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Chairman, Federal Home Loan Bank Board,
Washington, D.C.

DEAR MR. MCMURRAY: As you are aware the reports of this committee issued during the 86th, 87th, and 88th Congresses, resulting from the activities of the Special Subcommittee on the Federal Home Loan Bank Board, have contained recommendations for the issuance of clear and definitive rules and regulations by the Board to serve as guidance for the savings and loan industry. Similar statements have been made many times during the course of the subcommittee hearings by the members of the subcommittee.

On May 10, 1963, your agency announced the appointment of a Director of the Office of Examinations and Supervision of the Federal Home Loan Bank Board. The announcement also stated that the Board : “is establishing a new division, to be known as the Division of Regulations under John M. Wyman, Director of the Division of Supervision, to aid the Board in keeping its rules and regulations more fully and more consistently conformed to the needs of the sav ings and loan business, the Board, and the public.” This action, of establishing a Division of Regulations, would appear to be a step in complying with the recommendations of this committee as set forth in its reports. The announcement, however, does not indicate whether Mr. Wyman will continue to serve as the Director of the Division of Supervision, and if not who succeeds him in that position. We would like to be advised on this matter.

The announcement further states that “the Division (of Regulations) will be staffed with persons who are well versed in the Board's responsibilities and operations and in the practices and problems of savings and loan associations." We are interested in knowing of the staffing of this new Division and in particular who will advise Mr. Wyman, as chief of the Division, regarding legal questions which are inherent in promulgation of regulations. Further, what enforcement role will the new Division play in the operations of the Board ? Sincerely,


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Washington, D.C., August 22, 1963.
Chairman, Committee on Government Operations,
Washington, D.C.

DEAR CONGRESSMAN DAWSON : In response to your letter of July 24, 1963, I am glad to advise you as follows with respect to the three specific matters as to which you request information :

1. Mr. Wyman is the Director of the Board's Division of Supervision, and is charged with the broad responsibility for its administration. However, his additional duties as Director of the Division of Regulations, which are performed without additional compensation, necessitate delegation by him of most of the details of supervision. Such delegation is being accomplished as rapidly as is practicable.

2. The staff of the Division of Regulations is being assembled. In this connection, it is to be noted that the Board's budget authorizations do not provide for this new Division; and that, therefore, the Division must be staffed initially by the process of detailing suitable persons from other divisions and offices of the Board, insofar as that can be done under the regulations governing such procedure. The Board will of course seek, and we trust successfully, to remove this impediment through budget estimates to be prepared shortly; in the meantime, however, we are proceeding by the assignment route, in the interest of moving forward as promptly as we can.

The staff of the Division of Regulations will be drawn largely from members of the Board's staff who have had substantial experience under the Board and who are familiar with the Board's policies and responsibilities, and procedures, as they relate to institutions subject to regulation by the Board. In addition, the Director of the Division of Regulations is expressly authorized to, and will, consult with representatives of the savings and loan industry, and others, and to seek from such sources views and suggestions that will be of practical help to the Board in achieving its objective in establishing the new Division; namely,

to simplify, clarify, and make more adequate and effective the regulations applicable to institutions as to which the Board has regulatory and supervisory jurisdiction.

You have asked, in particular, who will advise the Director of the Division of Regulations regarding legal questions inherent in the promulgation of regulations. First of all, we contemplate the assignment of a well-qualified attorney from the staff or our General Counsel, Mr. Kenneth E. Scott, to the Division of Regulations or an arrangement whereby we will have one of the attorneys assigned from time to time as required. In the second place, regulations and amendments of regulations developed and recommended by the Division of Regulations will be studied and cleared by the Office of the Board's General Counsel, with respect to any legal question involved, before any such regulation or amendment is promulgated by the Board.

3. Enforcement of regulations will not be a function of the Division of Regulations; it is hoped and expected, however, that improvements in the Board's enforcement operations will be an important result of improved and more adequate regulations.

Reply to your questions would not be complete, it seems to me, without saying that the Board, as I believe you are aware, is making an earnest effort to improve, and is improving, its operations, organization, regulations, and procedures. This we must do and are doing in keeping with our own considered judgment as to how it can best be done, and necessarily also without interrupting or slighting the performance of the supervisory and many other demanding duties of the Board and its staff. These are matters as to which sound progress is to be pre ferred to hasty or ill-considered action, as I am confident our accomplishment in the long run will confirm. Sincerely yours,

JOSEPH P. MCMURRAY, Chairman. Mr. MULTER. With that, we will recess, subject to call of the Chair.

