Senator BROWN. All right. What did they do with regard to what you call the acceleration-of-settlement section? Mr. BODFISH. It is identical in the House bill with this bill. Senator BROWN. I see. I still say that if you could use the House bill as a vehicle, and add to it such sections as you think are vital, and suggest those to us, I think it would help. Mr. FAHEY. Mr. Chairman, we would be glad to thresh that out with the legal department and with the members of the Board, and see what will be most practical. Senator BROWN. Yes. Mr. FAHEY. May I add that there are one or two things there, as a result of questions that came up. For example, Mr. Wiggins objected to a section that involved the appointment of conservators and receivers. Senator BROWN. Yes. Mr. FAHEY. He completely misunderstood. Senator BROWN. I see. Mr. FAHEY. It is very easy to adjust a thing of that kind; and Colonel Lee has given that attention, and that can be readily met. Mr. BODFISH. We raised a question about that, too, Mr. Fahey. Do I understand that you can effect an amendment clearly confining that to conservatorships and receiverships? Colonel LEE. Yes. I should like to put that in the record now, if I may. Senator BROWN (presiding). Very well, Colonel Lee. Mr. FAHEY. I would also like to place in the record a statement relative to the examination of our member institutions. It is as follows: SENATE BANKING AND CURRENCY COMMITTEE HEARING, JUNE 20, 1940 AMENDMENT RE ACCEPTANCE OF STATE EXAMINATIONS In section 3 of H. R. 6971, as it passed, there is the following provision: "The Board is authorized to accept, in whole or in part, reports of examinations and audits made by certified public accountants or public supervisory authorities to the extent that such reports will serve the purposes of the Board. Reports of audits and examinations made by certified public accountants and public supervisory authorities and made available to the Board by the associations examined shall be considered, and if determined by the Board to be adequate and reliable, such associations shall not be charged for duplicate auditing or examination for the same period." This amendment was offered from the floor and adopted without, we think, sufficient consideration of the difficulties it will raise for the Board if finally enacted into law. The language of this amendment merely authorizes us to accept reports of the character described. As a practical matter it would result in demands upon the Board that it accept the examinations of all the States and similar demands would certainly come for the acceptance of audits by public accountants. The provision that they shall be accepted by the Board only if determined "to be adequate and reliable" means simply that we would be faced with the contention of every State that its examinations really are adequate and reliable. If we declined to accept the examinations of any State or group of States we would be charged with indicting that State department as being unreliable. It is easy to anticipate the conflicts which would result if our Board is obliged to formally pass upon the operations of any State supervisory system. If we decline to approve and accept the examinations of a particular State there will come at once the charge that a Federal authority is reflecting upon a State authority and a controversy would arise which certainly would bring unhealthy publicity. If we declare that the examinations of a State are unreliable we do not know what the effect would be on depositors in State banking institutions or State-chartered savings and loan associations. On the other hand if the Board, because of possible unhappy developments which threatened as a result of deciding that the examinations of a particular State are unreliable, accepted such examinations, the results to the Federal Savings and Loan Insurance Corporation could be very serious. Duplications of audits and examinations between State and Federal authorities certainly ought to be eliminated as far as it is possible to do so. Most of such duplication which exists can be avoided. Many cases arise, however, where special examinations are imperative, particularly for the protection of the Insurance Corporation. We have been striving earnestly toward the elimination of unnecessary examinations in cooperation with State authorities and the institutions by planning for joint examinations. The program was initiated early in 1936 and made real progress in 1937 and 1938. We are continually conferring with State department officials in an effort to improve and extend this examination program. We are at present conducting examinations of insured institutions jointly with the examiners of the State departments in 31 States and the Territory of Hawaii. One State has no savings and loan department, and 11 others have no insured institutions operating under State charters. Three other States have but 8 insured institutions operating under State charters and these are so small that a joint examination program is practical. This covers the situation in 46 States. In the other 2 we have not been successful in our attempts to work out an amply satisfactory program- -we are still trying to do so. There has been worked out a standard report form through the cooperation of the National Association of State Supervisors, United States Savings and Loan League and our Board, but thus far only 15 States are using the form in full. Other States use part of it. When the standard form is more generally adopted it will be easier to carry forward a complete program of joint examination. We have recently suggested the appointment of a joint committee representing the State banking authorities, the lending institutions, and public accountants to attempt in cooperation with representatives of our Board to further develop the standardization of examinations and audits and avoid unnecessary work and possible duplication. Plans for the work of that committee and its membership are still under discussion. We are confident that far more can be accomplished by this type of cooperative effort than by imposing upon the Federal Home Loan Bank Board the responsibility of deciding the examinations of this or that State are inadequate or unreliable. Our Board very earnestly hopes that this provision in the House bill, which