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Mr. MULTER. I am not trying to curtail the examiner's right to say these things. But I just indicate this is one of the areas where they get into most controversy between management and the examiner. And this is a matter of judgment. One man may think it is his duty to come in and say this and tell the bank management, “You ought not to do this.”

And the bank management says, “Well, this is our judgment and our discretion."

Mr. MARTIN. Exactly.

Mr. MULTER. In line with that same matter, your Board has the right, under certain circumstances, to remove officers and directors of institutions that are members of the System, am I right?

Mr. MARTIN. Yes; that is right.
Mr. MULTER. It has rarely been exercised.
Mr. ROBERTSON. That is right.
Mr. MULTER. And I am not saying this invidiously.

I should say it has rarely been exercised because you have not found the necessity to exercise it.

Mr. ROBERTSON. The fact that you have the power means they usually conform to suasion.

Mr. MULTER. And at the same time, while you have that power, you do not have the additional authority and you do not even make the suggestion, where you go in and say, “This man should not be on your board, take him out”-you don't go one step further and say, “Here is a man which we will give you to do the job.”


Mr. MULTER. You lean over backward to make sure there is no such intimation.

Mr. ROBERTSON. We never recommend a man for a job.

Mr. PATMAN. That power to remove is sort of a shotgun in the corner.

Mr. ROBERTSON. That is right.
It is much too severe to be used in ordinary circumstances.

Mr. MULTER. Thank you very much, gentlemen. You have been very helpful. We do appreciate it.

We will stand in recess now until tomorrow morning at 10 o'clock.

(Whereupon, at 3:15 p.m., the subcommittee recessed, to reconvena at 10 a.m., Thursday, May 9, 1963.)

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Washington, D.C. The subcommittee met, pursuant to recess, at 10 a.m., in room 1301, Longworth House Office Building, Hon. Abraham J. Multer (chairman of the subcommittee), presiding.

Present: Representatives Multer (presiding), Patman, Moorhead, Minish, Weltner, Grabowski, Kilburn, Brock, and Talcott.

Mr. MULTER. Good morning, gentlemen.

We are indeed happy to welcome back to our committee Mr. Erle Cocke, Sr., who is Chairman of the Federal Deposit Insurance Corporation, and Mr. Jesse P. Wolcott, former chairman of this committee, former Chairman of FDIC, and a member of FDIC.

We are happy to have both of you here.
Mr. Cocke, you may proceed in your own way.

We have the two reports, one on each of the two bills we are considering, before us. Do you want to make those part of the record ?

Mr. Cocke. Yes, sir. I will read both reports, if I may, sir. And I will have some other comments.

Mr. MULTER. Very good. You do intend to read each of the reports ? Mr. COCKE. Yes, sir.

Mr. MULTER. Very well. You may proceed in your own way. STATEMENT OF HON. ERLE COCKE, SR., CHAIRMAN, BOARD OF

Mr. COCKE. Thank you, Mr. Chairman and gentlemen.
You have been kind enough to introduce Mr. Wolcott and myself.

On my left is Mr. W. M. Moroney, Assistant to the Chairman and Controller of the Corporation. On Mr. Wolcott's right, Mr. Neil G. Greensides, Assistant to the Director, and Chief Examiner of the Corporation. Beyond him is Mr. John F. Lord, our General Counsel.



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Mr. Chairman, I had the privilege yesterday, of attending your hearing. The question came up as to the definition of what distinction, if any, between a mutual savings bank and a savings and loan association.

I had the further privilege of discussing this with you yesterday afternoon.

Our General Counsel and the General Counsel of the Home Loan Bank Board, Mr. Creighton, drafted together—well, we drafted, Mr. Lord drafted, first, and then conferred with Mr. Creighton, Mr. Creighton made one or two minor changes.

After it was completed, I communicated with Chairman McMurray, and read this statement to him, to which he is in agreement. One of their representatives, Mr. Murphy, who is in the room read the statement this morning, and he is in agreement.

I will read our definitions:

Mutual savings banks are different financial institutions from savings and loan associations. A deposit creates a debtor-creditor relationship. Mutual savings banks must pay depositors at an agreed time and, therefore, cannot invest their funds up to the maximum in long-term loans on real estate as savings and loan associations do. They must maintain a liquid position to enable them to meet their deposit withdrawal commitments or be closed with an ensuing deposit insurance payoff.

Savings and loan associations, on the other hand, are most predominantly mortgage lending institutions. They may reduce liquidity for the sake of higher earnings on long-term investments in mortgages, although their present regulations set a minimum of 7 percent liquidity. This can be done because they are investment associations with an ownership relationship with members and have no commitment to pay shares at an agreed time. They are obligated to repurchase shares only from available funds and are, therefore, sometimes able to pay a higher rate of dividend to their share owners who have by their investment agreed to wait for available funds. Only default, in that assets are less than shares, closes their doors with a subsequent insurance payoff or, in the alternative a transfer of accounts to any other insured associations.

