we should prefer not to argue on the basis of analogy alone. We believe, therefore, that H.R. 5874 should be given intensive consideration so that the basic issue of informal or formal coordination may be more clearly delineated. While time has not permitted the clearance of this statement with the Bureau of the Budget, the reports of the Board to the chairman of the committee on these two bills, in which the same positions were taken as in this statement, were transmitted to the Bureau in advance of their submission, and informal advice was received from the Bureau that there was no objection to the submission of those reports from the standpoint of the administration's program. Mr. MULTER. Thank you, Mr. McMurray. Do either of the Board members wish to add anything at this time? Mr. WILLIAMS. All three of the members of the Federal Home Loan Bank Board thoroughly agree with the statement of the chair man. Mr. MULTER. We have received letters, or, rather, reports dated May 6, 1963, from Mr. McMurray, as Chairman of the Federal Home Loan Bank Board, addressed to the chairman of our full committee, the Honorable Wright Patman. If there is no objection, we will make them a part of the record at this point. Without objection, it is so ordered. (The reports referred to follow :) Hon. WRIGHT PATMAN, FEDERAL HOME LOAN BANK BOARD, Chairman, Committee on Banking and Currency, House of Representatives. DEAR MR. CHAIRMAN: Pursuant to the request in your communication dated March 4, 1963, the Federal Home Loan Bank Board submits this report on H.R. 729 of the present Congress, which, if enacted would establish a Federal Deposit and Savings Insurance Board in which would be vested the management of the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation. The Federal Home Loan Bank Board is not in favor of the enactment of this bill. Its primary concern is as to the effect which the bill would have on the operations with respect to which the Board now has administrative and regulatory authority. These functions are as follows: First, under the Federal Home Loan Bank Act, originally enacted in 1932, the Board is the supervisory and regulatory body for the system of Federal Home Loan Banks, now 11 in number. These banks provide credit facilities for their member home-financing institutions. The members of the bank comprise Federal savings and loan associations and similar institutions chartered under the laws of the States, the District of Columbia, and certain of the territories and possessions, together with a number of savings banks. Insurance companies which make long-term home mortgage loans are also eligible, though none are currently members. While under Federal statute, membership is mandatory only as to Federal savings and loan associations, those savings and loan associations belonging to the system constituted at the end of 1962 almost 98 percent in assets and 78 percent in number of all savings and loan associations in the United States, and their loans during that year approximated 43 percent of the home mortgage loans made by all types of lenders. Second, the Board is the chartering, examining, and regulatory agency for all Federal savings and loan associations. These associations, which are authorized under the Home Owners' Loan Act of 1933, bear to State-chartered savings and loan associations a relation similar to that which national banks bear to State banks. Third, the Board has the function of operating the Federal Savings and Loan Insurance Corporation, which was established in 1934 by title IV of the National Housing Act. This corporation insures, up to a statutory limit which originally was $5,000, but was increased in 1950 to $10,000, the savings of members of the public in all Federal savings and loan associations and in such other eligible associations of the States, territories, and possessions as apply and are accepted. Each institution which applies for insurance is required by said title IV to agree to permit and pay the cost of such examinations as, in the judgment of the corporation, may, from time to time, be necessary for its protection and the protection of other insured institutions and to agree to regulation by the corporation in specified areas set forth in said title. The principal effect of the present bill, so far as it relates to the operations of the Board, would be to transfer the functions referred to in item "Third" above from the Federal Home Loan Bank Board to the new Federal Deposit and Savings Insurance Board. The Federal Home Loan Bank Board believes that such a transfer would not be in the public interest. Under the existing regulatory scheme the responsibility for all major Federal functions relating to savings and loan associations, both Federal- and Statechartered, is vested in one agency, the Federal Home Loan Bank Board, which by reason of its position in this respect is able to administer the entire body of such functions in a unified and coordinated way. Further, the present system permits the administration of those functions with a maximum of economy and a minimum of duplication. Pursuant to statutory provisions authorizing the utilization by the Federal Savings and Loan Insurance Corporation of services and facilities of the Board, there is a single set of service divisions providing such services as legal, examining, and supervision. Thus a single examining division on the staff of the Board examines all Federal savings and loan associations and all State-chartered institutions insured by the corporation, and a single division of supervision similarly performs supervisory functions with respect to all such institutions. This maximum degree of coordination and efficiency is possible because the institutions thus examined and supervised form a single set of homogeneous institutions working toward common ends of serving the public through the provision of thrift and home-financing facilities. Although there are some divergencies as to lending authorities and methods of operations among institutions governed by laws of different jurisdiction, the similarities are more significant than the differences. If the present bill were enacted, the entire Federal responsibility in the field of insuring State-chartered savings and loan associations and of examining and supervising State-chartered associations which have such inurance would be passed to a new agency which, faced with having to operate in the two dissimilar fields of commercial banking institutions on the one hand and of specialized thrift and home-financing institutions on the other, could not give to either the benefit or single-minded, specialized attention and judgment. With respect to Federal savings and loan associations, the bill would produce a fragmentation of functions which we believe was wisely avoided