have his interpretation one way or the other with the Comptroller of the Currency having a different rule.

Now, is that good or bad?

Mr. BROME. Well, may I say, sir, that State and national banks, commercial banks, with which I am familiar have different powers.

The State banks' powers emanate from the State law, and the Federal or national banks' emanate from the National Bank Act. I do not believe that it is necessary or important that those powers be identical. For the most part, as applied to State commercial banks, our powers, investment powers and otherwise, lending powers, are not restricted by Federal law. There are some areas within which they are but for the most part they are not.

This is a matter of the application of State law in particularly the area you are talking about, the real estate loans. The only law applicable to a State member bank in the making of real estate loans is the State banking law.

The only law applicable to national banks is the national banking law. I do not believe, therefore, that your Federal Banking Commission would change this situation.

Mr. MULTER. I had in mind that if a State has certain laws as to investments that the national authorities should not change those as to the State banks.

Do we not have that precise situation occurring when a State bank takes insurance in FDIC? Doesn't FDIC then have as a matter of law the right to determine what is good investment policy?

Mr. BROME. Policy, as distinguished from what is the law, I believe, yes. The examining supervisors, including the Federal Deposit Insurance Corporation, may criticize certain types of investments as being unsound. The law, however, will be the law of the State.

Mr. MULTER. They may also state or the examiner may also state that it is a sound loan but, "You have too many of these types of loans."

Mr. BROME. That is right.

Mr. MULTER. And that very frequently will be brought about by the fact that they don't like the type of loan that the State law permits. And, therefore, they would like to have you minimize the kind of loan which they frown upon because of their policy rather than the State policy.

Mr. BROME. That is right.

Mr. MULTER. Mr. Patman?

Mr. PATMAN. Not now, Mr. Chairman, thank you, sir.

Mr. MULTER. Mr. Talcott?

Mr. TALCOTT. No questions, thank you.

Mr. MULTER. Mr. Hanna?

Mr. HANNA. No questions, thank you.

Mr. MULTER. Thank you very much, sir, you have been very helpful. Mr. PATMAN. I would like to ask you one question. You are a State bank are you not?

Mr. BROME. Yes, we are.

Mr. PATMAN. A member of the Federal Reserve System?

Mr. BROME. Yes, sir.

Mr. PATMAN. Does the State of New York require the banks to pay assessments for examining or examination fees?

Mr. BROME. Yes, sir.

Mr. PATMAN. You pay for the whole cost or does the State pay only part of it?

Mr. BROME. I believe it is determined to be substantially the whole cost, but I am not positive.

Mr. PATMAN. Now, you are examined by the Federal Reserve, too? Mr. BROME. We are.

Mr. PATMAN. There are several hundred banks. About how many State banks belong to the Federal Reserve System?

Mr. BROME. You mean across the country?

Mr. PATMAN. Yes, sir.

Mr. BROME. I would say 900 or 1,000.

Mr. PATMAN. Now, their examinations are paid for by the Federal Reserve?

Mr. BROME. Well, I think, sir, indirectly they are paid by the member banks. We all keep quite substantial reserves with the Federal Reserve banks which are earning assets with the Federal Reserve.

Mr. PATMAN. Well, of course, there could be an argument about that. You don't pay any assessed fee?

Mr. BROME. That is right.

Mr. PATMAN. Which is earmarked for that purpose?

Mr. BROME. That is right.

Mr. PATMAN. In other words national banks pay to the Comptroller of the Currency about $12 million a year for their examinations. And State banks pay an assessment to FDIC for their examinations, do they not?

Mr. BROME. We pay an assessment to the FDIC.

Mr. PATMAN. For examinations by the FDIC?

Mr. BROME. Being a State member bank, sir, we are not subject to examination.

Mr. PATMAN. You are excluded from FDIC examination?
Mr. BROME. That is right.

Mr. PATMAN. It looks like we have three different categories in this area. However, two of them are paid for by the banks and one is not. Well, thank you very much, sir.

Mr. BROME. All right, sir.