I would like to file that for the record, please.

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OF DIRECTORS, FEDERAL DEPOSIT INSURANCE CORPORATION Subsequent to my appearance before your committee on May 9, 1963, I have learned that the Honorable Joseph McMurray, Chairman of Federal Home Loan Bank Board, somewhat differed from my interpretation of our conversation on May 8, 1963, when I read to him the above definitions. Chairman McMurray, in my opinion, is one of the hardest working and one of the most dedicated officials of the Government toward his immediate responsibilities.

I respectfully request that you authorize the record to show Chairman McMurray's interpretation of our conversation pertaining to the definitions above and that such be entered in the record immediately following the definitions.

Chairman McMurray's statement:

"Chairman Cocke read me the definitions. We discussed same and I stated that since it was your (FDIC) statement I felt it in order for you to make it but that I feel that the associations in their effort to further thrift and fullest services to the public through their operations as a practical matter operated the same as other thrift institutions whatever the statue provided.”

Mr. McMurray continued :

"In discussing this matter with Mr. Cocke, it was my intention to convey to Mr. Cocke my opinion that savings and loan associations attempt to serve the public and provide all possible services for the public within the limits of their statutory and regulatory authority.

"I should like to point out that this call came from Mr. Cocke when I was at dinner and I assumed that he was merely affording me the courtesy of informing me of the statement he intended to make. I had no idea that he called me to get my agreement or approval of his statement and I did not give too much thought to the details of this statement since he indicated that his general counsel had discussed the matter with Mr. Creighton, our general counsel. My remarks to Mr. Cocke were not intended to constitute an endorsement of his statement by myself or by the Federal Home Loan Bank Board.

"I discussed Mr. Cocke's statement with Mr. Creighton and Mr. Creighton confirmed that he had previously discussed the matter with Mr. Lord, general counsel for the FDIC. Mr. Creighton stated that he had advised Mr. Lord that he did not feel that Mr. Cocke should make the statement inasmuch as it contained certain misleading implications, particularly the reference to liquidity, the ability to pay a higher rate of dividend, and the context in which the term 'default' is used.

“Following the delivery of the statement, a copy was furnished to Mr. Creighton and he immediately called to my attention the misleading implications in the statement and certain substantive points which are not correct.

“I should like here to rebut any implication in the statement by Mr. Cocke that savings and loan associations may reduce liquidity. Section 5A of the Federal Home Loan Bank Act prohibits any member of a Federal home loan bank, and this includes all savings and loan associations insured by the Federal Savings and Loan Insurance Corporation, from making or purchasing any loan at any time when its cash and obligations of the United States are not equal to such amount as the Home Loan Bank Board shall by regulations prescribe. This section of the act prescribes that such amount shall not be less than 4 percent or more than 8 percent of the obligation of the member on withdrawable accounts. As indicated by Mr. Cocke, the present minimum established by the Board is 7 percent. It should also be noted that in my opinion the ability of savings and loan associations to pay a particular rate on savings is primarily determined by the return on their investments rather than any other criteria.

“The fact that savings and loan associations have varying powers, depending upon the jurisdiction in which they are established, makes it difficult to generalize concerning their operations. Instances of this are California-chartered associations, some of which issue shares and others issue investment certificates. Furthermore, many associations chartered by the State of Ohio accept deposits in the regular course of business. The ownership relationship referred to in Mr. Cocke's statement is not always present; witness the permanent stock operations permitted in some jurisdictions.

“In view of Mr. Cocke's reference to default and insurance payoff, I feel it is incumbent on me to clarify the record with respect to the Federal Savings and Loan Insurance Corporation and insurance settlement.

"The term 'default' is defined in section 401 (d) of the National Housing Act as an adjudication or other official determination of a court of competent jurisdiction or other public authority pursuant to which a conservator, receiver, or other legal custodian is appointed for an insured institution for the purpose of liquidation. Section 405(b) of this act provides that, in the event of a default, payment of each insured account in an insured institution which is surrendered and transferred to the Federal Savings and Loan Insurance Corporation shall be made by the corporation as soon as possible either (1) by cash or (2) by making available to each insured member a transferred account in a new insured institution in the same community or in another insured institution in an amount equal to the insured account of such insured member.

“The authority of the Federal Savings and Loan Insurance Corporation in connection with the liquidation of insured institutions is set forth in section 406 of the National Housing Act. Here, it is particularly important to note that, whether the corporation is appointed receiver or conservator or not, it is directed to pay the insurance as provided in section 405 of the act.

“Of paramount importance in recent years has been section 406 (f). This section provides that in order to prevent a default in an insured institution or in order to restore an insured institution in default to normal operations as an


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