The full committee will meet tomorrow morning at 10 o'clock on other legislation, I think involving SBIC.

Thank you very much.

(Whereupon, at 12:15 p.m., the subcommittee recessed, subject to the call of the Chair.)



OCTOBER 5, 1962.
Chairman, Committee on Government Operations,
House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: While I and the other members of the Board have on had a chance to read through the recent report of your committee, House Representatives Report 2492, and have not had sufficient time to give the kin a of consideration to the recommendations that they deserve, I thought you wou 10 like to know a few of the things which we have been trying to do to carry o wat some of these recommendations. I am, therefore, enclosing :

1. A copy of my letter to Mr. John W. Macy, Chairman of the Civil Service Commission, pointing out, in the light of the committee's repo rt, the importance of having the Commission change its decision denying grade GS-16 for the Director of the Office of Examination and Supervision,

2. A directive from the Board to the Director of the Division of Supervision and the General Counsel with respect to recommendation No. 3.

3. A rough draft of a proposed regulation relating to fiduciary relationship responsive to Committee recommendation No. 4. I should like to point out in this connection that in addition to the proposed regulation which we plan to put on notice as soon as practicable, Mr. Ira Dixon, former Board member, has been working for over a month on a comprehensive study to help the Board determine more precisely what conflict of interest and selfdealing are in connection with the operations of savings and loan associations.

4. Drafts of proposed legislation and regulations relating to recommendation No. 5 concerning the establishment of criteria for determining what constitutes unsafe and unsound practices, as follows:

(a) Proposed legislation on revision of section 5(d) (1) of the Home Owners' Loan Act of 1933.

(b) Regulation on loans to one borrower.

(c) Memorandum concerning test appraisals of real estate security for mortgage loans by insured institutions.

(d) Establishment and maintenance of records by insured institutions.

(a) Construction loans.

(f) Regulation on discounts on mortgage loans purchased. The above regulations have been studied and redrafted a number of times and have been distributed to the task force, meinbers of the Advisory Council, Conference of Bank Presidents, and to the two leagues for critical and constructive comment. These proposed revisions in our statutes and regulations would have far-reaching effect on the operations of the institutions and it is essential that before they are recommended or promulgated they be given the most critical scrutiny.

With respect to recommendation No. 8 concerning the reassessment by the Board of its present staff and operations, as you know, we had the firm of Booz, Allen & Hamilton make a very careful study of the agency and we expect this report to be delivered this month. Our efforts to have the Civil Service Commission approve the grade of GS-18 for a Director of Supervision and Examination, to which I referred above, and arrangements being made for closer liaison between the Division of Supervision and the Office of the General Counsel are additional steps in carrying out this recommendation.

Recommendation No. 6 relates to the taking of drastic supervisory action by the Board. I should like you to know that it is the policy of this Board that no drastic supervisory action shall be taken, except in an actual emergency, unless the management has been given due notice and opportunity to take correc

tive action in accordance with your recommendation. The Board is unaware of any proceedings of the nature described in recommendation No. 2 and none would be tolerated by the Board, in any event.

Be assured that we shall give very careful consideration to your report and shall be in further communication with you. Sincerely yours,


OCTOBER 4, 1962. Hon. John W. MACY, Jr., Chairman, U.S. Civil Service Commission, Washington, D.C.

DEAR MR. MACY : As you know, Public Law 87–367 allotted to the Federal Home Loan Bank Board four supergrade positions. Subsequently we submitted to the Civil Service Commission requests for classification of the following positions: Office of Research and Home Finance : Adviser to the Board (Director).

GS-18 Economist (capital and mortgage markets).

GS-16 Economist (real estate and housing)

GS-16 Office of Examinations and Supervision : Director, Office of Examinations and Supervision--

GS-18 The first three of these positions were approved by the Commission as requested, but the position of Director, Office of Examinations and Supervision, was approved at the GS-17 level.

Subsequently we submitted to the Commission additional information and requested reconsideration of this position with the hope that a GS-18 classification might be approved.

The House Committee on Government Operations has just released a report which, I am sorry to say, is highly critical of certain segments of our operations, and makes a number of recommendations to remedy the situation. From the Board's standpoint, a key requirement to bring about a more effective and satisfactory operation is the coordination of the functions of supervision and examination.

