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SENATE COMMITTEE PRINT

INVESTIGATION OF EXECUTIVE
AGENCIES OF THE GOVERNMENT
REPORT
TO THE

SELECT COMMITTEE TO INVESTIGATE
THE EXECUTIVE AGENCIES OF THE GOVEENMENT
PURSUANT TO

SENATE RESOLUTION No. 217 (74TH CONGRESS)
A RESOLUTION*CREATING A SELECT COMMITTEE TO
INVESTIGATE EXECUTIVE AGENCIES OF THE
GOVERNMENT WITH A VIEW TO
COORDINATION
NO. 1
REPORT ON GOVERNMENT FINANCIAL AGENCIES
PREPARED BY THE BROOKINGS INSTITUTION

Printed for the use of the Select Committee on
Investigation of Executive Agencies of the Government

UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1937

•1-15-37




SELECT COMMITTEE ON INVESTIGATION OF EXECUTIVE AGENCIES
OF THE GOVERNMENT
HARRY FLOOD BYRD, Virginia, Chairman
JOSEPH T. ROBINSON, Arkansas
CHARLES L. McNARY, Oregon
JOSEPH C. O'MAHONEY, Wyoming
JOHN G. TOWNSEND, JR., Delaware
II




CONTENTS
Page

Introduction
Part I. Description of credit-granting and credit-supervisory agencies.A. Farm credit agencies
I. Summary of activities
1. Farm Credit Administration
(a) Federal land banks
(b) Federal Farm Mortgage Corporation
(c) Intermediate credit banks
(d) Production credit corporations
(e) Production credit associations
(f) Banks for cooperatives
(g) Regional Agricultural Credit Corporation
Qi) Emergency Crop and Feed Loan Section.
(i) Joint-stock land banks
(j) Credit unions
2. Resettlement Administration
3. Commodity Credit Corporation
II. Administrative costs
1. Farm Credit Administration and subsidiary
offices
2. Resettlement Administration, rehabilitation program
3. Commodity Credit Corporation
B. Home loan agencies
I. Summary of activities
1. Federal Housing Administration
Modernization credit loans
Mutual mortgage insurance
2. Federal Home Loan Bank Board
(a) Home loan banks
(b) Federal savings and loan associations. _
(c) Home Owner's Loan Corporation
(d) Federal Sayings and Loan Insurance
Corporation
II. Interrelations of the Federal Housing Administration
and the Federal Home Loan Bank Board.
_.
(a) Contacts with mortgage institutions
(&) Appraisal
(c) Research and statistics
(d) Field work
(e) Home building service
III. Administrative costs
1. Federal Housing Administration
2. Federal Home Loan Bank Board
3. Home Owners' Loan Corporation
4. Federal Savings and Loan Insurance Corporation
...
C. Reconstruction Finance Corporation
I. Summary of activities
1. Loans to banks and trust companies
2. Direct loans to industry
3. Loans to mortgage companies
4. Other activities
II. Administrative costs




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IV

CONTENTS

Part I.—Continued.
D. Banking and currency supervisory agencies
I. Summary of activities
1. Comptroller of the Currency
2. Federal Reserve System "
3. Federal Deposit Insurance Corporation
II. Functional classification
III. Administrative costs
1. Comptroller of the Currency
2. Board of Governors of the Federal Reserve
System
3. Federal Deposit Insurance Corporation
Part II. Recommendations concerning credit-granting agencies
A. Liquidation of temporary agencies
Alternative methods of procedure
Transfer of preferred stock of banks from the Reconstruction
Finance Corporation to the Federal Deposit Insurance Corporation
Reconstruction Finance Corporation loans to closed banks and
receivers
Direct loans to industry
B. Farm lending agencies
Regional Agricultural Credit Corporation
Joint-stock land banks
Commodity Credit Corporation
Banks for cooperatives
Emergency crop feed and seed loans
Land Bank Commissioner loans
„
C. Home lending agencies
Home Owners' Loan Corporation and the Federal Housing
Administration
Organization of Federal home lending agencies
Reconstruction Finance Corporation Mortgage Co
D. Summary of recommendations
Part III. Recommendations concerning banking credit supervisory agencies.
Number of agencies needed
Federal status of banks
Bank examinations
—
Call reports
Receivership and liquidation
Preferred stock of banks
Establishment of branches
Holding company affiliates
Interlocking directorates
Research and statistics
Interest rates on time deposits
Location of agencies
Fiscal services of Reserve banks
Currency issuance
Organization plan
Effect of recommendations on the Federal Reserve system
Summary of recommendations




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INTRODUCTION
The number and diverse character of Federal agencies which are
concerned with regulating, supplementing, and assisting private
financial operations present a challenging problem of governmental
organization. Some of them are of long standing and have permanent functions; others are of recent origin and wrere conceived to meet
temporary needs. With the passing of the emergency which called
so many of these agencies into existence, the time is propitious for a
careful appraisal of the administrative and liquidation problems
which now present themselves and of the possibilities of effecting
operating economies through a regrouping or reorganization of
existing agencies.
The principal agencies whose work falls within the field of this
report are listed below:
Lending agencies:
Farm Credit Administration.
Federal land banks.
Federal Farm Mortgage Corporation.
Intermediate credit banks.
Production Credit Corporation.
Production credit associations.
Banks for cooperatives.
Regional agricultural credit corporations (in liquidation).
Emergency Crop and Feed Loan Section.
Joint-stock land banks (in liquidation).
Credit unions.
Commodity Credit Corporation.
Federal Housing Administration.
Federal Home Loan Bank Board.
Home-loan banks.
Home Owners' Loan Corporation.
Federal savings and loan associations.
Federal Savings and Loan Insurance Corporation.
The Reconstruction Finance Corporation.
Federal Emergency Administration of Public Works.
Export-Import Bank of Washington.
Rural Electrification Administration.
Electric Home and Farm Authority.
United States Railroad Administration (in liquidation).
War Finance Corporation (in liquidation).
Supervisory agencies:
Comptroller of the Currency.
Board of Governors of the Federal Reserve System.
Federal Reserve banks.
Federal Deposit Insurance Corporation.
A number of other agencies exercise some incidental lending authority in connection with other more important functions; among
these are :
Resettlement Administration.
Federal Prisons, Inc.
Tennessee Valley Authority.
Inland Waterways Corporation.
United States Maritime Commission.




VI

INTRODUCTION

The analysis which follows is divided into three major divisions.
Part I gives a brief description of the functions and activities of
the various agencies, indicating also their interrelations. Part I I is
devoted first to an analysis of the problem of liquidation of the governmental loans and investments of the temporary institutions, and
second to the possible reorganization of the permanent agencies.
Part I I I deals with, the bank supervisory agencies.
The agencies included in this report are of five types: (1) Those
which extend credit to farmers; (2) those which extend credit to
urban home owners; (3) the Reconstruction Finance Corporation,
which has made loans to a wide variety of agencies and institutions;
(4) miscellaneous lending agencies whose work has been or shortly
is to be discontinued; and (5) those which supervise banking and
credit. The Tennessee Valley Authority, the Rural Electrification
Administration, the Electric Farm and Home Authority, the Inland
Waterways Corporation, and the United States Maritime Commission are discussed in other sections of this report. The Resettlement
Administration is considered in this section only with reference to
its lending activities; other sections of the report dealing with the
larger aspects of its work.




GOVERNMENT FINANCIAL AGENCIES
PART I. DESCRIPTION OF CREDIT-GRANTING AND
CREDIT-SUPERVISORY AGENCIES
A. FARM CREDIT AGENCIES

The principal agencies which extend credit to farmers aie the
Farm Credit Administration, the Eesettlement Administration, and
the Commodity Credit Corporation.
I. SUMMARY OF ACTIVITIES

1. Farm Credit Administration.—The Farm Credit Administra*
tion is a supervisory agency which exercises supervision over the
operations of the agencies discussed below. Its authority is centered in the Governor of the Farm Credit Administration.
(a) Federal land banks.—These are 12 corporations, the stock of
which is held in, part by the United States Government, in part by
the national farm loan associations, and in small part by individual
farmers. The banks make 20- to 30-year first-mortgage loans to
farmers in amounts not to exceed 50 percent of the value of the land
mortgaged, plus 20 percent of the value of improvements. In general the loans are made through national farm loan associations,
composed of farmer borrowers, each of whom is required to purchase stock in the farm loan associations to the extent of 5 percent
of the amount which he borrows. The associations in turn purchase
stock in the land banks. Each bank is controlled by a board of
directors and a general agent of the Farm Credit Administration.
General supervision over the 12 banks is exercised by the Land Bank
Commissioner. The banks formerly issued their individual bonds,
but the present practice is to issue consolidated bonds which are the
joint obligation of the 12 banks.
(h) Federal Farm Mortgage Corporation.—In order to provide
for emergency mortgage loans on a more liberal basis than that of
the regular land-bank loans, including second-mortgage loans, a
supplemental fund of $200,000,000 was made available to the Land
Bank Commissioner in the Farm Mortgage Act of 1933. Later the
Federal Farm Mortgage Corporation was organized with authority
to float bonds guaranteed by the Federal Government to secure funds
to make such loans. The land banks exchange their consolidated
bonds for Federal Farm Mortgage bonds or sell their consolidated
bonds to the Federal Farm Mortgage Corporation for cash. The
outstanding Land Bank Commissioner loans were all taken over by
the Farm Mortgage Corporation, but the term "Land Bank Commissioner loans" is still used to designate the Farm Mortgage Corporation loans. The directors of the corporation are: The Governor
of the Farm Credit Administration, the Secretary of the Treasury,
and the Land Bank Commissioner. Its lending operations are carried on by the land banks and the Land Bank Commissioner.




2

EXECUTIVE AGENCIES OF THE GOVERNMENT

(c) Intermediate credit hanks.—There are 12 intermediate credit
banks under the supervision of the Intermediate Credit Commissioner. The stock in these banks is all owned by the United States
Government, and the board of directors consists of the same persons
as the board of directors of the land bank operating in the same
district. The banks rediscount short-term agricultural paper held
by banks, production credit associations, banks for cooperatives, and
in a few cases make direct loans to cooperative associations. Paper
is not eligible for rediscount if its length of term is over 3 years;
most of the loans rediscounted run for from 3 to 6 months.
(d) Production credit corporations,—There are 12 of these corporations. Their stock is owned by the United States Government.
The membership of the board of directors is identical with that of
the land bank of the district. General supervision is exercised by a
production credit corporation commissioner. The Production Credit
Corporation makes no loans, but supervises the operations of the
production credit associations described below.
(e) Production credit associations.—These are about 600 in number. They are similar in character to the national farm-loan associations, but operate in the field of short-term credit. Their stock is
of two classes: Class A, subscribed by the Production Credit Corporation of the district; and class B, subscribed by borrowers in an
amount equal to 5 percent of the loans. About four-fifths of the
stock is of class A. The directors are elected by the class B stockholders, subject to the approval of the president of the Production
Credit Corporation of the district. The loans, which generally run
for from 3 months to 1 year, are practically all rediscounted at the
Federal intermediate credit banks. An attempt is being made to consolidate the administrative staffs of these associations with those of
the national farm-loan associations. In some cases there is a joint
secretary-treasurer, and in others there is joint or adjacent housing.
(/) Banks for cooperatives.—These consist of 12 district banks
and the Central Bank for Cooperatives. They are supervised by the
Cooperative Bank Commissioner. Each district bank for cooperatives has the same general agent and board of directors as does the
land bank of the district. The capital is nearly all owned by the
Federal Government, a small proportion being held by borrowers.
The loans are of two classes—facility loans, which run for from 5 to
10 years and are intended to furnish permanent working capital and
equipment; and commodity loans, which run for from 3 to 9 months
and are intended to finance marketing operations. At the close of
1935 the cooperative banks had outstanding $50,000,000 in loans, of
which nearly $20,000,000 were held by the Central Bank. Only
two of the district banks—those of Berkeley and Spokane—had as
much as $3,000,000 of loans outstanding. These two banks and the
Central Bank for Cooperatives accounted for over 60 percent of the
total volume of business.
(g) Regional Agricultural Credit Corporation.—These 12 corporations are now in liquidation, having been supplanted by the Production Credit Corporations and associations described above. Their
stock is all owned by the Reconstruction Finance Corporation, which
defrays their operating expenses. They are supervised by a divisional director appointed by the Governor of the Farm Credit Administration. The volume of loans outstanding on June 30, 193&,




EXECUTIVE AGENCIES OF THE GOVERNMENT

6

was slightly over $36,000,000; the operating expense for the year
ending on that date was $2,240,413.
(h) Emergency Crop and Feed Loan Section.—At the end of 1935
the Farm Credit Administration had 11 regional offices for the administration of emergency loans. The Director of the Crop and Feed
Loan Section is responsible to the Production Credit Commissioner.
Loans are made under authority of an act of Congress approved
February 20, 1935, which authorized the Farm Credit Administration
to make loans for the fallowing of land, the production and harvesting
of crops, and the purchase and production of feed for livestock.
Loans are restricted to applicants who have the necessary land and
equipment for cultivating it, or livestock for which feed is required,
and who are unable to obtain credit from commercial sources or from
Production Credit Corporations. The loans are secured by a first
lien on the crop which is to be produced or the livestock which is to
be fed.
Loans of this general type were authorized by acts of Congress in
certain years beginning in 1918 to meet local emergencies. The scope
of the program was greatly enlarged in 1931; for the years 1931 to
1935, inclusive, the average number of loans per year was about
490,000. The peak was in 1933, when 633,586 loans were made; the
number in 1935 was 424,216. The average size of the loans made in
1935 was $135. The balance outstanding on December 31, 1935, was
about $107,000,000, representing 62 percent of the loans made in 1935,
42 percent of those made in 1934, and 29 percent of those made before
that year. The administrative costs incurred in 1935 for 1935 crop
loans amounted to $1,753,657, about three-fourths of which was
covered by interest collections on the 1935 loans.
In addition to these loans the Emergency Crop and Feed Loan
Section administers drought relief loans, authorized by an act of
Congress approved June 19, 1934. Most of these loans have been
* secured by crop liens. These loans were made on very liberal terms,
and collections were slow. On December 31, 1935, there were outstanding $65,000,000 out of a total of $72,000,000 loaned in 1934 and
1935. The administrative costs incurred for the 1934-35 operations
were $1,527,832.
No drought loans were made in 1935-36, presumably because the
responsibility now falls on the Eesettlement Administration. The
relation between the Farm Credit Administration and the Eesettlement Administration lending programs are discussed below in the
section dealing with the latter organization.
(i) Joint-stock land banks.—The organization of these banks was
authorized by the Federal Farm Loan Act of 1916, in order to give
privately organized companies the opportunity to handle farm mortgages in competition with the Federal land banks. The Emergency
Farm Loan Act of 1933 prohibited their making new loans and provided for their liquidation. They are being closed out under the
supervision of the Farm Credit Administration. There were 44
banks in existence at the end of 1935 (excluding three in receivership),
with $205,000,000 of bonds outstanding and $265,000,000 book value
of assets. The latter figure compares with $442,000,000 in assets at
the end of 1933 and $337,000,000 at the end of 1934.
(j) Credit unions.—These are local cooperative credit organizations, urban as well as rural, which make small loans to their mem116777—37—no. 1