Mr. MULTER. Mr. Brome, on that subject, the reserves that you are talking about, that you immobilize with the Federal Reserve bank, are the moneys required to be kept with them in accordance with the Federal statute requiring reserves to be carried with the Federal Reserve System if you are a member of the bank?

Mr. BROME. That is right.

Mr. MULTER. And on those moneys you get no interest and no dividends?

Mr. BROME. That is right.

Mr. MULTER. But as to the money that you put with them in accordance with the so-called stock requirement you get a 6 percent dividend on that?

Mr. BROME. Yes, sir.

Mr. MULTER. And the payment that vou work for this so-called stock-I don't know whether to call them "requirements" or "reserves" because they are really not stock purchases as such-how do they vary?

Mr. BROME. I don't believe I understand your question.

You mean how that is determined?

Mr. MULTER. That is not static

Mr. BROME. I can't tell you the exact provision, but it depends on the capital and the surplus of the member bank.

Mr. MULTER. Yes, as it goes up and down the stock requirement also goes up and down.

Mr. BROME. That is right.

Mr. MULTER. And the bank, when it gets out of the system, gets its money back?

Mr. BROME. That is right.

Mr. MULTER. Thank you. Our next witness this morning is Mr. Eugene M. Mortlock. Mr. Mortlock, will you come forward please. STATEMENT OF EUGENE M. MORTLOCK, VICE PRESIDENT, U.S. SAVINGS & LOAN LEAGUE; ACCOMPANIED BY T. BERT KING, COUNSEL FOR U.S. SAVINGS & LOAN LEAGUE; AND STEPHEN SLIPHER, STAFF VICE PRESIDENT AND LEGISLATIVE DIRECTOR, U.S. SAVINGS & LOAN LEAGUE

Mr. MULTER. Will you make yourself comfortable, and you may proceed as you desire. You may identify yourself for the record as well as the gentlemen who are with you.

Mr. MORTLOCK. Thank you, Mr. Chairman.

My name is Eugene Mortlock and I am vice president of the U.S. Savings & Loan League, a trade association representing almost 5,000 savings and loan associations. I am also president of First Federal Savings & Loan Association of New York City.

With me today is Mr. T. Bert King, Washington counsel, and Mr. Slipher, legislative director for the league.

I appreciate this opportunity, Chairman Multer, to testify on your bills, H.R. 5874 and H.R. 729.

In connection with H.R. 5874, the bill to establish a Banking Commission, this does not directly involve the savings and loan business, and we have taken no official position on the bill. I would like to say, however, that I think the idea of an overall Federal Banking Commission is deserving of serious consideration, and that it might be a giant step forward in better coordinating Federal supervision and regulation of banking.

In regard to H.R. 729, the United States Savings & Loan League and its members are directly involved. We are opposed to the bill to merge the two insurance corporations.

This bill seems to differ from the principle involved in H.R. 4253. I say this because at the present time the Federal agencies in the savings and loan field all operate under one Board, such as would be accomplished for the commercial banking business by H.R. 4874. The Federal Home Loan Bank System, the Federal Savings and Loan System, and the Federal Savings and Loan Insurance Corporation are all under the Federal Home Loan Bank Board, and have been ever since their creation by Congress. The operation of the Board could be improved somewhat, as is true with almost any organization, but overall it is operated with a high degree of efficiency and with a minimum of cross purpose, duplication, or confusion.

At the beginning of this year, we submitted recommendations to the full House Banking and Currency Committee concerning revisions of the Federal statutes applicable to savings and loan associations and administered by the Board. These recommendations included revisions in the supervisory law, holding company legislation, increased insurance coverage, authority for associations to accept investment of public funds, broadening the investment powers of federally chartered associations, and others. So while we feel that the present organization of our Federal agencies is desirable, we are by no means satisfied with every detail of the Federal statutes dealing with the savings and loan business. Our aim over the past years and for the future will be to study and suggest ways to improve the framework, while retaining the time-proven unified agency system for handling the Federal Government's responsibilities as they relate to the savings and loan business.