does not appear in S. 4095, now before you, will not be incorporated in the Senate bill. STATEMENT OF COL. HAROLD LEE, GENERAL COUNSEL, FEDERAL HOME LOAN BANK BOARD; GENERAL COUNSEL, HOME OWNERS' LOAN CORPORATION; GENERAL COUNSEL, FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, WASHINGTON, D. C. Mr. FAHEY. Colonel Lee was going to say that if it is agreeable, he would like to put that change in the record right now. Senator BROWN. Very well. Colonel LEE. A question has been raised as to that part of section 4 beginning with line 3 on page 13 and ending with line 11 of the same. page. This provision is only a part of a sentence. The sentence begins at page 12, line 22; and when the whole sentence is read it is clear that the matter beginning at page 13, line 3, applies to conservators and receivers and to nothing else. The provision as to orders, rules, and regulations of "limited" applicability was inserted because it might well be advisable to have different provisions for conservators or receivers of the Federal Home Loan Banks than for conservators or receivers of Federal savings and loan associations. The provision for orders, rules, and regulations of "special" applicability was inserted because there are a multitude of matters that come up in each individual conservatorship or receivership that require special, individual treatment. As I have said, the provision on page 13 applies only to conservators and receivers; but if there is doubt in anyone's mind about that, we would be agreeable to an amendment inserting at page 13, line 3, after the word "That," the words "with respect to conservators and receivers appointed hereunder." We find At a prior session of this hearing, a question was raised as to the provision which appears at page 9, lines 1 to 8, of S. 4095. that provisions of this kind are of very frequent occurrence. are similar provisions, for example, in the Civil Aeronautics Act of 1938, the Natural Gas Act, the Federal Water Power Act, the Sugar Act of 1937, the Securities Act of 1933, the Public Utility Holding Company Act of 1935, and a number of other acts. Senator BROWN. I see. Colonel LEE. We would like to submit for the record a copy of the provisions of some of these acts. You will note that these provisions generally go much further than the provision of S. 4095, in that they permit the board or commission charged with the enforcement of the act to bring the court proceeding to enforce the act or the order, rule, or regulation. As originally drafted, the provision now in S. 4095 so provided; but at the request of the Department of Justice we modified the language so that the proceeding is to be brought on the application of the Attorney General at the Board's request. It may be noted it is not customary or necessary to insert an express provision for hearing, as the court will, of course, follow its regular procedure. If you expressly provided for hearing, you would have to provide also for the procedure in case of default, and all the other questions of practice and procedure that are dealt with in the statutes and rules of procedure. It is not necessary to do this, because the practice statutes and rules take care of it. Some adverse comment has been made as to the last sentence of subsection (b) of section 5, beginning at page 24 of the bill. This sentence provides that the Board shall have power to examine, audit, and supervise federally or State-chartered institutions which are insured by the Federal Savings and Loan Insurance Corporation or which are members of the Federal home loan banks, and that each such institution, by accepting the benefits of membership, agrees to permit and pay for such examination, audit, and supervision. If the institution is not a Federal savings and loan association, the Board's supervision is to be only such as in its judgment is necessary to carry out the purposes of the Insurance Act, if the institution is insured by the Federal Savings and Loan Insurance Corporation, or of the Federal Home Loan Bank Act, if it is a bank member. I am not aware of any criticism of this provision as far as it relates to Federal associations. Section 5 (a) of the Home Owners' Loan Act gives the Board power to provide for the organization, incorporation, examination, operation, and regulation of these associations. This clearly gives the Board power to supervise them. One of the accepted definitions of "supervise" is "to oversee for direction or regulation," and it is a recognized principle that the conferring of a power carries with it all other powers necessary to make the granted power effective. As to institutions which are not Federal associations, we believe the Insurance Corporation already has power to supervise insured insti tutions to the extent necessary to carry out the purposes of the provisions of the Insurance Act. Section 403 (b) of the National Housing Act now requires each association, before insurance is granted, to agree that it will not carry on any sales plan or practices in violation of regulations of the Corporation, and requires it to enter into certain agreements with the Corporation as to examinations, lending practices, security issues, advertising, reserves, and dividends. We think this clearly gives us power to supervise these institutions to the extent necessary to carry out the purposes of these provisions. In the case of bank members section 8 of the Federal Home Loan Bank Act in its present form provides that the Board shall have power to provide for examination where State examination is deemed inadequate, and section 4 (c) of the act provides that where there is no State inspection and regulations the applicant association, before it becomes a member, must subject itself to such inspection and regulation as the Board shall prescribe. We think that this gives the Board power to supervise to the extent necessary to make effective the examination, inspection, and regulation thus provided for. It would be a most peculiar state of affairs if we could examine, or inspect, but could not give information and direction as to the conditions disclosed and the remedial action necessary or advisable to meet them. In addition to the duty imposed upon the Federal Home Loan Bank Board by the express provisions of the acts, the Federal Government has a financial