2

4

EXECUTIVE AGENCIES OF THE GOVERNMENT

bers. The stock is subscribed by members, and the organizations are
supervised by a sectional director under the supervision of the Governor of the Farm Credit Administration. No loan may exceed $200,
and the length of maturity may not be greater than 2 years. As of
June 30, 1936, loans outstanding amounted to $3,952,105. For the
year ending on that date the unions reported a profit of $85,000, while
the administrative expense of the Farm Credit Administration for
supervising them was $113,000.
2. Resettlement Administration.—This organization is authorized
to make rehabilitation loans to farmers who do not qualify for loans
through production credit associations or national farm-loan associations. As of October 30, 1936, 384,731 such loans had been made, in
addition to 467,064 outright grants. The total amount of the loans
was $96,000,000; that of the grants about $19,000,000. These loans
include, in addition to standard rehabilitation loans, emergency feed
and crop loans, 1936 emergency drought loans, and a number of miscellaneous types of lending, most of them of a character closely akin
to relief. The loans are secured by chattel mortgages on property
acquired by the borrower from the proceeds of the loan, by assignments of the proceeds of the sale of products, and in some cases by
liens on other assets of the borrower, including real-estate mortgages.
Loans are also made to community and cooperative associations to
establish, refinance, or extend the scope of cooperative facilities and
services, and to individuals to enable them to purchase participating
rights in community and cooperative associations. The total amount
of loans in these two classes is slightly above $1,000,000; these are
included in the total shown above.
As was noted in a previous section, the rehabilitation loans made by
the Resettlement Administration are somewhat similar in character to
those made by the Emergency Crop and Feed Loan Section of the
Farm Credit Administration. Both are made only to farmers who
cannot get credit from commercial sources or from production credit
associations. However, the Farm Credit Administration now serves a
somewhat better class of credit risks, loans of a strictly relief character having been left in large part to the Resettlement Administration
since its lending activity started. In theory a Resettlement Administration loan is made only to a farmer who cannot satisfy the credit
requirements of the Farm Credit Administration, though it is understood that there has been some competition in certain areas and some
refunding of Farm Credit Administration loans into Resettlement
Administration loans.
The principal differences are, first, that the Resettlement Administration loans are made for the purchase of equipment and for subsistence, as well as for crop and feeding operations; and, second, that
the Resettlement loan is part of a larger program which includes
farm and home management advice and direct grants for subsistence.
Its representatives work out with the farmer a complete plan of farm
operations covering a period of years. Instruction in home economics
is furnished to farmers' wives. Because of the more intensive type of
service rendered, the administrative costs of the Resettlement Administration are very much higher. One field representative of the
Farm Credit Administration administers 12 or 15 times as many loans
as does a representative of the Resettlement Administration.




EXECUTIVE AGENCIES OF THE GOVERNMENT

5

3. Commodity Credit Corporation.—This Corporation was created
in 1933 for the purpose of extending loans to farmers on the security
of staple agricultural products held in storage. Its life as a Government agency terminates on April 1, 1937. It has a capital stock of
$100,000,000, of which $3,000,000 is owned by the Treasury and
$97,000,000 by the Reconstruction Finance Corporation. Additional
funds are obtained by borrowing from the Reconstruction Finance
Corporation. The bulk of the Corporation's loans have been made on
the security of corn and cotton; a small amount has also been lent on
turpentine and rosin. The amounts which the Corporation lends per
unit of product are fixed by the President of the United States. In
some cases loans are placed with commercial banks under commitments from the Commodity Corporation to take them over on demand.
A charge of 1 percent is made for such guarantee. On April 10,1936,
the Corporation had outstanding loans of over $296^000,000.
II. ADMINISTRATIVE COSTS

(Year ended June 30)
1. Farm Credit Administration

and subsidiary offices
1936

Washington operating divisions of Farm Credit Administration:
Land Bank Division
Cooperative Credit Division
Intermediate credit
.__
Production credit
Agricultural Credit Corporation Division
Regional agricultural credit corporations _.
Federal credit unions.
_« _
Total, operating divisions

_

Emergency crop loans, field and Washington supervision
District banks and corporations under supervision of
Farm Credit Administration:*
12 Federal land banks
_.
Less Federal Farm Mortgage Agency expense
Net
12 Federal intermediate credit banks i
12 Production credit corporations *
12 cooperative banks
12 Regional agricultural credit corporations
*__
Federal Farm Mortgage Corporation 4 5
Less Farm Credit Administration service expense.
Total
Service divisions of Farm Credit Administration *
Grand total

1935

Number
employees

Administrative
expense

Number
employees

221
83
10
24
2
10
28

$825,000
357,000
53,000
135,000
4,000
65,000
114,000

284
58
8
26
4
15
7

Administrative
expense

$946,000
277,000
48,000
152,0C0
10,000
72,000
26,000

378

1, 553,000

402

1,532,000

1,737

4, 636,000

1,559

4,860,000

9,497

33,810,000
19, 899,000

15, 740, 000
2,003,000
1, 798,000
762,000
2, 240,000
6 9, 880,000
516,000

2 884
«367
a 191
1,741

13,911,000
2, 578,000
1, 406,000
848,000
3, 718,000
21,104, 000
619,000

9,833

31,907,000

12, 680

42, 746,000

1,390

3, 595, 000

1,404

3, 714,000

13, 338

41, 691,000

16,045

52,852,000

2 7, 539 3 24,863,000
9,123, 000
2722
2
367
2 215
990

2

* These figures do not include national farm loan associations and production credit associations under
supervision
of the Farm Credit Administration.
2
Includes joint employees of these 4 permanent credit institutions.
8
For 1935, includes $19,898,552, incurred by Federal land banks as agents of the Federal Farm Mortgage
Corporation; for 1936, $9,123,333.
* Stock 100 percent owned by the United. States.
« The Federal Farm Mortgage Corporation's affairs are being conducted on a service basis by the Farm
Credit Administration, Federal land banks as agents, Federal Reserve banks as fiscal agents, and the
Treasury of the United States.
e For 1935, includes disbursements for expenses on a service basis incurred by the Federal land banks as
agents, in the amount of $19,898,552; and expenses on a service basis of $1,205,062 incurred by the Farm Credit
Administration, Treasurer of the United States, and the Federal Reserve banks on behalf of the Corporation.
For 1936, includes $9,123,353 incurred by Federal land banks, and $756,140 incurred by the other agencies
mentioned.
7
Includes financial, research, examination, and legal services.




6

EXECUTIVE AGENCIES OF THE GOVERNMENT
2. Resettlement

Administration,

rehabilitation

program1
1936

Number of employees
8, 831
Salary
expense
$10, 090, 688
1
Includes expenses connected with grants and other rehabilitation activities, in addition
to the lending function which is discussed in this section. Comparable data for 1935 not
available.
3. Commodity

Credit

Corporation
1935

Number of employees
Salary expense
Total operating expense

_

_

_

84
$179,862
$554,827

85
$167,704
$330,572

B. HOME LOAN AGENCIES

The principal agencies which extend or supervise the extension of
credit to urban home owners are the Federal Housing Administration
.and the Federal Home Loan Bank Board.
I. SUMMARY OF ACTIVITIES

1. Federal Housing Administration.—The Federal Housing Administration was established by the National Housing Act (48 Stat.
L. 1246), approved June 27, 1934, and amended by various acts in
1935 and 1936. It is directed by an Administrator, who is appointed
by the President. Though the Administration is not a corporation
in form, it exercises the most important powers of a corporation.
Thus the Administrator in his official capacity can sue and be sued
in a State or Federal Court, may issue debentures which are guaranteed as to principal and interest by the United States Government,
and may pay his administrative expenses without regard to the provisions of law which in general govern the expenditure of public
funds. His administrative expenses are paid out of funds made
available by the National Housing Act, and do not require specific
appropriation from year to year, though this will not be the case
under the provisions of existing law after June 30 next. He reports his operating budget to the Bureau of the Budget, but it is
understood that this is a voluntary arrangement on the part of the
Administrator.
The more important activities of the Federal Housing Administration may be summarized as follows:
Modernization credit loans.—The Federal Housing Administration
guarantees loans made by approved banks, building and loan associations, and other financial institutions for repairs and improvements
upon real property and the installation of fixed equipment. The
total liability of the Administration may not exceed $100,000,000.
With respect to loans made by any one institution, the present limit
of liability is 10 percent of the total volume of loans made by that
institution; on loans made before April 1, 1936, it was 20 percent.
The authority to make modernization loans lapses on April 1, 1937.
The amount outstanding on June 30, 1936, was $395,882,687. The
amount of claims paid under the insurance provisions up to June 30,
1936, was $2,249,035.




EXECUTIVE AGENCIES OF THE GOVERNMENT

7

Mutual mortgage insurance.—-The Federal Housing Administration
administers a mortgage insurance fund in connection with the guaranty of real-estate mortgages on nonfarm residential properties.
Apartment buildings housing more than four families are excluded.
The loans are made by banks, building and loan associations, and
other financial institutions, and must have a provision for amortization over a period not to exceed 20 years. The loans insured may pot
exceed 80 percent of the appraised value of the respective properties,,
and the total liability may not exceed $200,000,000. The Federal
Housing Administration also guarantees mortgages of large-scale
housing projects for low-income groups. The total liability limit is
$10,000,000. One-half of 1 percent per annum is charged as insurance
premium.
As of June 30,1936, the Federal Housing Administration had 1,288"
employees in its Washington office. The number of field offices was 90
and there were 2,337 field employees.
2. Federal Home Loan Bank Board.—The Federal Home Loan
Bank Board consists of five members appointed by the President. It
has supervision of the following agencies: The 12 Federal Home Loan
Banks, the Federal Savings and Loan Insurance Corporation, the
Home Owners' Loan Corporation, and the Federal savings and loan
associations.
(a) Home-loan banks.—Each of these banks has under it a large
number of member associations, including State building and loan
associations, and also Federal savings and loan associations of the
type described below. The home-loan banks make loans and advances
to members on the security either of home mortgages or of United
States bonds. Advances are also made to nonmember mortgagees on
the security of mortgages insured by the Federal Housing Administration. Funds of the banks may also be invested in United States
Government bonds.
The stock of the home-loan banks is in part owned by the United
States Government and in part by the member associations. The
home loan banks have authority to issue debentures and bonds, which
may be either the obligations of the individual bank or consolidated
obligations of the 12 banks.
(b) Federal sayings and loan associations.—These are building
and loan associations whose common stock is owned by private individuals. The number on November 30, 1936, was 1,106. The United
States Government invests in their preferred stock up to a maximum
of $100,000 for each association, subject to the provision that the
subscription of the Government may not exceed that of the private
shareholders. The United States also invests in full-paid income
shares. Its total investment may not exceed 75 percent of the total
share investment. On July 31, 1936, the investment of the United
States in the two classes of stock was $49,213,000, most of it in income stock. The associations are under the general supervision of
the Home Loan Bank Board.
(c) Home Owners^ Loan Corporation.—The Home Owners' Loan
Corporation was organized to refinance the loans of distressed home
owners. The Federal Home Loan Bank Board is the board of directors of the Home Owners' Loan Corporation. The Corporation
ceased to accept applications for new loans on June 13, 1936; The*
total amount of loans closed was $3,093,288,213. The Corporationi




8

EXECUTIVE AGENCIES OF THE GOVERNMENT

also had invested $63,142,700 in shares of building and loan associations. The principal task of the Corporation is now the gradual
liquidation of the outstanding loans.
The capitalization of the Corporation is $200,000,000, all of which
is owned by the United States Government. I t has outstanding about
$3,000,000,000 of bonds, most of which were issued in exchange for
the mortgage obligations of borrowers. For the year ending June 30,
1936, the Corporation reports 2,212 employees in the home office, 5,117
in regional offices, and 10,729 in State and district offices.
(d) Federal Savings and Loan Insurance Corporation.—The purpose of this Corporation is to guarantee the share liabilities of building and loan associations and similar home-financing organizations.
The Corporation has $100,000,000 capital, all of which was subscribed
by the Home Owners' Loan Corporation. The members of the Home
Loan Board are the directors of the Federal Savings and Loan Insurance Corporation. It is directed by a manager who is appointed
by the Board. Federal savings and) loan associations are required
to insure their shares accounts with the Corporation, and Statechartered building and loan associations are permitted to do so. The
maximum amount insured for any one shareholder is $5,000.
The Corporation also has authority to purchase the assets of insured associations or make contributions to restore them to normal
operating capacity. The Corporation acts as conservator or receiver
of all Federal savings and loan associations in default and may
accept appointment as conservator or receiver of a State-chartered
association.
The Corporation collects an insurance premium of one-eighth of
1 percent of the share and creditor liabilities of the insured associations. On June 30, 1936, the number of accounts insured was
1,023,511 in 1,363 associations.
II. INTERRELATIONS OF THE FEDERAL HOUSING ADMINISTRATION AND THE
FEDERAL HOME LOAN BANK BOARD

Attention is called to the following ways in which the responsibilities and activities of the Federal Housing Administration and
those of the Federal Home Loan Bank Board overlap, conflict, or are
closely related to one another.
(a) Contacts with mortgage institutions.—Many of the institutions which have relations with the Federal Housing Administration
as present or prospective purchasers of insured mortgages are also
members or prospective members of the home-loan bank system. The
Federal Housing Administration has an administrative unit which
keeps in touch with associations eligible to purchase insured mortgages and makes contacts with other building and loan associations
in an effort to promote the mortgage-insurance program. The Federal Home Loan Bank Board receives reports from building and loan
associations and keeps files showing the condition of member associations. The 12 home-loan banks also must keep in touch with the
activities of all member institutions. The Home Loan Bank Board
has a staff of examiners which examines all associations members of
the home-loan bank system, and also all insured nonmember associations. The Federal Savings and Loan System has a field force engaged in promotional work, which makes contact with many of the




EXECUTIVE AGENCIES OF THE GOVERNMENT

ft

same institutions that are visited by representatives of the Federal
Housing Administration.
(b) Appraisal.—The Federal Housing Administration has a field
force for appraisal of properties which are pledged under mortgages
accepted for insurance. The Home Loan Bank Board has an appraisal force to appraise properties which are under the lien, of
mortgages that are pledged with the home-loan banks. It also appraises properties in connection with the examination of building
and loan associations and in connection with the foreclosure 01
mortgages and the management of properties of the Home Owners'
Loan Corporation.
(c) Research and statistics.—The Federal Housing Administration
and the Home Loan Bank Board both have large organizations engaged in research and the compilation of statistics in the home-mortgage field. While there is a considerable degree of cooperation and
division of labor between the research divisions of the two agencies
neither has the full use of the results of research in the other organization and it is impossible to set up a well-organized joint program.
Coordination of statistical and research work was one of the objectives in the establishment of the Central Housing Committee. This
committee includes representatives of the two agencies under consideration and of other Federal agencies, such as the Eesettlement Administration and the Federal Emergency Administration of Public
Works, which are active in the. construction of homes. The committee's accomplishments in this field are not striking. Little information goes to the Central Housing Committee that has not already
been released to the public. Each agency has a large volume of
information which it regards as confidential which would be useful
to other agencies in the field, but never reaches them.
(d) Field work.—In the, year ended June 30, 1936, the Federal
Housing Administration spent $7^359,34:6 on its field organization,
while in the same period the Home Owners' Loan Corporation spent ;
$23,822,531 on its regional, State, and district offices. Moreover, the
Home Owners' Loan Corporation has in Washington six assistant
general managers supervising the field offices, each having an office
staff; while the Federal Housing Administration has five deputy
administrators, each with an office staff, supervising its field offices. :
(e) Home-building service.—The Federal Housing Administration
gives technical advice in regard to construction plans for all new
building financed by guaranteed mortgages. The Home Loan Bank
Board has recently announced a home-building service plan for
houses constructed under mortgages purchased by approved members
of the home-loan banks.
,
III. ADMINISTRATIVE COSTS
(Year ended J u n e 30.)

