insured institution, the corporation is authorized, in its discretion, to make loans to, purchase the assets of, or make a contribution to, an insured institution or an insured institution in default. The foregoing authority is limited only by the requirement that no contribution shall be made to any such institution in an amount in excess of that which the corporation finds to be reasonably necessary to save the expense of liquidating the institution.

"There are legal differences between insurance of deposits by the Federal Deposit Insurance Corporation and insurance of accounts by the Federal Savings and Loan Insurance Corporation. One of these differences is the factual situations under which each corporation steps in to pay claims. Thus, the FDIC pays insured deposits whenever an insured bank shall have been closed on account of inability to meet the demands of its depositors and the FSLIC pays insured accounts in the event of a default by an insured institution. Both corporations make payment either (1) by cash or (2) making available a transferred account. In addition, both corporations have broad powers to prevent closing on the one hand or default on the other. It is my opinion, recognizing the legal differences that do exist, that insurance by the FDIC and the FSLIC are otherwise substantially indistinguishable."

Mr. COCKE. Going ahead, Mr. Chairman-I presume, following the custom of yesterday, you wish H.R. 729 discussed first.

Mr. MULTER. Yes, please.

Mr. COCKE. Mr. Chairman, you have requested the views of this Corporation on H.R. 729, a bill which establishes the Federal Deposit and Savings Insurance Board to manage the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation, and which centralizes the control of admission to insurance of all banks and State savings and loan associations, and centralizes the existing authority of the two insurance agencies over all insured banks and savings and loan associations into one body.

Section 2(a) of the bill would establish the Federal Deposit and Savings Insurance Board consisting of three members to be appointed by the President by and with the advice and consent of the Board.

Section 3 of the bill would vest the management of the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation in this newly created Federal agency. To accomplish these aims the bill, section 4(a) would authorize the transfer of the functions of the Home Loan Bank Board as they relate to the management of the Federal Savings and Loan Insurance Corporation, to the Federal Deposit and Savings Insurance Board, and sections 6 and 7 would abolish the present Board of Directors of the Federal Deposit Insurance Corporation and transfer its functions to the Federal Deposit and Savings Insurance Board.

This Corporation can see no need for the enactment of H.R. 729. The Federal Deposit Insurance Corporation was established to meet special conditions affecting banks which were too serious to be remedied by the authority then available to existing bank supervisory agencies. At the time of creation of the Corporation the banking system was in a most serious condition, confidence of depositors had vanished and the success of existing supervisory authorities in remedying the situation was limited. The Federal Deposit Insurance Corporation was created to stabilize banking and to improve the basic structure of the banking system. Its chief function is to maintain depositors' confidence in the banking system, including both National and State banks, through insurance of the depositors' accounts and to maintain a sound banking system. This basic concept is already

stated in the House Banking and Currency Committee report on the Banking Act of 1933, where the committee stated:

There can be no resumption of normal banking without such legislation. Experts advise us that more than 90 percent of the business of the Nation is conducted with bank credit, or check currency. The use of bank credit has declined to the vanishing point. The public is afraid to deposit their money in the banks, and the banks are afraid to employ their deposits in the extension of bank credit for the support of trade and commerce. Businessmen and investors are victimized by the same fear. The result is curtailment of business, decline in values, idleness, unemployment, breadlines, national depression, and distress. We must resume the use of bank credit if we are to find our way out of our present difficulties.

In protecting the money supply of the Nation by maintaining the confidence of depositors in banking, it was necessary for the Corporation to establish criteria for sound banking equally applicable to the National and State banking systems. Together with the Federal Reserve System and the Comptroller of the Currency and State chartering authorities a program of improving banks was embarked upon. State and National banks were examined under relatively uniform standards of approach to the subjects of capital, management, community needs, and unsafe and unsound practices. Congress authorized the Federal Deposit Insurance Corporation to examine any insured bank and to discontinue the deposit insurance of any bank which continues unsafe or unsound practices. Since most State banks and all National banks are insured by the Federal Deposit Insurance Corporation, the Corporation exercises a measure of influence over 13,455 of the total 13,815 incorporated domestic banks of deposit in the United States.

