Mr. MOORHEAD. Mr. Chairman, I merely would like to say I have read this analysis, and it is certainly very helpful, because the statute is extraordinarily complicated.

Mr. MULTER. I think the staff is entitled to great credit for having done a fine piece of work in that connection.

We are glad to welcome here as our opening witnesses, the Honorable Joseph McMurray, Chairman of the Federal Home Loan Bank Board; and his two fellow members, the Honorable Joseph Williams, a director, and the Honorable John de Laittre, another director.

Mr. McMurray, you may proceed in your own way. You may either file your prepared statement and summarize it, or read it.

STATEMENT OF HON. JOSEPH P. MCMURRAY, CHAIRMAN, FEDERAL HOME LOAN BANK BOARD; ACCOMPANIED BY JOSEPH J. WILLIAMS, JR., MEMBER; JOHN De LAITTRE, MEMBER; AND MAX WILFAND, ATTORNEY FOR THE BOARD

Mr. MCMURRAY. Thank you, Mr. Chairman.

Chairman Multer and members of the subcommittee, Chairman Patman, the other members of the Federal Home Loan Bank Board and I welcome the opportunity to appear before the subcommittee on these two bills, H.R. 729 and H.R. 5874. In order to expedite the work of the subcommittee, I shall make my remarks very brief.

H.R. 729 would establish a new Board, to be known as the Federal Deposit and Savings Insurance Board. The bill provides that this new Board shall manage the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation, in accordance with the acts establishing those corporations and all other applicable provisions of law.

Some background material may be helpful in connection with the effect of the bill on the operations for which the Federal Home Loan Bank Board presently has authority and responsibility.

The original five-member Federal Home Loan Bank Board was created in 1932 by the Federal Home Loan Bank Act. That act charged the Board with the function of establishing, and of supervising, the system of Federal home loan banks to provide a source of seasonal, emergency, and supplementary funds for their members, which were to consist of specified types of institution engaged in making long-term home mortgage loans.

Under the act, the institutions eligible for membership were to comprise savings and loan associations and the similar institutions known in various localities as building and loan associations, homestead associations, and cooperative banks, all of which I shall refer to as savings and loan associations, and savings banks and insurance companies. As of the end of March 1963, the membership consisted of 4,919 savings and loan associations and 35 savings banks.

The savings and loan members of the Federal home loan banks constituted at the close of 1962 almost 98 percent in assets and nearly 78 percent in number of all savings and loan associations in the United States. Their loans during that year approximated 43 percent of the home mortgage loans made by lenders of all types.

A second group of major functions was conferred on the Federal Home Loan Bank Board with the enactment of the Home Owners

Loan Act of 1933, which authorized the Board to provide for the organization, incorporation, examination, operation, and regulation of federally chartered local mutual thrift and home-financing institutions to be known as Federal savings and loan associations. All of these associations were to be Federal home loan bank members, although membership continued to be optional as to State-chartered savings and loan associations.

Of the 4,919 savings and loan members of the Federal home loan banks at the end of March, 1,953 were Federal savings and loan associations and 2,966 were associations chartered under the laws of the States, the District of Columbia, and the territories and possessions, which are commonly termed "State-chartered associations." While the State-chartered associations which were members of these banks somewhat outnumbered the Federal savings and loan associations which were such members, the assets of the Federal group somewhat exceeded those of the State-chartered group, being approximately $50 billion for the former and approximately $43 billion for the latter. A third set of major functions was provided for by the National Housing Act, enacted in 1934, which created the Federal Savings and Loan Insurance Corporation and placed it under the direction_of a board of trustees consisting of the members of the Federal Home Loan Bank Board.