..:•>•

1. Federal Housing Administration
19S6

Number of employees
Salary expense
Total operating expense
(Not in operation for full year 1934-35.)




3, 660
$8,023,375 >
$11, 337, 849 .

10

EXECUTIVE AGENCIES OF THE GOVERNMENT
2. Federal Home Loan Bank

Board1
1936

Number of employees,.
Salary expense
Total operating expense

278
$858,148
$1,040,747

1935
206
$654,124
$858,317

* Data do not include Home Owners' Loan Corporation and Federal Savings and Loan Insurance Corporation, which are shown separately, nor the 12 home-loan banks.

3. Home Owners9 Loan Corporation
1936
18,059
$29,331,119
$35, 548,136

Number of employees..
Salary expense
Total operating expense.

1935
16,958
$27,854,155
$37,426, 579

4. Federal Savings and Loan Insurance Corporation
1935
Number of employees..
Salary expense
Total operating expense.

10
$23, 620
$86, 546

C. RECONSTRUCTION F I N A N C E CORPORATION

The Reconstruction Finance Corporation was organized on February 7, 1932, under the provisions of an act of Congress which
provides that it shall have succession until January 22, 1942, unless
sooner dissolved by an act of Congress. Its powers to make loans
lapses on February 1, 1937. The Corporation is controlled by a
board of seven directors, consisting of the Secretary of the Treasury
and six others. The capital stock of the Corporation, which amounts
to $300,000,000, is owned by the United States Government. The
Corporation has issued bonds and notes which are guaranteed by the
United States Government. The amount outstanding on June 30,
1936, was $4,281,629,666.67, of which amount $4,030,000,000 was held
by the Treasury. The Corporation has 32 field offices and a personnel of 1,635 employees in Washington, and 1,678 in the field offices (as
of June 30, 1936).
I. SUMMARY OF ACTIVITIES

1. Loans to banks and trust companies.—The most extensive financial operations of the Reconstruction Finance Corporation, aside
from allocations to other governmental units, have been those necessitated by the banking crisis of 1933. The advances of the Eeconstruction Finance Corporation to banks consist of two items: (a)
purchases of preferred stock and capital notes and debentures of
weak banks, most of which were made in order to prevent failures
or to enable banks to qualify for deposit insurance; (&) loans to
failed banks made in order to facilitate reorganization, or to hasten




EXECUTIVE AGENCIES OF THE GOVERNMENT

11

the redistribution of funds to depositors. Loans to facilitate reorganization are now made by the Federal Deposit Insurance Corporation.
Of the preferred stock and capital notes and debentures of banks,
$688,000,000 was outstanding on September 30, 1936, out of a total
of $1,053,000,000 that had been disbursed since the beginning of the
program. Since banks are required to retire these securities only
over a period of 20 years, this investment will, in the normal course
of business, be one of the last items in the portfolio of the Reconstruction Finance Corporation to be liquidated. Other bank loans,
on the contrary, are being repaid rapidly, the total outstanding on
the date mentioned being $228,000,000, out of a total of $1,966,000,000
which had been disbursed.
2. Direct loans to industry.—An item of considerable importance
consists of the direct loans to industrial and commercial business,
which were authorized by an amendment to the Reconstruction
Finance Corporation Act passed in June 1934. These loans are intended to provide intermediate credit to sound borrowers who, for
one reason or another, cannot get the credit they need at commercial banks. This service is very similar to one that is offered by the
Federal Reserve banks.
3. Loans to mortgage companies.—These loans are chiefly for the
financing of hotels, apartment buildings, office buildings, and similar structures which on the one hand do not qualify as industrial
and commercial businesses within the meaning of the law authorizing direct loans to industry, and on the other hand do not qualify
for credit at the home-lending agencies, which in general do not
provide for the financing of residential buildings which house more
than four families. At present, this business is chiefly concentrated
in the RFC Mortgage Co., incorporated in 1935. All the stock of
this company, $20,000,000, is owned by the Reconstruction Finance
Corporation, and its personnel is practically all made up of employees of the Reconstruction Finance Corporation.
The RFC Mortgage Co. has the following authority: (a) To make
loans secured by first mortgages on income-producing properties of
the types referred to above, where financing is necessary and cannot
otherwise be obtained on reasonable terms; (&) to make loans, under
certain restrictions, to distressed holders of first-mortgage bonds;
(c) to make first-mortgage loans in aid of the construction of new
buildings. The company does not make direct loans to property
holders who are eligible for modernization loans or mutual mortgage
loans insured by the Federal Housing Administration, but it does
purchase mortgages insured by the Administration.
4. Other activities.—The scope of the current lending operations
of the Reconstruction Finance Corporation is indicated in the following tabulation of disbursements to and collections from governmental
agencies during the third quarter of 1936 :

116777—37—no. 1-




12

EXECUTIVE AGENCIES OF THE GOVERNMENT

Disbursements and collections of the Reconstruction xFinance Corporation during
the third quarter of 19S6
Debtor
Banks and trust companies 2
Building and loan associations
_
Insurance companies
Mortgage-loan companies
Credit unions
_-.
Agricultural financial institutions 4
_
_.
Railroads
State funds (insuring deposits of public moneys, etc.)Fishing industry
_
Industrial and commercial
business «
Self-liquidating projects 6
Repair of damage from earthquakes, floods, etc
Drainage, levee, and irrigation districts
_.
Mining industry
_
Total.

Disbursed
$15, 515, 978
4,000,000
3 23, 259,058
5, 702, 740
9, 202, 667
21, 200
7,104,814
16, 232, 748
620,084
5,771, 429
520,000
87,950, 718

Repaid
$164, 224,215
609,888
6,995,086
2,617
75,093,061
48,374,144
579,059
3,261
1,939,460
291, 647
103,568
25,000
300,030,144

1
2
3

Excludes transactions arising from allocations to other Federal agencies.
Includes purchases of preferred stock and capital notes and debentures.
Chiefly to the R F C Mortgage Co. Includes subscription to stock of that company.
* Includes Commodity Credit Corporation.
« A considerable volume ot industrial and commercial lending is included in the data for mortgage-loan
companies given above.
• These are chiefly loans to municipalities and other local governmental units.

In addition to these lending operations the corporation acts as a
financial intermediary in connection with certain operations of other
governmental agencies. It purchases securities from the Public
Works Administration for resale or collection. Up to September 30,
1936, such purchases had been made in the amount of $451,236,468, of
which $310,758,918 had been resold or collected at maturity, leaving a
balance of $140,477,550. It pays the expenses of liquidation of the
regional agricultural credit corporations and the operating losses of
the Federal Housing Administration and its credit losses on modernization (title I) loans.
Reconstruction Finance Corporation funds had been allocated and
disbursed to other Federal governmental agencies, up to September 30,
1936, as follows:
Secretary of Agriculture for crop loans
$115, 000,
000
Capital of regional agricultural credit corporations
20, 0001, 000
Governor of Farm Credit Administration
40,500,000
Regional agricultural credit corporations, for expenses
14, 576, 843
Secretary of the Treasury to pay for capital of Federal home loan
banks
.
104, 542, 000
Secretary of the Treasury to pay for capital of the Home Owners'
Loan Corporation
200, 00O, 000
Land Bank Commissioner and Federal Farm Mortgage Corporation for loans to joint-stock land banks and to farmers
202, 600,000
Federal Housing Administration
44, 000, 000
Commodity Credit Corporation, purchase of stock
97, 000, 00O
Loans to Commodity Credit Corporation
95, 808, 924
For direct relief
1,499,998,176
Total




2, 434, 025, 943

EXECUTIVE AGENCIES OF THE GOVERNMENT

13

A condensed statement of the assets and liabilities of the Reconstruction Finance Corporation as of September 30, 1936, follows:
ASSETS

Loans to nongovernmental agencies: 1
Banks and trust companies
Building and loan associations
Insurance companies
Mortgage-loan companies
Credit unions
Agricultural financial institutions
Railroads
State funds (insuring deposits of public moneys, etc.)
Fishing industry
Industrial and commercial business
Self-liquidating projects
Repair of damage from earthquakes, floods, etc
Drainage, levee, and irrigation districts
Mining industry
Relief advances to State and local governments
Securities purchased from Public Works Administration
Loans and allocations to Federal governmental agencies
Interest on funds allocated to Federal agencies
Preferred stock installment contracts
Cash
Collateral purchased
Accrued interest and dividends
Furniture and
fixtures
Miscellaneous
Total

$929,976,420
3, 377, 810
38, 384, 312
149,108, 259
298, 033
35, 020, 486
349, 260, 577
1,230,271
620, 776
57, 690, 456
2
184, 417, 834
1, 410, 681
61, 778, 073
1,186, 000
295, 994, 711
140, 477, 550
3
2,434, 025, 943
20, 710,323
724, 661
1, 055,074
3, 512,411
31, 015, 075
542, 621
2, 486, 771
4, 744, 305,128

LIABILITIES

Liabilities for funds held as cash collateral and deposited with
bids
3,293, 656
Funds held for other agencies
5, 941,100
Trust funds
33, 687,142
Notes
4, 011, 749, 667
Accrued interest
8, 297,118
Stock
500, 000', 000
Surplus and reserves
141, 487, 720
Miscellaneous liabilities
39, 848, 725
Total

4, 744, 305,128

1
2

Includes loans to Federal land banks and joint-stock land banks.
Figure includes loans for financing repair of damage from earthquakes and other
disasters
in 1933.
3
See preceding table.

It will be seen that something less than one-half the liabilities of
the Corporation are covered by claims against nongovernmental agencies, the other half representing funds which have been disbursed for
relief or used for the purchase of capital stock in other governmental
corporations, to furnish them funds for loan operations, and to pay
their operating expenses. The stock of the Corporation and $3,795,000,000x of its notes are owned by the United States Treasury. The
notes held by the Treasury are therefore in large part simply a bookkeeping offset against Reconstruction Finance Corporation nominal
claims for funds which have been routed through the Reconstruction
Finance Corporation and used for relief and other emergency purposes.
U s of July 31, 1936.




14

EXECUTIVE AGENCIES OF THE

GOVERNMENT

II. ADMINISTRATIVE COSTS
(Years ended June 30)
Reconstruction

Finance

Corporation
1936

Number of employees, Washington and agency offices.__
Administrative expense, Washington and agency officesExpense of custodians
Total operating expense

3,313
$9,097,879
$1, 776, 679
$10,874, 558

1935
3,470
$8,398,904
$2, 265,540
$10,664,444

D . B A N K I N G AND CURRENCY SUPERVISORY AGENCIES

The three agencies which have primary responsibility for the
supervision of banking, currency, and short-term credit are thei
Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. The Reconstruction Finance Corporation and the Secretary of the Treasury also
have some authority in this field. We shall present first a summary
statement of the activities of the three agencies first mentioned; then a
classification of the functions which they have to perform, with
notations of the way in which the functions are apportioned among
these and other agencies.
I. SUMMARY OF ACTIVITIES

1. Comptroller of the Currency.2—The Comptroller's Office has
five main functions. These are: (a) The chartering of new national banks, a task which has been lessened in importance by reason of the fact that the number of banks has been decreasing in
recent years, whereas up to the middle twenties the trend was upward; (6) examination of national banks and enforcement of laws
regulating their activities, which are now probably the most important activities of the Comptroller's Office; (c) issuance and redemption of the national bank notes, a task which is rapidly disappearing because of the calling of all the bonds which had the
circulation privilege; (d) issuance to the Federal Reserve banks
of the^notes which they issue to the public; (e) appointment and
supervision of receivers of failed national banks. This last task has
been greatly changed with reference to future receiverships, because
the law now requires that the Federal Deposit Insurance Corporation shall be appointed receiver of all failed national banks. However, there are still over 1,100 national banks with individual receivers who require detailed supervision. The Comptroller also exercises general supervision over the operations of the Federal Deposit
Insurance Corporation as receiver of the banks which have failed
since the present arrangement went into effect.
In addition to these duties, the Comptroller serves as a member
of the board of directors of the Federal Deposit Insurance Corporation. He compiles operating statistics covering the operations of
national banks, as well as the results of liquidation of failed banks,
and collects from State banking offices data concerning operations
of State banks. He exercises various administrative powers over
2

For other agencies of the Treasury Department, see chs. I l l , XII, XIII, and XV.




