Mr. MULTER. Well, did the industry find any fault with the administration of the Board when it did not have a representative of the savings and loan association sitting as a member?

Mr. MORTLOCK. I can't say that that is so; no, sir.

Mr. MULTER. Mr. Slipher, would you like to say something?

Mr. SLIPHER. I would say that as a general principle the industry would like to have a man with actual savings and loan experience because he would know intimately the problems. However, as in the case of probably most of the other activities, if a man is an outstanding man and a conscientious man, the fact that he has or has not had experience is not a major factor.

We have found some excellent men who had no prior experience. We have also found that the fact that you have experience does not automatically make you good.

Mr. MULTER. I think the outstanding statement of philosophical theory as to the regulatory bodies, is that if the industry can regulate itself you do not need regulatory bodies. If you are going to have a regulatory body, you should not have some one from the industry doing the regulating.

Mr. SLIPHER. Well, at no time has there ever been a majority of the Board from industry.

Mr. MULTER. Assuming we were to decide to set up this Board under some merger of the two institutions or without merging the two insuring agencies but we should decide to separate the insurance agency from the supervising and chartering agency, would you think it might be better to have a three-man board rather than have a fiveor a seven-man board and have each segment of the industry represented as well as the public?

In other words, let's break it down this way:

If we were going to merge the two agencies, FDIC, and FSLIC, would it then make for better regulation if we have the public represented by a member of the Board, the savings banks represented by a member of the Board, the commercial banks represented by a member on the Board, and the savings and loan associations represented by a member on the Board and maybe break it down even further so that you have the mutuals represented and the stock companies represented.

Would that make for better regulation?

Mr. MORTLOCK. I would think that this would be quite simple. Mr. MULTER. Would you enlarge the Board for public representatives having

Mr. MORTLOCK. You mean in the public interest?

Mr. MULTER. Yes.

Mr. MORTLOCK. I think this would add some stature to this idea; yes, sir.

Mr. MULTER. Now, you referred to what the House Committee on Government Operations did when the reorganization plan came up in 1957. I am wondering if you are familiar with the testimony adduced before the House Committe on Government Operations since 1957.

Mr. MORTLOCK. No, I am not, sir; other than I understand the Moss committee did considerable work along this area.

Mr. MULTER. From my talk with the members of that committee on both sides of the aisle, I think more of them believe now that the

sensible thing to do would be to separate the insuring authority from the supervisory and chartering authority and have two separate agencies. Quite apart from the idea of taking the two insurance corporations and throwing them together, they do believe that the insuring corporation is using its regulatory authority to have their way and that this is a matter for supervision rather than insurance.

Do you have any comment on that?

Mr. MORTLOCK. You mean by separation of the insuring function from the chartering function?

Mr. MULTER. Yes; and the branching function.

Mr. MORTLOCK. Well, I would think that a separation could possibly raise the conflict of purpose theory. I suspect that the Insurance Corporation as such should have a very vital interest in the chartering process. After all, as soon as the chartering or branching privileges may be extended the function of the insuring agency comes into play immediately, and I would think that it would be in the best interests of long-range planning if they were not separated.

Mr. MULTER. You think it is in the interest of the industry or the insuring Corporation, in this instance, FSLIC, because I have heard of no instances of this happening in FDIC, but there are any number of instances put on the record and we have had complaints on others that have not yet been put on the record before any committee where FSLIC went in and told management not only how to operate, but told them who may be the administrative personnel, who may be the directors, and who may be the officers, and going so far as not only to recommend that the people who were running the association should be removed but insisting as to who should replace them. Do you think this is good?

Mr. MORTLOCK. I don't think this is good.

Mr. MULTER. How do you handle situations like that?

Mr. MORTLOCK. Our past president of the committee of the U.S. League is meeting constantly in this particular area to try to bring up suggestions for improving, if you will, or restricting or placing limitations by establishing a policy that will overcome and avoid, I believe, such a situation as you have referred to.

This is in our mind constantly, sir.

