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from the Board in my opinion is not going to solve the supervisory problem. It will embellish it. Because now you are going to have two Federal agencies with supervisory problems, and you haven't gotten down to the real problem which is the law that gives supervisory powers to Federal agencies, and specifically the Home Loan Bank Board.

And I don't feel that this will meet the problem. I feel that this is an attempt to meet the problem, but will create greater problems.

Mr. MULTER. We would like to have you, if you can, tell us how we can meet the problem.

Mr. COURSHON. Well, the United States League and the National League feel that the answer to that lies in amendments to 5(d)(1) and 5 5(d) (2). And we are working on those individually.

We are also in consultation with each other. We have some differences of opinion. And we propose, before the appropriate committees, subcommittees of this committee, to make our suggestions and recommendations along those lines. We are not sure that they will exactly be the recommendations that the Board might make. We may be moving in different directions from the Board.

And then Congress will determine what in the public interest will be the final manner and method that the supervisory problem should be handled. But I don't think taking the Insurance Corporation away from the Board is the way of doing it.

Mr. MULTER. Any other questions by any other members ?
Mr. TAFT. Mr. Chairman.

In a sense, giving the more specific powers or sanctions, whatever you like, for violations or practices which are not approved by the Board, is an extension of power. In other words, isn't it true that the mere fact that the only thing the Board can do today is to use the extreme remedies a limitation on the powers. Actually, while you may say that we are just going to give them a few more minor powers that really are less you are not expanding the power over the banks and savings and loans, in fact you are, if you give them specific powers.

You have the same question under the Federal Communications Act today, for instance, in which the only remedy they have is withholding license approval.

Mr. COURSHON. Except that it is not true that they don't have other remedies. It is just true they haven't used them.

It is true that they have asked for other remedies and got them in 1954. And then after they got them, they felt that they were not satisfactory to give them the power that they wanted.

Now to my knowledge, with the possible exception of one case in the last 7 or 8 years since the adoption of 5(d)(1), there has been no instance of the Federal Home Loan Bank Board having availed itself of 5(d) (1). They always went under 5(d) (2), and either said it was an emergency or threatened to say it was an emergency, and then got the desired response.

So I don't say to you, Mr. Taft, that the Board doesn't have a shotgun. I am saying to you that they have one and haven't used it.

Now if the shotgun model they have needs some modification to be a more effective shotgun, that is fine. But if what they really want is another atom bomb rather than a shotgun, I believe the league would be opposed as not in the public interest.

Mr. HANNA. Mr. Multer, I would like to ask the witness to clarify my mind on a point that I think bears on what Mr. Taft was saying.

I am assuming, in the background of my question, we have here a State savings and loan subject to the rules and regulations of the State commissioner or supervisor. Having taken out the FSLIC, it comes under their jurisdiction.

Now the question I want to ask is this: Is it possible, because of the involvement with FSLIC, that the very fact that a party is insured, now he becomes subject indirectly to regulations that might be directly imposed if he was under the Home Loan Bank Board as a Federal institution? It seems to me that there is a possibility here, if insurance gets off of the insurance base, of actually bringing pressures to bear on regulations which cannot directly emanate from the Federal Government, but can indirectly come into the picture through the FSLIC. Now is there any possibility that this has occurred ?

Mr. COURSION. Well, it is occurring now.
Mr. HANNA. Of course, it is occurring.

Mr. COURSHon. But it won't make any difference whether you had it under the Federal Deposit and Savings Insurance Board as under H.R. 729, or under the Federal Home Loan Bank Board.

As a practical matter, there is only one Federal Insurance Board for savings and loans, which is the Federal Savings and Loan Insurance Corporation. Now they have the power to grant insurance. And then after that, they have insurance regulations, which are not operating regulations—they go as to assets and as to reserves.

They are dealing purely in the fiscal field. And the only weapon of supervision that the Insurance Corporation basically has over the insured State institution, Mr. Hanna, is the threat of withdrawing insurance.

And what I think the Board, sitting as trustees of the Insurance Corporation, has felt-and this is purely my own supposition—is that that is too drastic a remedy if an institution that they insure is, in their opinion, creating a situation that is not in the public interest as to its assets, to simply take its heart out by withdrawing its in

Mr. HANNA. Well, is there any basis for the objection that I have received that the FSLIC is, in effect in some instances, having regulations which were in conflict with the State, or encroaching upon what the State feels is their appropriate place for doing regulations, and doing so under the guise that this is part and parcel of their concern for insurance?

Now I go back to the same point again. I think that the thing you are insuring is the risk to the portfolio. And if you start broadening out away from this, and using rationalization, you can go any place you want to, and you can go regulate anything that would come into the picture from the Federal field, simply because you have Federal insurance.

Now if we looked at the thing on a narrow base, and look at it strictly as insurance, I think we might put some guidelines to keep them within the field of what really should come into the consideration of regulations for insurance.

Mr. COURSIION. Well, there are bound to be honest differences of opinion bet ween a State supervisor of a State savings and loan and,





say, the Federal Savings and Loan Insurance Corporation as to whether a practice is sound, and, therefore, whether it impairs the solvency of that institution, and therefore, whether the Federal Savings and Loan Insurance Corporation should be involved.

And they are bound to have these honest differences of opinion.

I don't think there is any real basis for saying that because the Federal Government has the insuring agency, it is now infringing on the State's rights to supervise, because if you had a State insurance corporation, and it was differentiated, under a different heading than the State supervisor, for example, he would be saying that the State insurance corporation is trying, through the control of the State, to take over supervision.