EXECUTIVE AGENCIES OF THE GOVERNMENT

15

national banks, including such matters as the establishment of
branches, consolidations, retirement of stock, dissolution, and so on.
The Comptroller levies assessments on the national banks to cover
the expense of examination, and, with respect to this part of the
expenditures of his office, he is not under the supervision of the
Budget Bureau nor audited by the General Accounting Office. The
expenses connected with administration of closed banks are also
reimbursed by the banks, as are part of the expenses connected with
the issuance of Federal Reserve notes. Other expenses of the Comptroller's Office are covered out of appropriated funds.
2. Federal Reserve System.—The Federal Reserve System consists
of 12 Reserve banks, 6,387 member banks (as of Dec. 31, 1935), the
Board of Governors of the Federal Reserve System, the Open Market Committee, and the Federal Advisory Council. The capital stock
of the Federal Reserve banks is owned by the member banks, but
since the dividend is limited to 6 percent (an amount which is always
earned and paid), and since the surplus is virtually owned by the
Federal Government, the member banks have no financial interest in
the operation of the system. The board of directors of each Reserve
bank consists of nine members, of whom six are elected by the member banks and three are appointed by the Board of Governors.
The Reserve banks' most important functions arise out of correspondent relations with the member banks. The Reserve banks
hold as deposits the entire legal reserves of their members. They
are empowered to make loans to members under a variety of prescribed conditions. They also make working capital loans, of not
more than 5-year maturity, to industrial or commercial businesses,
either through the medium of financing institutions, or directly. In
emergencies, when authority has been granted by at last five members
of the Board of Governors, they may make direct loans to individuals
by discounting secured notes. They are also empowered to purchase
in the open market bankers' acceptances and bills of exchange and
obligations of the Unitd States and certain other securities. They
issue Federal Reserve notes, which constitute the most important
element of the paper currency of the country. They examine State
member banks and receive condition reports from them.
The Board of Governors of the Federal Reserve System consists
of seven members appointed by the President, subject to confirmation
by the Senate. The Board is empowered to "review and determine"
the rates charged by the Reserve banks on all their discounts and
advances, to regulate the amount of credit extended by banks on
security collateral, and to fix the maximum rate of interest which
may be paid by member banks on time and savings deposits. It also
may, with certain limitations, change the requirements relative to
reserves to be held by member banks against deposits.
The Federal Open Market Committee, which consists of the members of the Board of Governors and five elected representatives of
Federal Reserve banks, controls the open-market operations of the
Reserve banks. The Federal Advisory Council is composed of 12
members, one selected by the board of directors of each Federal
Reserve bank. This council makes recommendations concerning policies and practices of the Federal Reserve Board and of the Reserve
banks.
All of the activities of the Reserve System so far enumerated have
to do with the control of the general credit situation, making money




16

EXECUTIVE AGENCIES OF THE GOVERNMENT

abundant and cheap when it is desired to encourage expansion of
business activity, and raising rates and making money scarce and
dear when restriction is deemed necessary. This is the main function of the Board of Governors of the Reserve System. I t is quasilegislative in character.
The Board and the banks have in addition a number of administrative responsibilities, only a part of which have any necessary connection with the main task. The Reserve banks act as clearing houses
and collecting agents for their member banks and as depositories
and fiscal agents of the United States. The Board examines the
Federal Reserve banks and requires statements and reports from
them, and has supervision over their operations. It exercises a considerable range of administrative powers in connection with the relations between member banks and their affiliates; approves or disapproves interlocking directorates involving member banks; passes on
applications of State member banks to establish out-of-town branches
and on applications of national banks for authority to exercise trust
powers, and operates a settlement fund for settlement of balances due
between Reserve banks. The Board passes on applications of State
banks for membership in the Federal Reserve System, but has no
discretion regarding the entrance into the System of any bank which
is granted a charter as a national bank by the Comptroller of the
Currency.
The expenses of the Board of Governors are met by assessments on
the Federal Reserve banks. The Reserve banks derive all their income from their own loan and investment operations. Neither the
Board nor the banks come under the supervision of the Bureau of the
Budget, and the General Accounting Office does not audit their
records.
3. Federal Deposit Insurance Corporation.—This is a governmental corporation, its stock being owned jointly by the United
States Government and the Federal Reserve banks. The stock is
nonvoting and does not pay dividends. The board of directors of the
Corporation consists of the Comptroller of the Currency and two
appointed directors, one of whom acts as chairman and chief executive officer of the Corporation. The principal function of the Corporation is to furnish insurance to depositors in insured banks, which
include all the member banks of the Federal Reserve System and
approved nonmember State banks. The insurance covers deposits
up to $5,000. The income of the Corporation is derived from two
sources (a) the interest on investments of about $300,000,000 (U. S.
Government bonds), and (b) assessments on insured banks, amounting to one-twelfth of 1 percent annually on their total deposits. The
operating budget of the Corporation is submitted to the Bureau of
the Budget (under an Executive order), but its accounts are not
audited by the General Accounting Office.
The Corporation has authority to pass on the admission to the
insurance fund of banks not members of the Federal Reserve System,
but has no discretion as to the admission of any bank which is accepted as a member bank by the Federal Reserve System, or is
chartered by the Comptroller of the Currency as a national bank.
The Corporation examines nonmember State banks and receives reports of condition from them. It acts as receiver for closed national
banks under the supervision of the Comptroller of the Currency, and
may act as receiver for closed State banks, if appointed by the proper




EXECUTIVE AGENCIES OF THE GOVERNMENT

17

State authority. The corporation has authority to make loans to
banks in distress or purchase their assets in order to facilitate a
merger with another bank and thus avoid the necessity of liquidation.
It compiles statistics of the condition of all insured banks, and carries
on a program of research on banking problems.
The Reconstruction Finance Corporation possesses a considerable
degree of control over the banking system by virtue of its position as
owner of preferred stock. The Corporation's activities in connection
with banks are described in the section of this report which deals
with our recommendations.
I I . FUNCTIONAL CLASSIFICATION

In the following outline we show the relationships of Federal
organizations for the control of credit from a different viewpoint,
grouping together the agencies which are concerned with a specific
function:
1. CONTROL OF THE FEDERAL STATUS OF BANKS

(a) National banks.—Chartering and forfeiture of charters, Comptroller
of the Currency.
(6) Membership in the Federal Reserve System.—Board of Governors of
the Federal Reserve System controls admission of State banks, but has no
control over entrance through issuance of charter as national bank.
(c) Membership in deposit insurance fund.—Federal Deposit Insurance Corporation controls entry of State nonmember banks, but has no control over
entry of banks either under national charter or as State member banks. The
Corporation may, however, terminate the insurance of any bank. Such action
in the case of a national bank leads automatically to receivership proceedings;
in the case of a State member bank it leads automatically to suspension of
rediscount privileges at Federal Reserve banks.
2. EXAMINATION AND REPORTS

(a) National banks.—Examined by the Comptroller of the Currency and
file reports of condition with him. The Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation also have authority to examine, with the consent of the Comptroller, but in practice accept
reports by the Comptroller.
(&) State member banks.—Examined by Reserve banks and also by State
banking authorities; render reports of condition to both these agencies and
also to Federal Deposit Insurance Corporation.
(c) Insured nonmember banks.—Examined by and file reports with the Federal Deposit Insurance Corporation; also State banking authorities.
(d) The Reconstruction Finance Corporation sometimes examines banks, by
agreement with the bank, when it owns preferred stock of capital debentures,
or proposes to buy such securities, though its general practice is to accept reports of the other Federal examining agencies.
(e) The Federal Deposit Insurance Corporation is authorized to review the
reports of examination of member banks of the Reserve System made by the
Comptroller and the Reserve Board, but cannot examine the banks except by
permission of the Comptroller, in the case of a national bank, and of the Reserve
Board in the case of a State member bank.
3. AID TO DISTRESSED BANKS

(a) Reconstruction Finance Corporation.—Purchase of preferred stock and
capital debentures.
(b) Federal Deposit Insurance Corporation.—Purchase of assets of insured
banks to facilitate merger.
(c) Federal Reserve banks.—Emergency loans.
4. RECEIVERSHIP AND LIQUIDATION

(a) National banks which failed before the passage of the Banking Act of
1935.—Receivers appointed by and responsible to the Comptroller of the Currency. (As of Dec. 31, 1936, there were 1,173 such receiverships.)




18

EXECUTIVE AGENCIES OF THE GOVERNMENT

(b) National banks failing since the passage of the Banking Act of 1935.—
Comptroller of the Currency must appoint the Federal Deposit Insurance Corporation as receiver. Comptroller supervises the activities of the Federal Deposit Insurance Corporation as receiver.
(c) Imured State banks.—Receiver appointed by State bank authority (possibly in a few States by the courts). In 30' States the Federal Deposit Insurance
Corporation may be appointed receiver. As of December 31, 1936, the Federal
Deposit Insurance Corporation administered 17 such receiverships.
(d) Reconstruction Finance Corporation loans to receivers secured by the
assets of uninsured closed banks to hasten distribution of funds to depositors.
5. CONTROL OF GENERAL CREDIT SITUATION

(a) Rediscount rates of Federal Reserve banks.—Set by Federal Reserve
banks, subject to review and determination by the Board of Governors. In case
of dispute, final authority has been exercised by the Board of Governors.
(b) Required reserve ratios of member banks.—Fixed by law, but subject to
change, within limits, by the Board of Governors.
(c) Open market operations of Federal Reserve banks.—Controlled by Open
Market Committee, which consists of the members of the Board of Governors
and five elected representatives of the Reserve banks.
(d) Relations with foreign central banks.—Subject to the control of the
Board of Governors; usually conducted, by the Federal Reserve Bank of New
York.
(e) Collateral lending by member banks.—Board of Governors has special
authority. Nonmember banks which make loans to brokers in registered
security exchanges must agree to submit to similar regulation.
(f) Margin requirements for advances to customers by stock-exchange
brokers.—Controlled by regulations issued by the Board of Governors of the
Federal Reserve System; information necessary for enforcement of compliance
is collected by the Securities and Exchange Commission.
(g) Maximum interest paid by banks on time and savings deposits.— (a)
Member banks: Controlled by Board of Governors; (b) nonmember insured
banks: Controlled by Federal Deposit Insurance Corporation.
(h) .Stabilization fund.—Controlled by the Secretary of the Treasury, administered by the Federal Reserve Bank of New York.
(i) The Secretary of the Treasury also has in reserve the power to enter into
agreements with the Board of Governors and the Federal Reserve banks for
the purchase of not more than $3,000,000,000 of Government bonds by the Reserve
banks from the Treasury; also in the event that the Reserve System declines to
enter into such agreement, to issue up to $3,000,000,000 in greenbacks. He can
also exert great influence over the credit situation by transferring United States
funds between the Reserve banks and depositary commercial banks, or holding
them in cash in the Treasury.
6. COMPILATION OF BANKING STATISTICS

(a) Operations of national banks and receivership data for national banks.—
Comptroller of the Currency.
(b) All member banks.—Board of Governors (data for national banks are
drawn from the Comptroller's reports).
(c) All insured banks.—Data compiled by the Federal Deposit Insurance Corporation, using reports of the Comptroller of the Currency and of the Board of
Governors for national banks and State member banks, respectively.
(d) All State banks, including insured banks.—Comptroller collects data from
State banking supervisors, consolidates and publishes them.
(e) Miscellaneous banking and financial data.—Statistics concerning bank
operations collected by a number of agencies are published by governmental
agencies. For example, the New York City Clearing House collects clearing
data and these are republished in the annual reports of the Comptroller. Federal Reserve Bank of New York collects data on the turn-over of bank deposits
and publishes them in its Monthly Review. Data on interest rates collected by
various agencies are published by the Board of Governors in the Federal
Reserve Bulletin, also information on gold holdings of central banks and other
foreign banking data. Data on production and industrial consumption of gold
collected and published by the Director of the Mint. The Survey of Current
Business publishes banking and financial data compiled by other agencies.
The Bureau of Agricultural Economics publishes some data on interest rates
paid by farmers.




19

EXECUTIVE AGENCIES OF THE GOVERNMENT
7. RESEARCH ON PROBLEMS OF BANKING CONTROL AND CREDIT POLICY

(a) Extensive research is carried on by the Board of Governors: by some of
the Federal Reserve banks, especially that of New York; by the Federal Deposit Insurance Corporation; and by the Division of Research and Statistics of
the Treasury.
8. SHORT-TERM LENDING

(a) Direct loans to industry.—The Federal Reserve banks and the Reconstruction Finance Corporation offer a duplicate service in working-capital loans;
Reconstruction Finance Corporation also makes mortgage loans of a type not
made by the Federal Reserve banks.
(o) Loans to agricultw*e.~See section A above.
9. CURRENCY

(a) Federal Reserve notes and Federal Reserve bank notes.—Issued to the
Federal Reserve banks and paid out by them. These are obligations both of
the issuing Reserve bank and of the United States Government. The credit
operations which give rise to the assets back of the notes are supervised by
the Board of Governors. The engraving, printing, and issuance of notes are
the responsibility of the Comptroller of the Currency, who is reimbursed by
the Federal Reserve banks for the expense incurred. The Bureau of Engraving
and Printing prepares the notes.
(6) National-bank notes originally issued by national banks under the supervision of the Comptroller of the Currency; now in process of retirement, all
the bonds which underlie the notes having been called for payment.
(c) United States notes.—Amountfixedby law: redemption and reissue nee
under control of the Secretary of the Treasury.
I I I . ADMINISTRATIVE COSTS

(Year ended June 30)
1. Comptroller of the Currency
1936

Number of employees. .
Salary expense
Total operating expense

850
$2,446,024
$3,248,308

1935
920
$2, 219,703
$3,056,678

(For 1935 $2,792,810 and for 1936 $3,017,630 paid from assessments on national banks.)

2. Board of Governors of the Federal Reserve System
1936

Numberj)f employees
Salary expense
Total expense _ _
-

345
$1,080,125
i $1,881,064

1935

343
$995,095
i $2,137,242

i Includes new building expense; $773,271 in 1935 and $318,567 in 1936.

3. Federal Deposit Insurance Corporation
1936"

Number of employees- _
Salary expense
Total operating expense
i For 6 months ended June 30,1935.