As I understand H.R. 729, the management and control of the Federal Savings and Loan Insurance Corporation would be placed in the hands of a new three-man Board. This new Board would administer the Federal Savings and Loan Insurance Corporation and the Federal Deposit Insurance Corporation. The three-man Board would be composed of one person not connected with either the banking or savings and loan field, a commercial banker, and an alternate savings and loan or mutual savings bank member. One obvious objection we would have to this arrangement is that for a given 6-year period, there would be no savings and loan member on the Insurance Corporation Board controlling the Federal Savings and Loan Insurance Corporation. I recognize, of course, that the bill could be amended to take care of this objection.

A more serious objection, however, is that the FSLIC, as now constituted, is not only an insuring agency but it is also used as a vehicle to regulate insured savings and loan associations, both State chartered and federally chartered.

Examples of these FSLIC regulations are (1) the geographic area in which loans may be made (generally 50 miles from the home office); (2) limitations on the premiums or giveaways for new accounts; (3) limitations on the volume of savings which may be acquired through brokers; (4) limitations on the sale of loans; (5) restrictions on the sale and purchases of participations in loans; and (6) limitations on loans to one borrower. In other words, these are regulations of the Insurance Corporation which affect both State chartered and federally chartered associations alike. It is important that the same restrictions and controls of this type apply uniformly to all insured associations regardless of charter and that the supervision of these regulations be administered uniformly. So far, I have not heard of any other way in which the Federal Government could control or regulate in part the operations of State-chartered savings and loan associations except through the vehicle of savings account insurance. H.R. 729 would thus place the control over several phases of savings and loan operations in a new Board that would administer the insurance corporations. Of course, the Federal Home Loan Bank Board would continue to supervise and regulate Federal associations. The result would be that State chartered and federally chartered associations could be subjected to different rules or standards and possibly

conflicting regulations and administration of the regulations. The result could be that Federal associations would be supervised and regulated by two different boards. This could easily lead to substantial conflict and controversy between agencies.

We recognize that there are some highly intelligent and serious students of government who honestly believe the function of insuring financial institutions should be separated from the chartering and regulating of them.

In 1956, Reorganization Plan No. 2 was sent to Congress and this plan called for the separation of the FSLIC from the Federal Home Loan Bank Board and the creation of the Insurance Corporation as an independent agency, entirely separate from the Board. The plan was unanimously rejected by the House Committee on Government Operations and was disapproved by a constitutional majority of the House. When the House committee unanimously rejected the plan, it cited, among other things, the following:

(1) The separation is not a requisite for assuring continuing public confidence as the tremendous growth of the local savings and loan associations attests to the high public confidence already in being, and no evidence has been produced that this has been shaken or threatened in any way.

(2) Duplication and confusion in supervision would be a likely result of the separation of the two agencies.

We feel that the same considerations are as valid today as they were in 1956, and these same considerations are decisive in prompting our opposition to H.R. 729.

Finally, I would like to say in all frankness that the commercial banking business and the thrift and home financing business are friendly competitors, but still competitors. For this reason, we would not want to have our Insurance Corporation controlled by others than those whose heart is in the thrift and home financing business as contrasted to the commercial banking business.

Mr. MULTER. Thank you, Mr. Mortlock. That is a very frank statement. I am sure it will be helpful to the subcommittee.

Mr. Mortlock, how many members of the Home Loan Bank Board were officers or directors of a savings and loan association before their appointment to the Board?

Mr. MORTLOCK. I believe there is just one, sir.

Mr. MULTER. The Chairman was never affiliated with any bank, commercial savings bank, or savings and loan association before coming to the Board?

Mr. MORTLOCK. Not to my knowledge, sir.

Mr. MULTER. And Mr. De Laittre was with a savings bank?

Mr. MORTLOCK. Yes; he was.

Mr. MULTER. And he was never affiliated with any savings and loan association?

Mr. MORTLOCK. Not to my knowledge.

Mr. MULTER. On prior Boards was there also a-I don't mean prior Boards, but on Boards made up of other personalities was there also a representative or someone who had been affiliated with a savings and loan association serving as a member of the Board?

Mr. MORTLOCK. Not always. There was one case, I believe, Mr. Walter McAllister, from Texas.