in the original enactment of the basic legislation by placing all functions-whether of chartering, insuring, examination, regulation, or supervision-under the responsible direction of a single set of Federal officials. We note that another pending bill (H.R. 4253) introduced by the same sponsor would end the present fragmentation of authority in the banking field by placing in a single new agency the bank chartering, regulatory, and supervisory functions now divided between the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Board of Directors of the Federal Deposit Insurance Corporation. We also doubt the advisability of the provisions of the bill as to the composition of the new board. Under the bill said Board would, after initial terms, be composed of three members with staggered 6-year terms. One would at all times be a person the major part of whose business or professional experience had been in commercial banking, with alternating appointments between members with experience primarily with State-chartered banks and members with experience primarily with national banks. The other member (besides the Chairman, the major part of whose business or professional experience could not have been with any phase of the banking or the savings and loan industries) would be a person the major part of whose business or professional experience had been savings institutions, alternating between appointees whose experience had been primarily with savings and loan associations and appointees whose experience had been primarily with savings banks. Since the bill provides that two of the members of the new Board shall be selected from persons whose primary experience has been in the field of specified industries, those members might feel that they were appointed to represent those industries, rather than to represent the public interest. Also, there might be persons of substantial competence and knowledge in the area of financial institutions who would be precluded from serving on the Board by the restrictive language contained in the bill. In addition to the substantive objections which we feel exist as to the present bill, H.R. 729, we call attention to two other matters. Under the bill, it is not clear whether the Federal Deposit and Savings Insurance Board would be obligated to grant insurance to a Federal savings and loan association duly chartered by the Federal Home Loan Bank Board. In view of the provision of subsection (a) of section 403 of the National Housing Act that it shall be the duty of the Federal Savings and Loan Insurance Corporation to insure the accounts of all Federal savings and loan associations we are inclined to the belief that it would be, but the matter is nevertheless not clear. Also, it is not clear whether the functions of the Federal Home Loan Bank Board under section 408 of that act, relating to savings and loan holding companies, would pass to the Federal Deposit and Savings Insurance Board. We believe that the lack of clarity in these respects would be likely to produce conflicts and difficulties of administration. Informal advice has been received from the Bureau of the Budget that there is no objection to the submission of this report from the standpoint of the administration's program. Sincerely yours, JOSEPH P. MCMURRAY, Chairman. Hon. WRIGHT PATMAN, FEDERAL HOME LOAN BANK Board, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: Reference is made to the request in your communication dated March 8, 1963, for a report on H.R. 4253 of the present Congress, and to later telephoned information from the staff of your committee that such report should be made instead on the revised bill H.R. 5874 on the same subject. H.R. 5874, if enacted, would establish a Federal Banking Commission consisting of a chairman and four other members to be appointed by the President by and with the advice and consent of the Senate. The bill would transfer to this Commission the bank examining and other banking supervisory functions of the Board of Governors of the Federal Reserve System except as to Federal Reserve banks; the bank examining and bank supervisory functions of the Federal Reserve banks themselves; all functions of the Comptroller of the Currency except his currency issue and redemption functions, which the bill would transfer to the Secretary of the Treasury; and all functions of the Board of Directors of the Federal Deposit Insurance Corporation. Other provisions of the bill would vest in the chairman of the Commission the internal administration of the Commission, including certain personnel functons, would authorize delegations of authority, subject to specified limitations, would provide transitional arrangements and make conforming amendments to other provisions of statute, and would transfer to the Commission the functions of the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956. The only part of the bill which would affect the operations for which the Federal Home Loan Bank Board has responsibility is section 189, on page 53. That section of the bill would amend subsection (a) of section 22 of the Federal Home Loan Bank Act, which relates to the authority of the Comptroller of the Currency and specified agencies of the Government to make available to the Federal Home Loan Bank Board in confidence, for its use and that of any Federal Home Loan Bank, reports, records, or other information as set forth in said subsection, and to make through their examiners or other employees, for the confidential use of the Board or of any Federal Home Loan Bank, examinations of institutions with respect to which any Federal Home Loan Bank has had or contemplates having transactions under the Federal Home Loan Bank Act. Section 189 of the bill would strike out the language "Comptroller of the Currency" in this provision of the Federal Home Loan Bank Act and insert the language "Federal Banking Commission." The Federal Home Loan Bank Board does not see any objection to such an amendment in the context of the bill. As to the more fundamental aspects of the measure, it is obvious that its principal objective and its general effect would be to end the fragmentation of bank examining, bank supervisory, and bank-deposit insurance functions which exists under the present system, in which the major elements of those functions are divided between the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation and its Board of Directors. Since the Federal Home Loan Bank Board does not exercise any of the functions relating to commercial banks, the Board does not feel it can comment from its own knowledge about the adequacy of the present structure. That structure has functioned well in terms of observable results-the health and soundness of the banking system. However, the Committee on Financial Institutions re |