116777—37—no. 1 — 4




750
$1,817,830
$2,592,288

1935
738$908,037
1 $1,332, 210

PART II. RECOMMENDATIONS CONCERNING CREDITGRANTING AGENCIES
The proper organization of lending agencies which have ceased, or
practically ceased, to make new loans and are engaged simply in the
collection of debts due them and the liquidation of securities owned,
presents a problem which is very different from that involved in the
interrelationships of agencies that have a permanent lending function, or of temporary agencies during the period of their principal
lending activity. We shall consider first the allocation among governmental agencies of the work of collecting loans and liquidating
investments, of types which are no longer being made, or are scheduled
for early discontinuance. The organization of the agencies which
have permanent credit functions in connection with agriculture will
be discussed next; then the permanent home-loan agencies.
A. LIQUIDATION OF TEMPORARY AGENCIES

The two most important agencies which have substantially completed their task of credit extension and are now engaged in liquidation are the Home Owners' Loan Corporation and the Reconstruction
Finance Corporation. Other agencies which are in liquidation or,
under the provisions of existing law, are shortly to cease lending,
include the Commodity Credit Corporation (lending authority expires Apr. 1,1937), Public Works Administration (lending authority
expires June 30, 1937), and the joint-stock land banks and the regional
agricultural credit corporations, which are already in liquidation.
There may also be mentioned the notes held by the Farm Credit
Administration evidencing advances made from the revolving fund
created under the Agricultural Marketing Act ($115,712,244.32 on
Jan. 31, 1936) and some odds and ends of securities left over from
wartime financial activities, such as securities received by the Secretaries of War and of the Navy on account of the sale of w^ar supplies,
the assets of the War Finance Corporation, and the railroad obligations acquired under provisions of the Transportation Act of 1920.
It seems obvious that the liquidation of outstanding obligations
requires much less specialized ability and experience than does the
task of extending credit wisely to institutions whose needs and credit
standing vary as widely as do those of the different classes of borrowers with whom these agencies have been dealing. The present
is, therefore, an especially appropriate time to consider reduction in
number and simplification of organization of lending agencies.
Alternative methods of procedure.—Two alternative lines of procedure suggest themselves. One way to attack the problem would be
to set up a comprehensive liquidating agency to which would be
assigned all of the assets of the agencies that no longer have any
substantial lending function. The sole task of this agency would be
to make collections or sell the assets as expeditiously as might be
deemed consistent with public policy.
The other plan is to split up the task of collection, and assign to
existing permanent agencies such parts of it as are closely related
to their tasks, leaving to the central liquidating agency only those
20




EXECUTIVE AGENCIES OF THE GOVERNMENT

21

assets whose administration does not tie in with the work of a permanent agency.
The most important differences between the two plans concern the
liquidation of the Home Owners' Loan Corporation, the joint-stock
land banks, the regional agricultural credit corporations, the securities obtained from the use of the Agricultural Marketing Act revolving fund, and the preferred stock of banks.
Under the first plan responsibility for all these operations would
fall to the centraJ liquidating agency. Under the second plan the
Home Owners' Loan Corporation would remain with the Federal
Home Loan Bank Board or, as is suggested below, with a consolidation of that agency and the Federal Housing Administration. Liquidation of joint-stock land banks and regional agricultural credit
corporations would remain with the Farm Credit Administration.
The central liquidating agency would have the remaining assets of
the Reconstruction Finance Corporation, together with the securities
held by the Emergency Administration of Public Works at the close
of its lending period, and various odds and ends resulting from past
lending operations which do not fit in well anywhere else.
To the extent that the task involved is purely one of liquidation,
there are economies and other administrative advantages in centering the work in a single agency, and there can be little question that
the idea of centralizing the task of liquidation is feasible and desirable, insofar as the business relationships involved are with institutions and individuals which do not have continuing close relations
with permanent Government agencies.
On the other hand, in cases where a permanent Government agency
exercises continuous supervision over the debtor institutions, and
must maintain a field agency in contact with them, we believe that
greater economy is likely to be effected by turning over the task
of collection to such an agency than through concentrating it in a
liquidating agency. Moreover, since the problem is not merely one
of getting the Government's money out, but of insuring that the
original purposes of the loan are fulfilled, the governmental agency
responsible for supervision or support of the debtors has a vital
interest in the administration of the collections.
Finally, the plan of liquidating discontinued activities through
permanent agencies rather than through a temporary liquidating
corporation has the advantage that it minimizes the temptation to
the liquidator to prolong the work in order to protect his own job.
Observation of receivership and reorganization procedure leads one
to the conclusion that this is an important consideration. In any
agency which is only a liquidating agency, the better the job the
employees do the more quickly they must find other employment.
In a permanent agency which has been assigned a temporary task,
the same consideration applies to certain employees, but in less
acute form. At least the management at the top has more incentive
to wind up the temporary jobs and employees engaged in those tasks
have some prospect of continued employment in other phases of the
agency's work.
We believe, therefore, that the sound principle is to leave with
the permanent agencies, or turn over to them, such liquidation tasks
as are closely related to their own operations, and to concentrate in
the general liquidating agency the collection only of such loans as
do not tie in closely with the work of permanent agencies.




22

EXECUTIVE AGENCIES OF THE GOVERNMENT

Under either plan there must be some general liquidating agency
for collecting loans and selling securities of types in which other
existing agencies have no special interest. For this work two agencies
have been considered: First, the Eeconstruction Finance Corporation;
and, second, the Reserve banks, acting as fiscal agents for the Treasury. The Eeconstruction Finance Corporation already has a personnel experienced in dealing with a very wide variety of types of
borrowers, and the contraction or elimination of its lending activities
releases personnel which might be employed in the liquidation of
assets taken over from other agencies.
However, we believe that there is no real reason for continuing the
life of the Reconstruction Finance Corporation as a dwindling
agency after its lending operations are over. The Reserve banks
are already custodians of its securities and notes and the collateral
which has been deposited under them. The work of collection involves constant handling of this material, releasing and exchanging
collateral, recording and releasing liens, returning instruments to borlowers, and so on. Much communication and interagency accounting between the Reserve banks and the Reconstruction Finance Corporation is necessary. As was shown above, about one-fifth of the
total operating expense of the Reconstruction Finance Corporation
consists of payments for custodians' services. The Reserve banks
have permanent staffs which are well fitted to undertake the additional responsibilities that would be involved in making the actual
collections. Moreover, the work of their staffs has been considerably
lightened by the virtual cessation of the rediscounting of commercial
paper for banks. They already act as fiscal agents for the Treasury
and are familiar with the accounting problems involved in custody
of Treasury funds. In a number of cases the regional offices of the
Reconstruction Finance Corporation are housed in Reserve bank
buildings, so that no space problem would be created in taking over
the Reconstruction Finance Corporation's records and such of the
Reconstruction Finance Corporation personnel as might be needed.
We recommend, therefore, that the Reconstruction Finance Corporation be speedily liquidated following the cessation of its lending
activities, which under present law will take place on January 31,
1937. All its assets except those specified in later sections should
be turned over to the Treasury, which would make payment for them
in Reconstruction Finance Corporation bonds. Even if it should be
decided to continue the lending functions of the Reconstruction Finance Corporation beyond the date now^ fixed for their termination,
we recommend that its assets and liabilities be assigned to the Treasury 'as indicated above and arrangements for routing funds to
Federal governmental agencies through the Reconstruction Finance
Corporation discontinued. The Reconstruction Finance Corporation
would then act as fiscal agent for the Treasury in making new loans
to the public and the Federal Reserve banks in collecting them.
Federal Emergency Administration of Public Works.—The securities of the Public Works Administration should be handled in the
manner just suggested in connection with the Reconstruction Finance
Corporation, that is, transferred to the Treasury for collection or sale
through the Reserve banks. This involves no radical innovation, as
present practice is for the Public Works Administration to sell its
securities to the Reconstruction Finance Corporation, and the Reserve
banks perform custodian service for both agencies. Up to Septenv




EXECUTIVE AGENCIES OF THE GOVERNMENT

23

ber 29, 1936, $448,000,000 out of a total of $599,000,000 Public Works
Administration bond purchases had been sold to the Reconstruction
Finance Corporation; $243,000,000 had been resold to the public or
collected bv the Reconstruction Finance Corporation up to September
1, 1936.
Regardless of the decision as to whether the Reconstruction Finance
Corporation or the Treasury and Federal Reserve banks should be the
general liquidation agency, the following recommendations are offered
concerning the liquidation- of certain types of loans through other
agencies.
Transfer of preferred stock of hanks from the Reconstruction,
Finance Corporation to the Federal Deposit Insurance Corporation.—
The Reconstruction Finance Corporation held on September 29, 1936,
$702,151,215.66
in preferred stock and capital notes and debentures of
banks.3 This is by far the largest item in its portfolio, with the exception of advances and allocations to other Federal governmental agencies. This stock was issued in connection with the Government's
program for the rehabilitation of the banking structure after the banking holiday of 1933. Since the end of 1934 retirements have exceeded
new investments by more than $150,000,000. The banks are required
to amortize the investment over a period of 20 years and may retire it
more rapidly if thev are able to do so without jeopardizing the interests of depositors. "Up to September 29, 1936, $364,912,317 had been
retired.
It is recommended that this entire investment be transferred to the
Federal Deposit Insurance Corporation, the Government purchasing
additional stock in the Corporation and retiring a corresponding
amount of the Reconstruction Finance Corporation bonds now held
by the Treasury. Thereafter all funds collected by the Federal
Deposit Insurance Corporation from the redemption of preferred
stock and capital notes should be used to retire the Government's
investment in Federal Deposit Insurance Corporation stock, except
for a reasonable reserve for the purchase of additional preferred
stock. Dividends on preferred stock and interest on capital notes and
debentures in excess of the direct cost of management of the preferred
stock investment should also be used for the retirement of the stock of
of the Federal Deposit Insurance Corporation.
The basic reason for this recommendation is that the problem
of administration which arises in connection with the preferred
stock is not simply one of getting the money, but rather of preventing
the soundness of the banks' capital structure from being impaired
by too rapid a liquidation. Essentially the whole program of issuance of preferred stock has precisely the same objective as has the
program of deposit insurance administered, by the Federal Deposit
Insurance Corporation. The system of bank examinations now administered by the Comptroller of the Currency, the Reserve banks,
and the Federal Deposit Insurance Corporation also has the same
objective, namely, that of protecting the monetary supply of the
country and the individual interests of depositors against bank failures. The responsibility for the maintenance of bank solvency rests
on the banks' supervisory agencies just mentioned.4 The Government
3
Capital notes and debentures are issued by Slate banks in cases where the State law
does not permit the issuance of preferred stock. The figure given above includes
$13,636,159.59
loans secured by preferred stock.
4
Pt. I l l of this report deals with possible redistribution of functions or consolidation
of the supervisory agencies.




24

EXECUTIVE AGENCIES OF THE GOVERNMENT

has invested $300,000,000 in the Federal Deposit Insurance Corporation for the purpose of protecting bank depositors and has made
an investment of $700,000,000 in preferred stock of banks through
the Reconstruction Finance Corporation for precisely the same reason. Both agencies have to maintain close contact with the banks.
While there is apparently satisfactory cooperation between the two
agencies, the splitting of the function creates confusion in the minds
of the public and a divided responsibility on the part of bank
officers. Moreover, on the assumption that the Federal insurance
of bank deposits is a permanent arrangement, cases may arise long
after the lending activities of the Reconstruction Finance Corporation and other emergency agencies have ceased, where it will be
advantageous to purchase preferred stock in banks rather than close
them and pay off the depositors. The Federal Deposit Insurance
Corporation is the logical agency to exercise this function.
While the Reconstruction Finance Corporation in most cases accepts the examination reports of the Comptroller of the Currency,
the Federal Reserve bank, or the Federal Deposit Insurance Corporation, it also maintains an examining staff and makes supplemental
examinations, with the consent of the bank concerned, in cases where5
it is not satisfied with the report of the regular examining agency.
The Reconstruction Finance Corporation reports that on June 30 it
had 34 employees (with total annual salaries of $165,790) in the Bank
Administration Section of its Examining Division. This is a larger
number than were employed in reviewing bank reports in the Federal
Deposit Insurance Corporation. The figure given does not include
the costs of the secretary's office, the treasurer's office, the legal divisions, and the other overhead expenses of controlling Reconstruction
Finance Corporation's relations6 with open banks, nor does it include
secretarial and other assistants.
The Federal Deposit Insurance Corporation is empowered to purchase assets of banks to facilitate consolidation and prevent failures
and to make loans upon assets for the same purpose. Purchases of
preferred stock by the Reconstruction Finance Corporation are frequently negotiated by the Federal Deposit Insurance Corporation
or by the Comptroller of the Currency, with a view to restoring
solvency. Thus a bank with impaired capital may be taken care of
by any one of three procedures. First, the Reconstruction Finance
Corporation may purchase preferred stock or capital debentures, in
which case the bank goes ahead without change of organization;
second, the Federal Deposit Insurance Corporation may purchase
undesirable assets, or lend on them as collateral, arranging for the
purchase of the acceptable assets by another bank, in which case the
two banks are consolidated; or, third, the bank may be closed and
the depositors paid off by the Federal Deposit Insurance Corporation. In any case the loss resulting from the deterioration of assets,
if the bank does not regain solvency, finally falls on the banks which
contribute to the insurance reserve fund of the Federal Deposit Insurance Corporation. And the Federal Deposit Insurance Corporation is the agency which has the responsibility of safeguarding
5
The Chairman of the Federal Deposit Insurance Corporation said in 1935: "In the
capital rebuilding program, in better than 90 percent of the cases they have always
taken our examination." (Hearings before House Committee on Banking and Currency,
74th
Cong., 1st sess., H. It. 5357, pp. 135-136.)
6
It does, however, include expense incurred by the Reconstruction Finance Corporation
in connection with loans to closed banks, which are recommended for transfer not to the
Federal Deposit Insurance Corporation but to the Treasury.




EXECUTIVE AGENCIES OF THE GOVERNMENT

25

against bank failures, and is best equipped to decide when a given
bank is able to retire its preferred stock. Now that the great mass
of bank lending operations of a salvage character has been completed, no good purpose seems to be served by separating the functions of lending to effect consolidations from that of lending to avoid
the necessity of consolidation or receivership.
Reconstruction Finance Corporation loans to closed hanks and receivers.—In the light of the facts set forth above it might seem logical to transfer from the Reconstruction Finance Corporation to the
Federal Deposit Insurance Corporation, the loans to closed banks,
amounting to over 95 million dollars, now held by the Reconstruction Finance Corporation. Consideration has been given to this suggestion, but in view of the fact that the necessity for such loans no
longer exists, in the case of failure of an insured bank, such transfer
is not recommended. Recommendation is made elsewhere that the
Federal Deposit Insurance Corporation be made receiver for all
closed national banks now in receivership. If this recommendation
is followed, it seems better that the Federal Deposit Insurance Corporation should not be the holder of the outstanding loans to closed
national banks, since there is a possibility of conflict of interest between the holder of the loans as a preferred creditor and the depositors. These notes are therefore included in our recommendations
for transfer of assets to the Treasury for collection by the Reserve
banks.
Direct loans to industry.—On June 19, 1934, there was passed an
act (48 Stat. L., 1105) amending the Federal Reserve Act and the
Reconstruction Finance Corporation Act, which authorized both the
Reserve banks and the Reconstruction Finance Corporation to make
direct loans to industry. The accompanying table presents a comparison of the terms under which the two agencies are authorized
to lend.
Legal qualifications and conditions for direct loans to industry, Federal
Reserve
hanks and the Reconstruction Finance Corporation"1
Eeserve banks

Reconstruction Finance Corporation

An industrial or commercial business.. An industrial or commercial business,
including the fishing industry.
Established prior to Jan. 1,1934.
An established business
Solvent, in the opinion of the board of
directors of the Corporation.
Oredit position
Unable to obtain requisite financial "When credit at prevailing bank rates
for the character of loans applied for
assistance on a reasonable basis from
is not otherwise available at banks."
usual sources.
For working capital
__. For maintaining and increasing the
Purpose of loan
employment of labor.
Not over 5 years.
Maturity of obligation. _ Not over 5 years
"Adequately
secured, in the opinion
Security required
"On reasonable and sound basis"
of the board of directors of the Corporation."
$300,000,000.
Amount of funds avail- $139,299,557
able.
Amount of any one loan.
Not over $500,000.
Form of transaction
(a) Direct loan; or (6) discount for or (a) Direct loans; or (6) loan in cooperation with bank; or (c) purchase of
purchase from financial institutions;
participation.
or (c) advance to financial institution
on the security of such obligation; or
(d) commitments with regard to such
loans or advances to financial institution; ((6), (c), and (d) require 20
percent participation of financial
institution in the risk).
Type of business
Age of business.
Financial status

* Charles O. Hardy and Jacob Viner, Report on the Availability of Bank Credit in the Seventh Federal
Reserve District, p. 30.