interest and a public responsibility both as to the Insurance Corporation and as to the bank system. Through its ownership of the capital stock of the Home Owners' Loan Corporation, it is the owner of the entire capital stock of the Insurance Corporation, amounting to $100,000,000. It is the direct owner of $124,741,000, or about three-fourths, of the capital stock of the 12 Federal home loan banks. More than this, it has lent its name and its prestige to both systems. It therefore has a responsibility to exercise supervision over the institutions which belong to these systems. In the absence of authority in the Board to exercise such supervision, the Government should not thus encourage investment by the public in these institutions and should not risk its own funds by investing them in these systems The only supervision of State-chartered institutions referred to in section 5 (b) is such supervision as is necessary to carry out the purposes of the provisions of the Insurance Act or the Bank Act, as the case may be. There is neither purpose nor power to eliminate State supervision or to affect it in the slightest degree. The sole intent was to clarify and to state expressly certain powers already existing. If there is any question as to whether there is authority to supervise State-chartered insured institutions to the extent necessary to carry out the purposes of the provisions of the Insurance Act, or State-chartered member institutions to the extent necessary to carry out the purposes of the provisions of the Federal Home Loan Bank Act, it is high time that the matter be clarified. (The legislative provisions above referred to are as follows:) Civil Aeronautics Act of 1938, section 1007: "(a) If any person violates any provision of this Act, or any rule, regulation, requirement, or order thereunder, or any term, condition, or limitation of any certificate or permit issued under this Act, the Authority, its duly authorized agent, or, in the case of a violation of section 401 (a) of this Act, any party in interest, may apply to the district court of the United States, for any district wherein such person carries on his business or wherein the violation occurred, for the enforcement of such provision of this Act, or of such rule, regulation, requirement, order, term, condition, or limitation; and such court shall have jurisdiction to enforce obedience thereto by a writ of injunction or other process, mandatory or otherwise, restraining such person, his officers, agents, employees, and representatives, from further violation of such provision of this Act or of such rule, regulation, requirement, order, term, condition, or limitation, and enjoining upon them obedience thereto.' (52 Stat. 973, 1025.) Natural Gas Act, section 20: "(a) Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this Act, or of any rule, regulation, or order thereunder, it may in its discretion bring an action in the proper district court of the United States, the District Court of the United States for the District of Columbia, or the United States courts of any Territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices and to enforce compliance with this Act or any rule, regulation, or order thereunder, and upon a proper showing a permanent or temporary injunction or decree or restraining order shall be granted without bond. The Commission may transmit such evidence as may be available concerning such acts or practices or concerning apparent violations of the Federal antitrust laws to the Attorney General, who, in his discretion, may institute the necessary criminal proceedings. "(b) Upon application of the Commission the district courts of the United States, the District Court of the United States for the District of Columbia, and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have jurisdiction to issue writs of mandamus commanding any person to comply with the provisions of this Act or any rule, regulation, or order of the Commission thereunder." (52 Stat. 821, 832.) Sugar Act of 1937, section 505: "The several district courts of the United States are hereby vested with jurisdiction specifically to enforce, and to prevent and restrain any person from violating, the provisions of this Act or of any order or regulation made or issued pursuant to this Act. If and when the Secretary shall so request, it shall be the duty of the several district attorneys of the United States, in their respective districts, to institute proceedings to enforce the remedies and to collect the penalties and forfeitures provided for in this Act. The remedies provided for in this Act shall be in addition to, and not exclusive of, any of the remedies or penalties existing at law or in equity." (50 Stat. 903, 915.) Federal Water Power Act, as amended, section 314: "(a) Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this Act, or of any rule, regulation, or order thereunder, it may in its discretion bring an action in the proper District Court of the United States, the Supreme Court of the District of Columbia, or the United States courts of any Territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices and to enforce compliance with this Act or any rule, regulation, or order thereunder, and upon a proper showing a permanent or temporary injunction or decree or restraining order shall be granted without bond. The Commission may transmit such evidence as may be available concerning such acts or practices to the Attorney General, who, in his discretion, may institute the necessary criminal proceedings under this Act. "(b) Upon application of the Commission the district courts of the United States, the Supreme Court of the District of Columbia, and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have jurisdiction to issue writs of mandamus commanding any person to comply with the provisions of this Act or any rule, regulation, or order of the Commission thereunder." (49 Stat. 803, 861.) Securities Act of 1933, section 20: "(b) Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this title, or of any rule or regulation prescribed under authority thereof, it may in its discretion, bring an action in any district court of the United States, United States court of any Territory, or the Supreme Court of the District of Columbia to enjoin such acts or practices, and upon a |