This act made it the duty of the Corporation to insure the accounts of all Federal savings and loan associations, and authorized the Corporation to insure the accounts of other savings and loan associations organized and operated according to the laws of the States, the District of Columbia, and the territories or possessions. Although, as a matter of Federal statute, membership in the Federal Home Loan Banks is compulsory only for Federal savings and loan associations, it is a longstanding policy not to grant such insurance to a Statechartered association unless such association has or obtains Federal Home Loan Bank membership, and at present all institutions whose accounts are insured by the Corporation are Federal Home Loan Bank members.

In contrast to the developments in the banking field, in which the Office of the Comptroller of the Currency was established in 1863 for the chartering and supervision of national banks, followed by the creation of a separate Board in 1913 for the Federal Reserve System and of still another Board in 1933 for the insurance functions, the developments in the thrift and home-financing field consisted of the establishment in 1932 of a board for the Federal Home Loan Bank System, the placing of the Federal chartering and supervisory functions in the same Board in the next following year, 1933, and the vesting of the insurance functions in the members of the same Board in 1934.

It might well be concluded that each of these divergent developments in the fields of commercial banking and of thrift and homefinancing institutions was quite logical and expectable in the light of the existing situations. When the Federal Reserve System was established in 1913 it was scarcely to be expected that the broad powers involved would be placed in a single official having the official status of the head of a bureau in the Treasury Department. Further, when the establishment of the Federal Deposit Insurance Corporation was under c eration in 1933, the Federal functions with respect to

bank regulation and supervision were already divided between two separate agencies, and the placing of the management of that Corporation in a separate board of trustees was a ready means of avoiding any possible resentment or jealousy which might have attended the vesting of such management in either of the two existing agencies in the banking field.

On the other hand, when the legislation to establish the Federal Savings and Loan Insurance Corporation was considered in 1934 the existing precedent in the savings and loan field was already in the pattern of consolidation in a single agency. In the light of that situation the decision to vest the direction of that Corporation in a board of trustees consisting of the members of the same agency was quite understandable.

As you will recall, this arrangement was temporarily superseded during the war and postwar period by the Federal Home Loan Bank Administration, established in 1942 as a constituent unit of the National Housing Agency by Executive Order No. 9070, issued under the First War Powers Act of 1941.

Under this temporary scheme the Chairman of the Federal Home Loan Bank Board became the Federal Home Loan Bank Commissioner, and as such was vested with the functions of that Board and of the board of trustees of the Federal Savings and Loan Insurance Corporation.

Before the expiration of Executive Order No. 9070, the Federal Home Loan Bank Administration and the two earlier Boards were replaced by the present three-member Board, established under the name Home Loan Bank Board by Reorganization Plan No. 3 of 1947 as a constituent agency of the Housing and Home Finance Agency. This three-member Board was made an independent agency, and its name changed to Federal Home Loan Bank Board, by the Housing Amendments of 1955, approved August 11, 1955.

In the next following year, an effort was made in the proposed Reorganization Plan No. 2 of 1956 to separate from the Federal Home Loan Bank Board the functions relating to the Federal Savings and Loan Insurance Corporation and to vest them in a new board of trustees to consist of the Chairman of the Federal Home Loan Bank Board and two members to be appointed by the President with the advice and consent of the Senate.

As you will recall, resolutions to disapprove that proposed reorganization were introduced both in the House and in the Senate. Hearings were held before the Executive and Legislative Reorganization Subcommittee of the House Committee on Government Operations and the Subcommittee on Reorganization of the Senate Committee on Government Operations, and each of those committees favorably reported the disapproval resolution before it. The House acted accordingly, and there was no need for further Senate action.

Meanwhile your own committee, the House Committee on Banking and Currency, had included, in an omnibus housing bill favorably reported by it, a provision that the plan should have no force or effect, simply underlining the action of the other committee.

In its report, your committee stated that it believed the plan should not go into effect, for the reason among others that the committee had serious questions as to the basic merits of the plan and its possible effects.