26

EXECUTIVE AGENCIES OF THE GOVERNMENT

It will be noted that there is very little difference in the scope of
the direct-loan operations of the two agencies. Businessmen are
free to place their applications with whichever agency they think is
likely to be more liberal. In a number of cases concerns Thave applied
simultaneously to both, and in other cases applicants w ho have been
refused at one have applied at the other.
On November 18, 1936, the Federal Eeserve banks had outstanding
$26,859,000 of these advances and had commitments involving an
additional $22,138,000. On September 30, 1936, the Reconstruction
Finance Corporation had disbursed $65,675,968 on account of these
loans, of which $7,985,512 had been repaid, leaving $57,690,450
outstanding.
It seems obvious that the duplication of administrative work in
the making of these loans involves unnecessary cost, confusion in the
minds of the public, and the possibility of undesirable differences of
standards between the agencies. Whether such loans are continued
indefinitely or not, the entire function should be concentrated in one
place or the other.
Our recommedation depends on the policy of Congress as to the
permanent or temporary character of this lending function. If such
loans are to be continued indefinitely, we believe that the entire block
now held by the Reconstruction Finance Corporation should be
transferred, at an appraised valuation, to the Federal Reserve banks*
If, however, direct loans to industry are regarded as an emergency
type of operation suitable for discontinuance whenever the general
program of emergency loans is terminated, they should be transferred
to the Treasury and handled by the Reserve banks as fiscal agents, as
recommended above, and the making of such loans by the Reserve
banks discontinued.
Regardless of whether any of the recommendations made in the
preceding paragraphs are adopted or not, we recommend that the
industrial advisory committee which now serves in connection with
these loans, both at the Reconstruction Finance Corporation and the
Federal Reserve banks, be abolished. In this connection the following passage from the report of our Treasury investigation is relevant:
We are not convinced that the industrial advisory committee is a necessary
or desirable feature of the system of Reserve bank, direct lending. This
statement in no wise reflects on the ability or public spirit of the individuals
who compose the committee which advises the Chicago Federal Reserve Bank.
Members of the committee are taking a great deal of interest in their work and
giving it a very large proportion of their valuable time. Unquestionably in a
number of cases their advice has been extremely helpful. However, the work
of the committee is essentially a duplication of the work of the lending officers,
and results in an undesirable division of responsibility. It also makes it incumbent on the applicant to plead his cause, if he presents it in person, before
two tribunals.
The Reserve bank officers whose responsibility it is to see that the funds
are disbursed in accordance with the law seem to give to each application
that is reported favorably by the industrial advisory committee the same careful scrutiny as they would give if the advisory committee had not already
Investigated. The bank has, in fact, declined a number of applications which
have been favorably recommended by the advisory committee. In the majority
of instances this was due to the fact that investigations made by the bank's
examining force uncovered facts which had not come to the attention of the
advisory committee. In other cases there was a genuine difference of judgment.
On the other hand, it appears that when the judgment of the advisory committee is negative, though the case is reviewed by the Reserve bank officials,
the finding of the advisory committee carries more weight than when it is




EXECUTIVE AGENCIES OF THE GOVERNMENT

27

favorable. This is not surprising, since an outstanding unfavorable feature
brought out in the report of the industrial advisory committee may suffice to
debar the application without further detailed study. To a considerable extent,
therefore, the advisory committee, which was intended to bring into the picture
a nonbanking viewpoint, and probably to bring about greater liberality, works
out as one more hurdle which the applicant must clear. In any case the advisory committee, unless it provides itself with a staff of trained investigators
comparable to that of the Reserve bank, cannot be expected to take final
responsibility for the decisions.
Moreover, the tendency is for the advisory committee, in dividing up its
work, to place the initial responsibility for reporting on a given loan upon that
member of a committee who comes from the State or city, or general area, in
which the applicant's place of business is located, and in some cases the unfavorable judgment of this one committee member seems to have been nearly
decisive. Such an arrangement can easily give rise to the accusation that the
decision of the committee is affected by the committee member's political or
business connections in the applicant's community. Representatives of the
survey came across a considerable number of rumors of this sort. Regardless
of the merits of these accusations (and we have no real evidence that there
was any basis for them), we believe that such complications would be minimized and the work of the Reserve banks put on a sounder basis if the work
of appraising loan applications were unified and professionalized.7

Other recommendations concerning certain types of temporary
loans are made in sections B and C o.f this report, which deal relatively with farm credit and home-owners' credit.
B. FARM LENDING AGENCIES

In general the farm-lending program of the Federal Government
is well organized, as a result of several years' of effort in the consolidation and coordination under the Farm Credit Administration
of the work of miscellaneous agencies. We shall consider first the
liquidation of the outstanding farmers' loans of types that have been
or are shortly to be discontinued; second, the organization for administration of agricultural credit activities that are relatively permanent. The Farm Credit Administration is charged by law or
by Executive order with administrative responsibilities in connection with the following types of loans which are no longer being
made: (a) Loans of the Regional Agricultural Credit Corporations;
(h) loans made from the Agricultural Marketing Act revolving
fund; (c) loans of the joint-stock land banks.
Regional agricultural credit corf orations.—These corporations were
created by the Reconstruction Finance Corporation and that organization owns their outstanding stock. By the terms of Executive order
dated March 2f, 1933, all the administrative functions connected
with the operation of these corporations, except those relating to
expenses, were transferred to the Farm Credit Administration. Because their principal functions had been taken over by the production credit corporations, the regional corporations were placed in
liquidation early in 1934. As of December 31, 1935, their loans remained outstanding to the extent of $43,400,186, or 14.1 percent of
the amount that had been lent. On June 30, 1936, the amount outstanding had been reduced to $36,026,384. Of the repayments to
December 31, 1935, $35,866,363, or 24.4 percent, had been effected
through transfer of loans to the production credit associations. The
7
The same, pp. 37-38. It is perhaps appropriate to point out that the staff member
who is primarily responsible for this section of the present report was the Administrator
in charge of the survey of the availability of bank credit in the seventh Federal Reserve
district and joint author of the report quoted.




28

EXECUTIVE AGENCIES OF THE GOVERNMENT

Farm Credit Administration collects the loans chiefly through the
services of agents who are paid on a per diem basis. For the year
ended June 30, 1936, the total administrative expenses was $2,240,000t
which was paid by the Reconstruction Finance Corporation.
We suggest that in order to eliminate unnecessary accounting and
transactions between agencies, and to facilitate liquidation of the
Reconstruction Finance Corporation, the stock of the Regional Agricultural Credit corporations be sold by the Reconstruction Finance
Corporation to the Production Credit associations of the respective
districts at an appraised valuation; with the Government purchasing
stock in the Production Credit Corporation and paying off indebtedness to the Reconstruction Finance Corporation in amounts corresponding to the valuation of the loans.
It would appear that, since the loans are of a character similar to
those made by the Production Credit associations, economy might
result from the use of the services of the Production Credit associations in the servicing of Regional Agricultural Credit Corporation
loans. We are advised that the Farm Credit Administration has
already done this to the extent that it seems economical; however, we
believe that transfer of the responsibility for the costs of collection
from the Reconstruction Finance Corporation to the Production
Credit corporations would exert a wholesome pressure in the direction
of further efforts along this line.
Joint-stock land hanks.—No recommendation is offered concerning
the liquidation of these agencies as it seems to be properly located in
the Farm Credit Administration.
Commodity Credit Corporation.—We recommend that the liquidation of the Commodity Credit Corporation be placed under the supervision of the Cooperative Credit Division of the Farm Credit Administration, which will be in position to utilize the facilities of the
cooperative banks and the Production Credit associations as they may
be required to facilitate collections. This division already has charge
of the collection of loans made under the Agricultural Marketing Act
of 1929, which were still outstanding at the end of 1935 in the amount
of $115,858,541. _ Of this amount, $71,425,775 consisted of loans to the
Grain Stabilization Corporation. The remainder were loans to cooperatives. Of the latter, $33,919,345 were classed as "effective merchandising" loans, $8,677,735 were facility loans, and $1,835,686 as
commodity loans. These loans are now being administered by the
Cooperative Division of the Farm Credit Administration. Agents
are sent out directly from the Division to contact the borrowers.
There is no separate allocation of funds and no data in the reports
indicating the cost of the operations involved.
It has been pointed out that the Farm Credit Administration does
not now have facilities and personnel to deal with the sale of commodities involved in dealing with loans without recourse. However,
it will not be difficult to absorb these facilities now existing in the
Commodity Credit Corporation, and it should be possible to economize materially in the collection of loans from the agencies and
areas where the Farm Credit Administration already has extensive
facilities for collection and contacts with the borrowers involved.
The collection of Regional Agricultural Credit Corporation loans
has involved the taking over of a line of grain elevators so that the




EXECUTIVE AGENCIES OF THE GOVERNMENT

29

problem of disposing of properties is already involved in the administration of the loans.
Banks for cooperatives.—Since the intermediate credit banks now
rediscount practically all loans made by these banks, consideration
has been given to the possibility of amalgamating them with the
intermediate credit banks. Part of the work of the banks for cooperatives consists of the making of commercial loans of a type similar to those formerly made by the intermediate credit banks. The
remainder, however, consisting on June 30, 1936, of $14,823,672 in
facility loans, represents an illiquid type of advance which probably could not be made directly by the intermediate credit banks
without impairing their present excellent credit standing. Consideration should be given to the feasibility of reducing the number
of these banks. Of the 13 banks, only 3 had outstanding at the
end of 1935 as much as $3,000,000 in loans. However, the cost of
maintaining the separate organizations is not much greater than
would be the cost of branch offices or field representatives of a
smaller number of banks. This is true because of the well-developed
system of joint facilities and joint supervision which the banks for
cooperatives share with the farm land banks, the intermediate credit
banks and the production credit corporations.
Emergency crop, feed, and seed loans.—As was noted in part I, the
work of this division of the Farm Credit Administration is similar
to that of the Rehabilitation Division of the Resettlement Administration. Both make loans on the security of chattels to farmers who
cannot qualify for needed credit from the production-credit associations or from commercial banks. There has been, undoubtedly, an
undesirable overlapping of activity between them. Nevertheless,
there is probably justification for the continuance of crop-loan agencies in both divisions, assuming that it is the policy of the Government to continue a program of the present scope. The Farm Credit
Administration crop loans (as distinguished from the old drought
loans) are business operations conducted on the basis of reasonable
security, though they involve higher risks than local banks are prepared to assume. The Resettlement Administration loan program
is closely related to its program of relief grants and rehabilitation.
What is needed for the present seems to be a better delimitation of
the respective fields, so that there may be no competition, or refinancing of the loans of one agency by advances from the other. Progress
appears already to have been made in this direction. We recommend that any future drought loan activities which may be necessary
be centered in the Resettlement Administration. We do not believe
that the lending activity of the Resettlement Administration could
advantageously be transferred elsewhere until the completion of its
general rehabilitation work. Nor are we prepared to recommend
that the crop loans of the Farm Credit Administration be transferred
to the Resettlement Administration until the permanent character
of that agency's future organization and work are more settled.
Land-bank commissioner loans.—Consideration has been given to
the suggestion that the so-called land-bank commissioner loans made
by the Federal Farm Mortgage Corporation be transferred to the
Resettlement Administration on the ground of its quasi-relief character. It seems clear to us, however, that the balance of argument is
decidely against such action. The bulk of these loans are secured by




30

EXECUTIVE AGENCIES OF THE

GOVERNMENT

second mortgages on properties on which a farm-loan bank has a first
mortgage. The actual work of collection of a land-bank commissioner loan is done by a Federal land bank, and in many cases it is
able to use the facilities of a national farm-loan association for this
purpose. Interest and amortization payments on these loans are
scheduled to fit in w4th the farmer's payment on his land-bank loan,
and much would be lost, both from the standpoint of the Government
and from that of the farmer, if administration of the two classes of
mortgage loans were separated.
C. HOME LENDING AGENCIES

In another section of this report we have described the home lending
agencies of the Government, and have commented on the extent of
overlapping and duplication between them. We offer here our recommendations with regard to the future relationships of these agencies.
In formulating these recommendations it has been assumed that the
functions performed by all these agencies are to be continued with
the exception of the Home Owners' Loan Corporation, w^hich is
already in liquidation.
Home Owners' Loan Corporation and the Federal Housing Administration.—It was noted in a previous section of this report that in the
last fiscal year the Federal Housing Administration spent over
$7,000,000 on its field organization Tand the Home Owners' Loan
Corporation over $23,000,000. The w ork of these field organizations
is very similar, and the similarity will grow greater as the Federal
Housing Administration grows older and is confronted with a larger
volume of defaults on its guaranteed loans. Both agencies have the
same problems of property management and resale of properties.
Their legal staffs are specialists in the same field of law. Their research staffs collect very extensive data concerning the trend of realestate values in the same communities. The same questions of policy
as to the treatment of delinquent debtors will arise in both agencies.
No important public purpose is served by keeping them separate, and
we have no hesitation in recommending that they be consolidated.
However, the best method of effecting the consolidation is a question of some difficulty because of certain differences in the character
of the assets and the liabilities of the two organizations. The Home
Owners' Loan Corporation may direct loans; the Federal Housing
Administration guarantees mortgage loans made by approved private
lenders. Consequently the Federal Housing Administration has a
large and growing contingent liability while the liabilities of the
Home Owners' Loan Corporation are direct obligations incurred in
raising the funds which it used to make loans. The Home Owners'
Loan Corporation owns a portfolio of about a million loans, the great
majority of which are believed to be good.
The Federal Housing Administration owns no mortgage loans but
comes into the possession of properties which are foreclosed by
private agencies. Hence the two agencies have similar problems in
the management and disposal of properties. They each engage in
effecting the transfer of foreclosed properties of the respective
agencies. In the one case the Home Owners' Loan Corporation is
the mortgagee while in the other a private agency is the mortgagee
and the Federal Housing Administration acquires title after fore-




EXECUTIVE AGENCIES OF THE GOVERNMENT

31

closure, if carried out by a private agency as mortgagee. However,
the Federal Housing Administration does exercise some supervision
over loans which have not been foreclosed. It receives reports of
delinquency and gives advice and assistance to mortgagees in servicing loans that are in arrears.
We have given consideration to a suggestion that the Home
Owners' Loan Corporation should sell in the open market, without
recourse, such of its loans as command a market, using the proceeds
to retire its bonds. If this were done, the remaining work arising
in connection with the bad loans could be turned over to the Federal
Housing Administration, as a service agency, and the field force of
the Home Owners' Loan Corporation consolidated with that of the
Federal Housing Administration.
If all the Home Owners' Loan Corporation loans were either good
enough to be sold in the open market without recourse and without
discount or else bad enough to be foreclosed immediately, this plan
would be very satisfactory. The properties taken over could be
turned over to the Federal Housing Administration for management
and sale. The Home Owners' Loan Corporation would become a
mere financial holding company which would pay the costs of administration of its bad loans and gradually pay off its bonds as funds
were made available. This arrangement would be similar on a
larger . scale to that which now exists in8 the liquidation of the
Regional Agricultural Credit Corporation.
In fact, however, an uncertain, and probably large, proportion of
the Home Owners' Loan Corporation's loans would fall between the
two classes mentioned. They would not find a ready market, neither
would they be in default. The collection organization of the Home
Owners' Loan Corporation would have to be kept alive in some agency
to service these substandard loans until they either rose into the salable
class or fell to the class of defaulted loans. There would be a financial gain in the amalgamation of the servicing and property-management work of the two organizations, but there would be no economy
in the sale of the good assets, for the simple reason that the Home
Owners' Loan Corporation would be able to sell, in general, only
those loans on which it was most likely to make a profit and w^ould
still have to keep up its overhead and field organizations for collecting
the rest.
Moreover, there is considerable doubt as to the willingness of
financial institutions to purchase the loans, and it is certain that
debtors would resist the transfer. All the Home Owners' Loan Corporation loans were made to borrowers who w^ere, or appeared to be,
in distress, and the purpose of the loans was to relieve this distress.
Borrowers are certain to feel that they are entitled to somewhat more
lenient treatment, if their distress recurs, than they would be likely
to get from a commercial lender who had no recourse to the Government. And whatever the merits of this plea, prospective buyers of
the mortgages are certain to take it into consideration.
If, on the other hand, the loans are offered under the guaranty of
some governmental agency, so that the new lenders and the debtors
a
See sec. B above. It will be remembered that the actual work of liquidation is done
by the Production Credit Corporations, while the Reconstruction Finance Corporation as
owner of the stock of the Corporation pays the costs of administration. Proceeds of loan
collections are used to retire the stock.