The Board believes it is absolutely essential that to do the job we must recruit from the outside a topflight person in the field of banking or supervision, with an established reputation for competence and acceptance as an authority in his field. Such a person may very likely have to take a reduction in pay from his position in private enterprise, and the least that we should offer would be the highest grade in our civil service system.

Our other alternative would be to attract someone from another Government agency, however, a person who would meet our qualifications would probably be in grade GS-18, and would not be willing to make a change except possibly to meet the challenge that the position would offer.

In the hearings before the subcommittee of the House Committee on Appropriations which considered the independent offices appropriations for 1962 (p. 787), a member of that subcommittee, in a discussion regarding this position, made the following comment: “I think with your growth and the responsibilities of your agency that you ought to have a good competent, top man for the job."

I urgently request that you reconsider your previous decision and approve a grade GS-18 for the position of Director, Office of Examinations and Supervision. Sincerely yours,




October 5, 1962. From : Office of the Chairman. To: John M. Wyman, Director, Division of Supervision.

Thomas H. Creighton, Jr., General Counsel. Subject: Legal review of supervisory documents.

The Board is presently considering the report published by the Committee on Government Operations of the House of Representatives (H. Rept. 2492). In connection with recommendation No. 3 of the committee, you are hereby instructed to continue to follow what is our understanding of the present practice with respect to legal review of supervisory documents and citations therein, as follows:

1. Either by a definitive statement of the violation or by express reference to the section of the statute, rule or regulation violated, or by both, supervisory documents sent or delivered to associations shall continue to cite the specific law, rule or regulation violated.

2. In any instance where a statute, rule, or regulation is subject to conflicting interpretations and a controlling opinion by the Office of the General Counsel has not previously been rendered, and in any instance where the Board contemplates enforcement proceedings under the applicable provisions of the governing statutes if corrective action deemed necessary by the Board is not taken by the association, the supervisory document to be sent or delivered to the association setting forth the position of the Board will be submitted to the Office of the General Counsel for review prior to its transmittal.



[Proposed draft] Amend the rules and regulations for insurance of accounts by adding the following new section : $ 563.17-1 Fiduciary relationships of directors and officers

(a) General provisions. The relationship between the directors and officers of an insured institution and the insured institution and between such directors and officers and the holders of such institution's withdrawable accounts is a fiduciary relationship. It is a duty of an insured institution to maintain financial policies, management, and management practices which assure observance by its directors and officers of the fiduciary duty owed by them to such institution and to the holders of its withdrawable accounts, as such fiduciary duty has been heretofore or shall be hereafter stated, clarified, expanded, restricted or restated by applicable judicial decision, statute or regulation. Without any limitation on the generality of the foregoing, it is a duty of an insured institution to maintain financial policies, management, and management practices which (1) prohibit any director, officer, or attorney 1 ‘of such institution from becoming a beneficiary, directly or indirectly, by transfer or diversion from the institution of any activity for which the institution was created and in which it is authorized to engage; (2) prohibit any such director, officer, or attorney from engaging directly or indirectly, in transactions, the nature or effect of which subordinates the interests of such insured institution to any other interest; (3) prohibit the imposition of a requirement that any borrower or applicant for a loan purchase goods, services or hazard insurance from any particular person or concern, or that in any manner conditions the granting of a loan upon any such consideration; and (4) prohibit any director, officer, attorney, and any concern in which any such person has an interest, from receiving from such institution or from any other source any fee or other compensation of any kind in connection with the procuring of any particular loan from or by such institution.

(b) Exceptions. In the absence of financial policies or management practices inconsistent with the provisions of paragraph (a) of this section, an insured institution may

(1) make a loan to a director, officer, attorney or employee on the security of his bona fide home;

(2) permit a director, officer or attorney, or a concern in which such person has an interest, to perform necessary services, and to be compensated therefor in such reasonable amount as may be fixed by its board of directors, in connection with the making of loans, including title examination, appraisal, credit report, survey, drawing of papers, closing of loans, and other necessary incidental services;

(3) permit a director, officer, or attorney, or a concern in which such person has an interest, to furnish necessary goods or services to such institu

1 As used in this draft, means an attorney or firm of attorneys regularly serving the institution in the capacity of attorney at law.

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