The report stated that the record of the savings and loan associations of the country, both in encouraging savings and in providing home loans, testified to the overall effectiveness of the basic legislation and the basic organization of the Federal agencies involved. It further stated that the committee felt there was a real question as to whether it would be in the public interest or in the interest of the associations to have two agencies regulating the savings and loan business, and it expressed the view that such a situation would be conducive to conflicting regulations, duplication of supervision, and agency conflict.

Although adoption of the House resolution disapproving the reorganization plan rendered it unnecessary to proceed further with this provision of the housing bill, the Subcommittee on Housing of the Senate Committee on Banking and Currency held a further hearing in December 1956, on the question raised by the plan.

This hearing was preceded by a penetrating and exhaustive study by the staff of that subcommittee of the relationships between the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. It was stated in this study that a separation would not, in the opinion of most informed sources, add to the protection already afforded to the Insurance Corporation and the Treasury, and that the great preponderance of opinion presented in the replies to the questions submitted by the staff was that the efficiency of existing operations would be destroyed rather than enhanced by such a separation, the possibility of overlapping functions and of additional examinations and supervision, as well as additional expense, having been cited as probable results of separation.

After this additional hearing in December 1956, no further proposals for a separation have come to the attention of the Federal Home Loan Bank Board until the present. It may be noted that the report of the Commission on money and credit, while recommending that the Federal Deposit Insurance Corporation and the Comptroller of the Currency and his functions be transferred to the Federal Reserve System and that the functions of the Federal Savings and Loan Insurance Corporation be broadened so that deposit insurance for savings banks would be available from that Corporation, made no recommendation for separation of the Federal Savings and Home Loan Insurance Corporation from the Federal Home Loan Bank Board. Further, the recent report of the committee on financial institutions contains, at page 63 of the printed report, the following explicit statement:

In the case of savings and loan associations, Federal supervision is organized in a single agency. Examination, regulation, and insurance are all concentrated in the Federal Home Loan Bank Board, which manages the Federal Savings and Loan Insurance Corporation. The Committee does not recommend that this arrangement be altered in any fundamental way.

On a thorough consideration of the whole matter, the Federal Home Loan Bank Board is strongly opposed to the proposal in H.R. 729, for the following reasons:

First, under the existing regulatory system, in which the responsibility for all major Federal functions relating to savings and loan associations, both Federal- and State-chartered, is vested in a single agency-the Federal Home Loan Bank Board-that agency is able

to administer the entire body of such functions in a unified and coordinated way. This unified and coordinated administration would no longer be possible if the function of insuring the accounts of such institutions and of regulating and supervising the insured institutions were transferred to a separate agency as proposed by H.R. 729.

Second, the present arrangement permits the administration of the Federal functions as to savings and loan associations 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 division of examinations on the staff of the Board examines all Federal savings and loan associations and all State-chartered institutions insured by the Federal Savings and Loan Insurance Corporation, and a single division of supervision similarly performs supervisory functions with respect to all of these 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 facili ties. Although there are some divergencies as to lending authorities and methods of operation among institutions governed by the laws of different jurisdictions, the similarities are more significant than the differences.

If H.R. 729 were enacted, the entire Federal responsibility in the field of insuring State-chartered savings and loan associations and of examining and supervising State-chartered institutions which have such insurance 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 of single minded, specialized attention, and judgment.

Third, the bill would produce, with respect to Federal savings and loan associations, a fragmentation of functions which we believe was wisely avoided in the 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.

Fourth, the Board believes that the present organizational structure has many advantages which would be lost if there should be such a separation. Disadvantages such as possible conflicts in regulations, dual supervising and examining responsibility, additional personnel resulting in increased costs, and delays and added difficulties in providing services to the public could be expected to arise.

Fifth, it is the view of the Board that the growth both of Federal and of State-chartered insured associations, the general soundness of the institutions supervised and the extremely low loss record, and the large volume of home financing which they furnish provide a clear indication of the merits of the existing system.

For these reasons, the Board feels that H.R. 729 should not be enacted into law.