32

EXECUTIVE AGENCIES OF THE GOVERNMENT

can hope to compose their differences with the aid of the Government, the loans can probably be sold without difficulty. In that
case we see no reason to confine the experiment to the high-grade
loans. The whole block, except those foreclosed, or threatening foreclosure, can be sold under a guaranty similar to that offered by the
Federal Housing Administration. The servicing, legal, and propertymanagement organizations can then be amalgamated with similar
divisions of the Federal Housing Administration.
We recommend, therefore, that the Federal Housing Administration and the Home Owners' Loan Corporation be consolidated, and
that the entire block of Home Owners' Loan Corporation loans which
are not already in default be insured by the new corporation under
a guaranty similar to that given to holders of the so-called title I I
mutual mortgage loans and then sold in the open market. The new
corporation organized to take over the assets and liabilities of the
Federal Housing Administration and the Home Owners' Loan Corporation would have an authorized capital regarded as sufficient to
meet title I claims (now paid from funds furnished by the Reconstruction Finance Corporation) and any additional claims arising
under title I I which the equity contributed by the Home Owners'
Loan Corporation and the reserve fund of the Federal Housing Administration might be regarded as insufficient to cover. The Treasury
could subscribe for an amount regarded as ample to meet title I
claims and at a later time increase the subscription if the equity of
the Home Owners' Loan Corporation and the title I I reserve should
prove insufficient to meet all losses arising from the guaranty of
mortgages. Since the new corporation would realize a large sum
from the sale of Home Owners' Loan Corporation mortgages, the
title I I plan of issuing guaranteed debentures could be suspended,
the mortgage insurance corporation paying off the holders of these
foreclosed loans at the time when the properties were taken over.
The costs of administration would be greatly reduced by the changes
suggested. There would be some loss of profit on the good loans,
but there would be an offset in that the entire
cost of foreclosure
would fall on the buyer of the securities.9 In spite of this item,
buyers could afford to take this risk in exchanging Home Owners'
Loan Corporation bonds for guaranteed mortgages since the mortgages bear a much higher rate of interest. Indeed, in many cases
these guaranteed mortgage loans might be exchanged for HOLC
bonds with some premium on the mortgages.
The funds obtained from the sale of Home Owners' Loan Corporation mortgages would be used for two purposes—first, to provide
funds which may be needed to pay off holders of defaulted mortgage
loans insured by the Federal Housing Administration, thereby obviating or reducing future issues of Federal Housing Administration
debentures; second, to retire Home Owners' Loan Corporation bonds.
So far as practicable, Home Owners' Loan Corporation bonds should
be taken in exchange for the newly issued mortgages, and any premium obtained would furnish coverage for losses on Home Owners'
9
Under Federal Housing Administration guaranty the holder of a mortgage is required
to foreclose before he has recourse to the Federal Housing Administration, and his claim
for reimbursement of foreclosure costs is subordinated to the Federal Housing Administration's claim against the property for principal and interest.




EXECUTIVE AGENCIES OF THE GOVERNMENT

33

Loan Corporation loans and protect the Government's equity in the
stock of that Corporation.
In summary, the advantages of this plan would be—
(a) Elimination of the collection service of the Home Owners'
Loan Corporation insofar as good loans are concerned.10
(&) Elimination of foreclosure costs.
(c) Consolidation of the property-management and the loan-servicing divisions of the two organizations.
(d) Substitution of private capital for public ownership of a large
mass of mortgages, and retirement of a large volume of outstanding
bonds.
(e) Use of funds derived from the sale of mortgages to provide for
future financial needs of the Federal Housing Administration program, thereby avoiding the necessity of simultaneously retiring
Home Owners' Loan Corporation bonds and issuing Federal Housing
Administration debentures.
(/) Consolidation of research activities and legal work of the two
agencies.
(g) Avoidance of conflicting policies, divided responsibility, and
confusion in the minds of the public with respect to the Government's
program for the financing of housing.
(h) Eeduction of general overhead through the elimination of one
major governmental unit.
Organization of Federal home lending agencies.—It is not necessary, in order to carry out the recommendation made in the preceding
section, that either the Home Owners' Loan Corporation or the Federal Housing Administration should absorb the other. What is suggested is the merger of the Federal Housing Administration and the
Federal Home Loan Bank Board into one Federal home-loan agency,
to be administered by a board or an administrator,, as the Congress
might determine. Within this organization there would be a mortgage-insurance corporation which would take over the assets and liabilities of the Federal Housing Administration under its title I and
title I I guaranty and the assets and liabilities of the Home Owners'
Loan Corporation. No new capital stock need be subscribed by the
Treasury at the creation of this corporation except to meet title I
claims, since the equity represented by Home Owners' Loan Corporation stock and Federal Housing Administration reserves should be
sufficient to cover probable losses under title I I after the merger. It
is important, however, that the new agency should be brought under
the supervision of the Federal Home Loan Bank Board or of some
other coordinating agency exercising supervision over all the home
lending institutions.
10
The profit on good Home Owners' Loan Corporation loans under the present arrangement will tend to become a vanishing factor from year to year, since a new loss factor
will soon appear. As the principnl is paid down the profit margin arising from the
difference between the interest received on mortgages and the interest paid on bonds will
decline by over 6 percent per annum, on an average, because of a similar decline in the
unpaid principal. At the same time the number of installments to be collected is always
equal to the number of loans. Hence costs of collection will not decline as fast as the
profit margin between interest paid and interest received. Service costs will decline to
some extent as the number and principal amount of loans declines, but there will soon
develop, after the bad loans are foreclosed, a more steady cost of servicing which will not
decline as the income from these loans declines. Hence, deficits will steadily increase,
especially in the latter half of the life of the Home Owners' Loan Corporation, because
the Corporation will not be in a position to replace the principal of loans as it is paid off.
This consideration will not apply to institutional buyers of the mortgages, under the plan
suggested above, because they will be reinvesting the principal as it is collected.




34

EXECUTIVE AGENCIES OF THE GOVERNMENT

The reorganization suggested would proceed along lines similar
1o those which have been worked out in the Farm Credit Administration, where the Federal land banks, the Federal intermediatecredit banks, the banks for cooperatives, and the production credit
corporations use common buildings for their field offices and maintain jointly legal staffs, statistical, auditing, control, and accounting
services, and are governed by joint boards of directors. Joint service
agencies also are maintained in Washington to service the various
operating divisions. Coordination of home lending activities under
a single supervisory agency would make it possible to amalgamate
the legal, accounting, statistical, and research services of the various
housing credit agencies, and in the field to consolidate the offices
of the Federal Housing Administration with the Home Owners'
Loan Corporation and those of the home-loan banks. This would
eliminate the present necessity for two separate organizations to
keep informed as to the financial condition of building and loan
associations, since the proposed home-loan corporation and the Federal Savings and Loan Insurance Corporation would have access
to the reports of examination and the files of condition reports of
associations which are members of the home-loan bank system. One
appraisal division would supervise the appraisal of mortgages insured under the mutual mortgage system and of mortgages offered
as collateral at the home-loan banks. A single agency would serve
the Federal housing institutions, and they would have full access to
the research work clone in connection with one another's work, which
now is not the case. And a single agency would furnish technical
advice and assistance to home builders, which is now offered by the
Federal Housing Administration and by the Home Loan Bank
Board.
It will be noted that we do not suggest that the work of the home
credit agencies should be amalgamated with the home-building program of the Public Works Administration or the Resettlement Administration or any agency which may be set up to coordinate work
in the field of housing construction. We have considered suggestions for such amalgamation, but it is our judgment that the work
of these agencies in the low-cost housing field is more closely related
to that of agencies responsible for relief and improvement of living
conditions in urban areas than it is to that of the home credit agencies; hence it is recognized that such projects can be better tied in
with some agency responsible for welfare work in urban communities.
RFC Mortgage Co.—To facilitate the operations under titles I
and I I of the Federal Housing Administration, the RFC Mortgage
Co. purchases guaranteed mortgages, both regular home mortgages
and large-scale housing mortgages. With the consolidation of the
Federal Housing Administration and the Federal Home Loan Bank
Board, it is suggested that this function of purchasing or holding
guaranteed mortgages be transferred to the home-loan banks. This
action would not only facilitate the operations under title I I of the
National Housing Act but might also be of value in connection with
the liquidation of the Home Owners' Loan Corporation. To facilitate such operations by the Federal home-loan banks they should be
authorized to issue debentures against insured mortgages as collateral.




EXECUTIVE AGENCIES OF THE GOVERNMENT

35

If it is desired to continue the making of loans on other types of
property which are now made by the RFC Mortgage Co. (chiefly
office and commercial buildings and apartment houses with more
than 4 families) it is recommended that the RFC Mortgage Co.
be transferred to the supervision of the newly constituted Home
Loan Bank Board [or Administrator],
D. SUMMARY OF RECOMMENDATIONS

1. That the preferred stock of banks be transferred from the Reconstruction Finance Corporation to the Federal Deposit Insurance
Corporation, the Government buying stock in the Federal Deposit
Insurance Corporation to cover the investment. Payment by the
Government to the Federal Deposit Insurance Corporation for new
stock, and payment by the Federal Deposit Insurance Corporation to
the Reconstruction Finance Corporation for the preferred stock of
banks, to be made with Reconstruction Finance Corporation bonds
now held by the United States Treasury.
2. That the direct loans to industry, made by the Reconstruction
Finance Corporation be sold to the Reserve banks if the latter are to
continue making direct loans, or sold to the Treasury in the event
that direct loans are presently to be discontinued.
3. That regardless of the disposition made of the outstanding
direct loans, if the making of direct loans to industry is to be continued, by either the Reconstruction Finance Corporation or the
Reserve banks, the industrial advisory committees be abolished.
4. That the production credit corporations purchase the stock of
the regional agricultural credit corporations from the Reconstruction
Finance Corporation and the Government purchase stock in the production credit corporations in corresponding amount, payment to be
made in both cases in Reconstruction Finance Corporation bonds now
held by the United States Treasury.
5. That all the assets of the Reconstruction Finance Corporation,
other than those provided for in the recommendations listed above,
be transferred to the Treasury, and a corresponding amount of Reconstruction Finance Corporation bonds held by the Treasury be
canceled.
6. That the assets of the Reconstruction Finance Corporation be
taken over by the Treasury and its outstanding liabilities assumed
by the Treasury. In the event that it is desired to continue the
Reconstruction Finance Corporation's lending activities beyond the
date now fixed for its termination, it is recommended that it make
future loans as fiscal agent of the Treasury.
7. That the balance of Public Works Administration loans which
has not been taken over by the Reconstruction Finance Corporation
be purchased by the Treasury.
8. That the collection of assets taken over by the Treasury under
these recommendations be entrusted to the Federal Reserve banks as
fiscal agents.
9. That the Commodity Credit Corporation be put under the control of the Farm Credit Administration and its loans liquidated
through the Cooperative Credit Division.
10. That the Federal Housing Administration and the Federal
Home Loan Bank Board be amalgamated.




36

EXECUTIVE AGENCIES OF THE GOVERNMENT

11. That in the new agency suggested in the preceding recommendation there be created a new corporation which shall take over
the assets and assume the liabilities of both the Home Owners' Loan
Corporation and the Federal Housing Administration.
12. That the outstanding loans of the Home Owners' Loan Corporation for which foreclosure is not imminent, be placed under the
protection of mortgage insurance of the type now offered by the
Federal Housing Administration, commonly known as title I I loans,
and that these loans be sold to the public.
13. That the funds obtained by this operation be used in part to
retire Home Owners' Loan Corporation bonds and in part to create
a fund out of which losses on guaranteed loans shall be paid in
pash, thereby obviating or postponing the necessity for the further
issuance of Federal Housing Administration debentures.