When the Federal Deposit Insurance Corporation began, there were long-established State and National banking systems. State banks were under the supervision of the State banking authorities, with members of the Federal Reserve System also supervised by the Federal Reserve Board. The Federal Deposit Insurance Corporation was given Federal supervisory authority over insured State banks not members of the Federal Reserve System, in addition to its insurance function and regulatory authority over all insured banks.

Unlike the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation was not created as an independent agency with supervisory authority to meet a special need as existed in the banking system. Rather, it was established as a part of the Home Loan Bank Board which charters, examines, and supervises savings and loan associations and manages the Federal Savings and Loan Insurance Corporation. The Federal Deposit Insurance Corporation had the responsibility to protect the money supply of the country and to maintain stability in the entire banking structure. The objectives of the Federal Savings and Loan Insurance Corporation have always been much more limited in scope with primary effort concentrated on the encouragement of thrift by protecting savers against. losses in their share accounts.

To place in a single agency the management of the Federal Deposit Insurance Corporation, an independent agency, charged with extensive supervisory powers exercised through its own facilities over insured banks, and the management of the Federal Savings and Loan Insurance Corporation, an agency with very limited supervisory

powers, exercised only through the facilities of the Federal Home Loan Bank Board, and solely concerned with the insurance of accounts in special-purpose nonbanking financial institutions, would create more problems than would be solved. The purposes and functions of banks differ so greatly from those of savings and loan associations that the placement of their respective insurance corporations under a single board would require rare talent and experience on the part of the board members to deal with the varying and sometimes conflicting responsibilities. We are convinced that administrative efficiency would not be promoted; costs would be increased and impartial application of the laws involved would be well nigh impossible. To remove the Federal Deposit Insurance Corporation from its immediate and single interest in the banking system and lodge it in a multitype purpose insurance board would dilute the Corporation's effectiveness and seriously impair the public confidence in the banking system which has been built up over the past 30 years.

H.R. 729 would extend the authority of the Federal Deposit Insurance Corporation over the admission to insurance of National and State banks becoming members of the Federal Reserve System. The Federal Savings and Loan Insurance Corporation would continue to have authority over admission to insurance of State but not Federal savings and loan associations. Thus the bill, by placing the management of these two governmental agencies under a single Federal agency, would centralize Federal control over admission to insurance of all banks and State savings and loan institutions of this country. Such single agency would also have authority to terminate the insurance of all insured banks and insured savings and loan associations, such power over savings and loan associations presently being vested in the Federal Home Loan Bank Board, and to exercise existing powers of each insuring corporation over all insured banks and insured savings and loan associations.

We are vigorously opposed to the enactment of H.R. 729, which would bring about centralization of Federal control over financial institutions. At the present time a bank may be insured by becoming a national bank under the supervision of the Comptroller of the Currency. If organized as a State bank it may be insured upon approval of the Federal Deposit Insurance Corporation and would be under the supervision of the State banking authority and the Federal Deposit Insurance Corporation. A State bank may also be insured by approval of its membership in the Federal Reserve System. An insured bank converting from National to State or State to National continues its insurance. With these alternatives there is considerably less danger of favoritism of one group of banks over another and less danger of improper use of supervisory authority or the adoption of unwise policies.

Just as it would be highly undesirable for the supervision of State banks to be brought under the control of a Federal agency responsible for the chartering and supervision of national banks, because the tendency on the part of such a federally created agency could open an avenue of favoritism for national banks over State banks and to federalize the State banks, this danger would be even greater if all banks and savings and loan associations were under the same Federal insuring agency. Then there would be not only the possible tendency

to favor the Federal institution, the National bank or the Federal savings and loan association over the State-chartered institution, but the possibility of favoring either banks or savings and loan associations over the other.

The bill would further tend to diminish public confidence in our banking system and impair proper management by placing the management of the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation in a Board, the Chairman of which would be a person without major business or professional experience in the banking or savings and loan fields.

This provision, in our opinion, is completely inconsistent with sound management of a governmental agency charged with the responsibility of examining and supervising financial institutions in which funds of the public are placed. The protection of these funds through administration of law involves the highest degree of skill, and compels that those placed in charge thereof be individuals with long experience in the business and financial fields involved.