You are bound to have a complaint in a dual system-which is no indictment against a dual system. You have got Federal insurance. It is a fact of life. You have got State stock and mutual savings and loans. It is a fact of life. And, therefore, there is bound to be a complaint when there is a difference of opinion as to what is sound or unsound from a State supervisor that the Federal insuring agency, be it H.R. 729, or the Home Loan Bank Board, is stepping in.

Now Congress has intended that there be a dual system, and that there be these-by implication–differences of opinion, because, to a certain extent, it is in the public interest that you don't have all this power in any one place.

But in the Federal system, where the Federal charter and Federal insurance go hand in hand, the combination of the two insurance corporations would merely further fragment; and this would duplicate the dual agency problem which now affects State-chartered insured savings and loan associations. And that is why I don't think this is the answer.

Mr. HANNA. That is all, Mr. Chairman.

Mr. MULTER. Don't you destroy the dual system, though, when you let a Federal agency tell the State institution, "We don't like your State law, and if you want to operate, you will have to operate under the Federal statute"?

Mr. COURSHON. It depends on what reason they are telling it for. Mr. MULTER. Regardless of the reason.

The fact is that time and time again the Federal Savings and Loan Insurance Corporation, unlike the FDIC, will say to a State institution, “As a condition of insuring you, you will agree to these things," and these things which they will write into the insurance agreement are directly contrary to State law, and in accordance with Federal statute.

Mr. COURSHON. And that is where we come back to Congress and the proper solution. Isn't it, therefore, if that case exists, the responsibility of Congress and I am sure you are aware of it, because you stated it yourself—to look into these things, and if there are loopholes that allow these types of conditions to be in the law, plug them? But in plugging these loopholes, so there will not be these abuses, if they be, I don't think the answer is to fragment the supervision of the Federal system by creating two agencies.

That is why I have said right from the beginning, Mr. Multer, that we would be opposed to H.R. 729.

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Mr. MULTER. Now you think that by merely amending the Federal statutes we can bring about a situation where the State institutions will not be dealt with unfairly, or put in a worse competitive position than the Federal institutions, even though it is a Federal agency that will continue to have jurisdiction over these State institutions?

Mr. COURSHON. Well, I think it is a government of law, not of men. And if the law is deficient in not setting the proper standards, so that the men, as a practical matter, have too much leeway—and I frankly trust law rather than the whim of individuals then the law that gives the insurance power to the Federal Home Loan Bank Board for States should be examined and, if they have too much power and they can be arbitrary or capricious or overstep their bounds, then that should be analyzed.

And those are the kind of examinations that I have felt and do feel need to be done, rather than the fragmenting of the Insurance Corporation from the Federal Home Loan Bank Board.

Mr. MULTER. That is our basic difference in philosophy. I say the man acting on the State level is just as much a man as the man acting on the Federal level. But somehow or other when he gets into the Federal jurisdiction, and has also the right to tell the man on the State level what to do, he then forgets about the fact that that man has the same rights, and he has every right to the equal protection of the law of his State as well as the Federal Government, and that the Federal agency should not superimpose its thinking on the State institution or try to change the State law by fear; and that is what we have too much of.

I am afraid we will never change that-I may be wrong—as long as you have one institution that is charged with jurisdiction over the national institutions and at the same time over a State institution, unless you define their powers in some way, so that they must deal equally with the State institutions and the Federal institutions.

You don't get it where you have an insuring agency that must insure the national institution and has a right to say to the State institution, we won't, or if having given it to you, we will take it away from you, unless you do it our national way.

. Mr. TALCOTT. I have no questions. Mr. MULTER. Thank you very much, gentlemen. We will stand in recess until 10 tomorrow morning. (Whereupon, at 11:55 a.m., the subcommittee recessed, to reconvene

, at 10 a.m., Tuesday, May 14, 1963.)



TUESDAY, MAY 14, 1963


Washington, D.C. The subcommittee met, pursuant to recess, at 10:05 a.m.,

in room 1301, Longworth House Office Building, Hon. Abraham J. Multer (chairman of the subcommittee) presiding.

Present: Representatives Multer, Patman, St Germain, Minish, Weltner, Grabowski, Brock, Taft, Lloyd, and Talcott.

Mr. MULTER. The committee will please be in order. We will hear as our first witness this morning Mr. Randolph Hughes.

Mr. Hughes, will you come forward, sir. Make yourself comfortable at the witness table. And after introducing yourself, you may introduce those with you; and then you may proceed in your own way-either read your statement or summarize it, as you please.



Mr. HUGHES. Mr. Chairman, my name is Randolph Hughes. I am State bank commissioner of the State of Delaware.

I have with me the general counsel of the National Association of Supervisors of State Banks, Mr. James F. Bell.

I would like to stick pretty much to the prepared statement here of my testimony, if you will bear with me, Mr. Chairman. Mr. MULTER. Surely.

Mr. HUGHES. I am appearing before the committee as the witness for the National Association of Supervisors of State Banks of which I am past president and past chairman of the executive committee. I am presently the chairman of the legislative committee of the association.

As you know, the National Association of Supervisors of State Banks is composed of the officials of State governments responsible for the supervision of State-chartered banking institutions in the 50 States of the Union, and of such officials in the Commonwealth of Puerto Rico and in the Virgin Islands. Our responsibility embraces


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