Mr. MULTER. Thank you. Mr. Patman?

Mr. PATMAN. No questions, Mr. Chairman.

Mr. MULTER. Mr. Taft?
Mr. TAFT. No questions.

Mr. MULTER. Mr. Wilson?

Mr. WILSON. Mr. Mortlock, to follow up the question of Mr. Multer, how could your past president's committee have any real effect on a board that decided they wanted to harass an association other than just to visit them or something?

I appreciate the fact that you work closely with the Board as an association, but what effect would it actually have?

Mr. MORTLOCK. Well, this is primarily, of course, an advisory group as you suggest. And their background and experiences is such that I feel quite confident that the Board will certainly give rather close attention to any recommendations of this particular group. There is no authority beyond that.

Mr. WILSON. Has this been a relationship in existence for several years where you have confidence that the Board will listen to the recommendations of your past president's committee?

Mr. MORTLOCK. I would say yes. I would say the Board does listen to the recommendations that stem from this committee.

Mr. WILSON. Has your Board done anything, or your committee, done anything to try and bring pressure upon the Board who have obviously been harassing associations or causing trouble for them, to assist the member associations or just what relationship do you then have?

Mr. SLIPHER. Might I point out one of the principal purposes of our committee is to advise on legislation and to recommend to the Congress revisions in the law whereby the Board has the authority. In some way we are hoping to come up with revisions to sections of the law that will protect associations from any arbitrary action, give them full court protection, and at the same time, give the Federal Home Loan Bank Board the authority to proceed where there is appeal and to proceed in an orderly manner. In other words our basic job as past presidents is not to act on these cases but to develop legislation that will make these situations possible. And we have a draft that we think is pretty good, but we are having another meeting as a matter of fact tomorrow.

Mr. WILSON. Mr. Slipher, don't you think there is merit to the proposal that the regulations be separated from the chartering agen-cies, however?

Mr. SLIPHER. Well, our group

Mr. WILSON. You have the insurance or there was quite a discussion earlier in these hearings over a case in the West where the Board decided to go in and seize the association, and by the fact that they also controlled the insurance funds they were able to take a $10 million check with them, without consulting any other group, in order to take care of the depositors that would be hurt as a result of their seizure. And all they had to do was talk with one another about it rather than have to justify their action to another regulatory board.

Don't you think this lends itself to some bad practice?

Mr. SLIPHER. Certainly our legislative proposal would have made that impossible, and I hope and believe that the case that you referred to is one in a million, and with changes in the legislation it will never occur again.

But we do think that with a few changes the present system can be made workable. If it can't be then someday we may come back and say, yes, this other proposal is necessary.

Mr. WILSON. Thank you.

Mr. MULTER. This has been going on now, not since yesterday, but for a matter of 10 years. This was going on, I know, when I first came to the committee in 1947. This Long Beach Association in California is only one of several instances. Am I not right?

Mr. KING. Long Beach has been the only one there for the past 10 years or so, Mr. Chairman.

Mr. MULTER. I suggest you read the record before the House Committee on Government Operations. You will find the same thing occurred as to other institutions, and it was indulged in with the approval of the Board.

Mr. KING. Yes; but that was sort of technical seizures as you know. And the Board has, as these gentlemen have explained, undertaken an assertion that the reason that it had to do some of these things that are complained about in the Moss committee and other places, is because it didn't have lesser tools, in the efforts by the Board and by the industry as explained by the reference to the past President's Committee, to endeavor again to recast the supervisory sections so that the Board will have power to take proper action within its idea of what proper action may be, but not involve the serious consequences that have impressed you gentlemen in the way of seizure and the way of contributions in large sums.

Mr. MULTER. Won't you agree that it is just as bad, if not worse, for the insurance corporation-with or without the approval of the Board-to tell the people in charge to take out the officers and directors in the existing institutions and put its own people in charge, or recommend that they be elected and go through the form of an election and have the friends of these corporations put in charge of one of these associations? Isn't that just as bad or worse?