The bill itself recognizes the different characteristics of the institutions to be placed under the control of the Board by also requiring that the other two members of the three-man Board be individuals, one whose major business experience has been with commercial banks and the other's with savings institutions. The provision reinforces the doubts that an efficient and impartial administration of the two insurance laws would be possible if H.R. 729 were enacted, since no two members thereof would at any time have similar business experience, thus precluding proper Board action through adequate knowledge of the intricate problems which the Board would face.

H.R. 729 contains numerous vagaries. Under the bill there would be one Federal agency charged with the administration of two entirely divergent funds:

One would be the existing Federal deposit insurance fund created by assessments paid by insured banks in the round sum of $2,542 million, together with the statutory call upon the Treasury of the United States for loans up to an additional $3 billion. Any borrowing by the Federal Deposit Insurance Corporation must be from the Treasury. Congress has provided that the insured banks which contribute to the fund receive a refund of 662% percent of their annual assessment payments into the funds, after deduction of insurance losses and expenses. This fund is a fiduciary trust, not owned by the Government or the banks, but administered for the benefit of depositors in insured banks.

The other would be the insurance fund for savings and loan associations in the existing sum of some $699 million (as of March 31, 1963), associations of premiums into the fund, for which prepayment accounting must eventually be made. In addition, there is a statutory call upon the Treasury for loans up to $750 million, an authority now under the Federal Home Loan Bank Board by existing law, which under the bill could be augmented, without limitation, by the exercise of the power conferred upon the new agency to borrow money from any source, and to issue notes, bonds, debentures, or other obligations upon such terms and conditions as the agency may determine only for savings and loan purposes.

These entirely different concepts of the nature and extent of insurance protection for banks and savings and loan associations, and the

accrual, management, and operation of the funds, make it virtually impossible for one agency to accept the two opposing concepts so as to impartially administer both funds to the full benefit of depositors of the banks and shareholders in savings and loan associations intended to be protected by the separate funds.

Another vagary flows from the language contained in sections 2(c) and 2(d) of the bill. Under these sections it is entirely possible that an individual whose major experience has been in commercial banking, National banks, or State banks, could serve during the same term as an individual whose major experience has been in the mutual savings bank field, thus weighting the agency with members whose interests were favorable to banks. Likewise, under these sections, it is possible that a person whose major experience has been with National banks could serve during the same term as a person whose major experience has been with Federal savings and loan associations, thus weighting the agency with persons who may be favorable to Federal institutions. The converse of such situations is also possible.

Another vagary is the absence of any provision to maintain the traditional political nonpartisanship of the Board. Congress has provided for nonpartisanship in the Federal Deposit Insurance Act, and the Federal Home Loan Bank Act, yet this bill is silent on that subject.

For the reasons set forth herein, the Corporation recommends that the Congress not enact H.R. 729.

We have been advised by the Bureau of the Budget that it has no objection to the submission of this report from the standpoint of the administration's program.

Now, Mr. Chairman, I presume you prefer we go ahead, with the next bill, before we go into questions.

Is that right?

Mr. MULTER. I think that would be advisable.

Mr. COCKE. Sir, you have requested our views on H.R. 5874, a bill to establish a Federal Banking Commission to administer all Federal laws relating to the examination and supervision of banks.

This bill creates a new Federal banking authority, the Federal Banking Commission, and invests therein all of the presently existing Federal powers and authority relating to bank chartering, examination, and supervision, together with the authority to insure the deposits in banks.

All of the funds and property of the Federal Deposit Insurance Corporation would also be transferred to the new Commission. To this newly created Commission would be transferred:

(1) all bank examination and supervisory functions of the Board of Governors of the Federal Reserve System and the several Federal Reserve banks (except with reference to the supervision of the 12 Federal Reserve banks),

(2) all of the functions of the Comptroller of the Currency (except currency and redemption functions which are to be transferred to the Secretary of the Treasury), and

(3) all of the functions of the Board of Directors of the Federal Deposit Insurance Corporation.

To accomplish these purposes, H.R. 5874 authorizes the transfer of the aforementioned functions and authority to the Commission,