Mr. MORTLOCK. We think in general that there should be some alternative to seizures.

Mr. MULTER. Well, I won't pressure you.

Mr. TAFT. Will the gentleman yield at that point?

Mr. MULTER. Yes, sir.

Mr. TAFT. How will the procedures set up by this Board change this possible abuse?

Mr. MULTER. Well, it is hoped that if

Mr. TAFT. By this act, I mean.

Mr. MULTER. It is hoped that the insuring agency is to proceed only with the duty of an insurance corporation and to look upon it only from an insurance viewpoint, and if its insurability is being impaired, then to go in-and if things weren't being improved then they would go in and liquidate.

And instead of being done as it is now where they go in and just use a club, the threat to seize when they don't have their waythere is no appeal. There is no way of opposing them except to knuckle under and say, "All right; if this is what you want we will do it."

Mr. TAFT. As this bill is proposed, would the Board not have the power to seize.

Mr. MULTER. The Board would lose its jurisdiction so far as the insurance corporation is concerned now. If you merge the two insuring agencies they would become simply the insurance agency; and the Board would still have the authorization to supervise.

Mr. TAFT. But this corporation would not have the power to seize

Mr. MORTLOCK. The insurance corporation would not have it.
Mr. HANNA. Mr. Chairman, will you yeld at that point?
Mr. MULTER. Yes, sir.

Mr. HANNA. I had back in my head the feeling that the great distinction here is wrapped around this business about the answer to a question is usually predicated on the reason for which it is asked. Now, if you are asking a question to an organization as to whether it should have a branch, you set up questions that relate to the sound

ness of giving that branch. And it seems to me that you can't by a torturing process tie that into its insurability. But that is really not the basis of what you should be asking the questions on, as to whether it should have a branch. It seems to me that you are in another field than if it asks should a certain type of regulation be applied.

The framework in which that question is asked is an entirely dif ferent framework than "Is it insurable?" It seems to me that insurance should reflect on the portfolio where the risk lies.

Now, if you start using it all over the lot, it seems to me that you get into some rather strange distortions, all of which by rationale can be talked about in terms of general soundness and general risk. But it seems to me that insurance in the real and clear sense would be reflected in the portfolio on which the investments lie, because that is the risk that is covered.

I am impressed by the fact that I do think there is a need to separate these functions, because it has a direct relationship to a framework of reference. And the way we are proceeding now, I don't think you get that clarity. And I think there is a lit of unhappiness because there is the obvious distortion.

Mr. MULTER. I think, Mr. Hanna, you put your finger on the very basic principle that this committee will have to determine, and it applies to both FDIC and FSLIC. Should these insuring agencies be required as a matter of law to insure a new institution solely because the chartering agency, in the one case the Home Loan Bank Board and in another case the Comptroller, says, "We are going to charter this institution, and because the chartering agency says that as to a new institution, the insuring agency must insure." Then you go one step further. Now that it is insured, what do we do thereafter? Does it still remain insurable just because the Comptroller says, "You must stay in the system" or the Home Loan Bank Board says, "We want this institution here"?

That is not the test for insurance in my opinion. I think that is the basic thing we are going to have to determine here, and that is the subject on which we hope to get the help of all of these witnesses. Mr. MULTER. Mr. Talcott.

Mr. TALCOTT. No questions.

Mr. MULTER. Do you have any further questions?

Mr. TAFT. No.

Mr. MULTER. Mr. Hanna, do you have any questions?

Mr. HANNA. No; thank you.

Mr. MULTER. Mr. Kilburn?

Mr. KILBURN. No.

Mr. MULTER. Mr. Patman?

Mr. PATMAN. No questions.

Mr. MULTER. One other subject which I would like to touch on very briefly. Have there been any instances of mutual associations converting into stock associations?

Mr. MORTLOCK. I don't know of any recently, sir.
Mr. MULTER. Has there been any the other way?

Mr. MORTLOCK. The reverse?

Mr. MULTER. Yes.