PART III. RECOMMENDATIONS CONCERNING BANKING
CREDIT SUPERVISORY AGENCIES
In this section we deal with the relationships between the Comptroller of the Currency, the Federal Eeserve System, and the Federal
Deposit Insurance Corporation; the three principal agencies which
are concerned with the supervision of banking, currency, and credit
conditions. In part I we described the organization of these agencies
and presented a functional grouping of their activities in this field.
Here we offer our recommendations looking toward a more efficient
and economical performance of these functions.
It needs little argument to show that the present pattern of banking and currency control is imperfect. There are four bank-examining agencies, when there is need of only one. The Comptroller of
the Currency is the executive head of the national banking system,
yet such important matters as the control of interlocking directorates
under the Clayton Act and permission for national banks to establish branches are delegated to the Board of Governors of the Federal
Reserve system. The Federal Deposit Insurance Corporation is the
guardian of the deposit insurance fund, but it has no control over
the admission of banks to the protection of that fund (except nonmember State banks); neither can it investigate the solvency of a
national bank except through the Comptroller of the Currency, or
with his consent. The division of responsibility between these agencies, which is obviously the result of historical accident rather than
of any consistent plan, makes for inefficiency.
Number of agencies needed.—In planning a redistribution of functions, the first question concerns the number of agencies among which
the functions are to be redistributed. We take for granted the continued existence of the twelve Federal Reserve Banks, since they
perform functions as correspondents, clearing agencies and depositaries which no other governmental agency is equipped to handle,
and since they have statutory functions in the field of credit control
which Congress has delegated in part to the member banks of the
system, through the provision for private ownership of stock and
election of six directors by the member banks. The merits of this
arrangement are outside the field of reference of this investigation.
The principal question at issue, therefore, is whether the functions
now performed by the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, and the Federal Deposit
Insurance Corporation should be performed by three agencies, or
two, or one.
We have given careful consideration to the suggestion that the
work of these three supervisory bodies should be consolidated in a
single agency, an opinion which we find to be supported by many able
students of the problem. The principal arguments for complete consolidation, however, have to do with the economic advantages of a




37

38

EXECUTIVE AGENCIES OF THE GOVERNMENT

unified banking system as against the present system of dual control.
Consolidation of the control agencies in Washington would be a
long step toward such unification of the banking system. This question involves political and economic issues, more than administrative
efficiency and economy. I t would be beyond the assigned function of
this report to weigh the advantages and disadvantages of such fundamental reform. Our recommendations are made on the assumption
that it is the established policy of the United States, at least for the
present, to divide the responsibility for bank supervision between the
Federal Government and the States, leaving to the commercial banks
the choice between State and national charters, and between membership and nonmembership in the Federal Reserve System.
On the other hand, we see no necessity for the maintenance of more
than two agencies, one to deal with questions of monetary and credit
policy and with the fiscal and other services rendered to the Treasury
by the Reserve Banks, and the other to handle, first, the relationships
of the Federal Government with State banks, and second, those matters that directly affect both, and can be handled best by a single
agency. The most feasible reorganization, therefore, is the elimination of the office of the Comptroller of the Currency, and a reallocation of functions of that office.
Our recommendation that the office of the Comptroller of the Currency be abolished rather than one of the other agencies is based on
the conclusion that all the duties of that office can be assigned to
other agencies which have closely related functions, whereas the
Board of Governors of the Federal Reserve System and the Federal
Deposit Insurance Corporation both have permanent duties which
could not well be transferred to the Comptroller's office. The Board
of Governors of the Federal Reserve System exercise quasi-legislative
and quasi-judicial functions of a character which as a matter of longestablished policy are regularly entrusted to boards representing divergent interests, rather than to single administrators. The Federal
Deposit Insurance Corporation could be administered by an executive head instead of a board, but in view of its extensive relations
with more than 7,000 State nonmembers we do not believe we could
properly recommend that it be absorbed by the office of the Comptroller of the Currency. Such action would be interpreted by State
bankers and State banking officials as an attempt to force them
into the national banking system.
We shall first discuss in order the various tasks performed by the
agencies under review, giving our recommendations as to their place
in the proposed new system; then present a summary picture of the
new alignment of agencies.
Federal status of banks.—The Board of Governors of the Federal
Reserve System controls the admission of State banks to the Reserve
system, but has no control over the chartering of national banks. The
Federal Deposit Insurance Corporation controls the entry of State
nonmember banks into the deposit insurance fund, but has no control over the entry of banks either under national charter or as State
members of the Federal Reserve System. We do not believe that
either agency should have the power to compel acceptance of a bank
by the other.
We recommend that the routine work of charter issuance for new
national banks be transferred to the Federal Deposit Insurance Cor-




EXECUTIVE AGENCIES OF THE GOVERNMENT

39

poration, subject to the provision that no national bank may be
chartered without the approval of the Board of Governors of the
Federal Reserve System. Likewise, it is recommended that no State
bank be admitted to the Reserve System without the approval of the
Federal Deposit Insurance Corporation. Cases in which there would
be an irreconcilable difference of opinion between the agencies would
doubtless be rare, but we believe it is important that neither agency
be without control over the composition of its own membership.
Bank examinations.—We recommend that the Federal Deposit Insurance Corporation be given the power to examine all insured banks,
whether members of the Federal Reserve System or not, thus consolidating in the corporation all the regular bank-examining work
of the Federal Government except the examination of the 12 Federal Reserve banks. The latter function should remain with the
Federal Reserve Board.
The question of consolidating the examining forces of the Comptroller's Office, the Federal Reserve Banks, and the Federal Deposit
Insurance Corporation has been intermittently a subject of discussion for many years. Unification offers several advantages. First,
there would be a considerable economy. While there is no duplication of examinations, there is a duplication of overhead costs in the
maintenance of central and regional supervisory offices for three
sets of examiners. Travel expense would be lessened if, for instance,
a national bank and a State bank in the same town were examined
by the same examiner on the same trip. Moreover, there would be
a very considerable saving in the expense of reviewing examination
reports. At present the reports of the national banks are reviewed
in the Comptroller's Office and again in the office of the Federal
Deposit Insurance Corporation, while reports of examinations of
State member banks are reviewed in the Federal Reserve System
and again in the Federal Deposit Insurance Corporation. The Reconstruction Finance Corporation also maintains an examination
division which reviews reports of examination furnished by the three
regular examining agencies. Occasionally the Reconstruction
Finance Corporation also makes supplemental examinations of banks
in which it has an investment.
Second, there would be a gain in uniformity of standards of
examination. State and national banks are assessed for deposit
insurance on the same basis, and it is obviously desirable that the
.standards of lending and investment policy, insofar as they are set
by Federal authority, should be uniform for both classes of banks.
The compilation of statistical data from the two sets of reports
would be greatly facilitated by unification of the examining system.
Moreover, with the unified scheduling of examinations of national
banks and State banks that are under common ownership, it would
he possible to exercise a more effective check against the possibility
of shifting of assets back and forth between banks. Undesirable
differences in salary policy between the Federal examining agencies
would be ironed out.
These two advantages are independent of the question as to where
the unified examination division is to be placed. I t is impracticable,
however, to carry through the unification in any other agency than
the Federal Deposit Insurance Corporation. There are over 7,000
insured State banks not members of the Federal Reserve System




40

EXECUTIVE AGENCIES OF THE GOVERNMENT

which are subject to Federal examination only because they have
elected to take advantage of the insurance of deposits which is
administered by the Federal Deposit Insurance Corporation. It
would be out of the question to place the examination of these nonmember banks in either the Comptroller's office, the Board of Governors of the Federal Keserve System, or the Federal Reserve banks.
As to the member banks of the Federal Reserve System, there may
be differences of opinion. But our recommendation that the examination of these banks be placed in the Federal Deposit Insurance
Corporation is not based merely on the advantages of unification,
but on the fact that examination is more important to the Federal
Deposit Insurance Corporation than it is to the Federal Reserve
System.
In fact the power to examine insured banks is essential to the
proper performance of its duties by the Federal Deposit Insurance
Corporation. Under the present system it is practically impossible
for the Federal Deposit Insurance Corporation to be certain, in the
case of banks which are close to the margin of insolvency, when it
should take action to protect the interests of depositors and its own
interest as the insurer of the deposits of less than $5,000.
The Federal Reserve banks also have an interest in the examinations, since they exercise a considerable degree of supervision over
the member banks, are the custodians of their reserves, and are constantly called on to make loans to members and to collect checks
drawn upon them. We believe, therefore, that the Reserve Board
and the Reserve banks should have access to the reports of examinations made by the Federal Deposit Insurance Corporation in the case
of member banks, and should have the power to make supplementary
examinations in cases where the Reserve bank is not satisfied with
the result of the Federal Deposit Insurance Corporation examination
and needs supplementary information in connection with its lending
operations. Special examinations would sometimes be desirable also
in connection with applications of nonmember banks for membership
in the Reserve System.
It must be remembered that the Federal Reserve System now depends on the examination reports of the Comptroller of the Currency
for its information in regard to national banks. The proposed new
system would put it in no worse position than it is now except with
reference to State member banks, which make up only 1,051 out of a
total of 6,390 members. We are informed that it is the present practice of the Reserve System to accept reports of State banking authorities with reference to a considerable proportion of these 1,051 State
banks. Since the Federal Reserve Board would have to maintain a
small examining division for the audit of the 12 Reserve banks, any
special examination of member banks or banks applying for membership, which might be necessary, could be made by examiners detailed from this division. The proposed power to make supplementary examinations for credit purposes is the same as that now
possessed by the Reconstruction Finance Corporation. The Corporation, as was noted in a previous section of this report, sometimes
makes special examinations in connection with its ownership of
preferred stock, but in most cases accepts the reports of the regular
examining agencies.




EXECUTIVE AGENCIES OF THE GOVERNMENT

41

It may be suggested that since a large proportion of the deposits
in national banks are uninsured, because held in accounts in excess
of $5,000, the Federal Deposit Insurance Corporation is not an appropriate agency to take over the responsibility of the Comptroller's
office in regard to examining them. This does not seem to us an
adequate reason for leaving the Federal Deposit Insurance Corporation without the power of examination over these banks, nor for maintaining a duplicate examination system. The interest of the Federal
Deposit Insurance Corporation is not in conflict with that of the large
uninsured depositors; on the contrary they have a common interest in
the prevention of unsound lending and investment policies, and in the
prompt closing of banks whose assets are being dissipated.
At present, national banks are assessed by the Comptroller for the
expense of examinations, while State nonmember banks are examined
free by the Federal Deposit Insurance Corporation. Concentration of
the examination function in the Federal Deposit Insurance Corporation would make it possible to wipe out this inequality, since the
Federal Deposit Insurance Corporation has ample income from investments to enable it to carry this expense. Ultimately the cost falls
on the banks either way, since any surplus of Federal Deposit Insurance Corporation investment income over investments goes into its
reserve and presumably reduces future assessments. The proposed arrangement would equalize the burden, since at present national banks
have to pay examination costs and also pay assessments to the Federal
Deposit Insurance Corporation at the same rate as do nonmember
State banks, which are not assessed for examinations.
Gall reports.—For reasons similar to those given in regard to examinations, we recommend that the Federal Deposit Insurance Corporation collect call reports from all insured banks, on a form approved by the Board of Governors of the Federal Reserve System.
The Board of Governors should, of course, have access to the call
reports of all member banks.
Receivership and liquidation.—The appointment and supervision of
national bank receivers has always been one of the most important
activities of the office of the Comptroller of the Currency. Under
the provision of the Banking Act of 1935, however, the Comptroller
is required to appoint the Federal Deposit Insurance Corporation as
receiver for insured national banks. The Federal Deposit Insurance
Corporation is also empowered to act as receiver for failed State
banks when appointed by the appropriate State authority. Under
the provisions of this law the Corporation now is acting as receiver for 6 national and 21 State banks. The Comptroller of the
Currency exercises supervision over the Federal Deposit Insurance
Corporation as receiver for national banks, but such supervision
obviously involves less responsibility and is less
necessary than is
the supervision given to individual receivers.11 The Comptroller
still has the appointment and supervision of the receivers of about
1,116 national banks which failed prior to the establishment of the
present policy. As these receiverships are wound up the functions
11
The law provides that "the Corporation shall retain for its own account such portion
of the amounts realized from such liquidation as it shall be entitled to receive on account of its subrogation to the claims of depositors, and it shall pay to depositors and
other creditors the net amounts available for distribution to them.'' No such power is
vested in other receivers of national banks.




42

EXECUTIVE AGENCIES OF THE GOVERNMENT

of the Comptroller in connection with failed banks will dwindle
(over 200 were closed in 1936), while the operations of the Federal
Deposit Insurance Corporation in this field will presumably expand as the number of failed insured banks increases.
We recommend that the entire body of receivers of closed national
banks be discharged and
the Federal Deposit Insurance Corporation
appointed as receiver.12 This change would enable one legal staff
and one reviewing and supervisory staff to deal with all problems of
receivers. I t would, also make for uniformity in the handling of
receivership problems. This recommendation, is submitted partly in
view of the fact that we are elsewhere recommending the transfer
out of the Comptroller's office of its other chief function; namely,
the examination of national banks. Even if there were no direct
advantage in concentrating the receivership function in the Federal
Deposit/ Insurance Corporation we do not believe that the maintenance of the Comptroller's office on a dwindling basis merely to
clean up the old receiverships would be justified.
Preferred stock of banks.—In a previous section of this report
it is recommended that the preferred stock of banks, amounting to
about 700 million dollars, be transferred from the Eeconstruction
Finance Corporation to the Federal Deposit Insurance Corporation, the Government buying new stock in the Federal Deposit Insurance Corporation to finance the transaction. It was further suggested that the proceeds of retirement of preferred stock by banks,
together with dividends, in excess of the direct cost of managing
the preferred stock investment, be used to retire the Government's
stock in the Corporation.
This recommendation we base primarily on the fact that the
purpose underlying the purchase of this stock is the same as the
purpose underlying the creation of the system of Federal deposit
insurance, namely, the prevention of bank failures and the
creation of a sound capital structure for banks. The bulk of the
issuance of preferred stock was an incident of the program of bank
rehabilitation following the banking holiday of 1933, and the establishment of deposit insurance. Some stock is still being issued in
cases where examination discloses the existence of an inadequate
capital structure. Requests for the issuance of such preferred stock
usually arise from the review of bank examiners' reports by the
Comptroller and the Federal Deposit Insurance Corporation.
More important than the issuance of new preferred stock is the
question of retirement of the stock now outstanding. Some banks
which were in no particular need of new capital accepted subscriptions for their preferred stock as part of a general campaign to
popularize this type of financing. Such operations were doubtless
desirable immediately after the banking crisis in order that there
might not arise in the minds of the public the presumption that
any bank selling preferred stock was in a bad condition. Some
of these banks are desirous of retiring their stock. Others, which
were in need of help in 1933, have now gained enough strength to
make them desirous of retiring stock more rapidly than the law
requires. It seems obvious that the proper agency to pass on the
12
Of course the Federal Deposit Insurance Corporation would be free to reemploy the
receiver as its liquidating agent.




EXECUTIVE AGENCIES OF THE GOVERNMENT

43

question of whether such retirement is permissible is the agency
which is responsible for the maintenance of bank solvency. The
Federal Deposit Insurance Corporation has a major stake in the
question in the case of all insured banks. We see no advantage
in the existing division of responsibility between the Reconstruction
Finance Corporation and the bank-control agencies. Since a large
proportion of the preferred stock and capital debentures are those
of State nonmember banks, it is clear that the Federal Deposit
Insurance Corporation is the only one of the control agencies which
is fitted to take over the entire block. The Comptroller also has
and interest in the case of national banks, and the Reserve System
in the case of both national and State member banks, but the primary importance of the question relates to bank solvency, which is
the center of the Federal Deposit Insurance Corporation's function.
This recommendation is made regardless of the acceptance or
nonacceptance of our recommendation for a general distribution
of the assets of the Reconstruction Finance Corporation to other
agencies for collection purposes.
Establishment of branches.—The establishment of branches must
be approved by the Comptroller in the case of a national bank, by the
Board of Governors in the case of a State member bank, and by the
Federal Deposit Insurance Corporation in the case of an insured
nonmember bank. We recommend that this power be concentrated
in the Federal Deposit Insurance Corporation with regard to all
insured banks, reserving to the Board of Governors the right to
veto the establishment of branches by a national bank or a State
member bank. We recommend that primary responsibility be placed
in the Federal Deposit Insurance Corporation rather than in the
Board of Governors partly because, as with other functions that
have been discussed, it is impracticable to vest the power with regard
to nonmember banks in any Federal agency other than the Federal
Deposit Insurance Corporation, and partly because in the establishment of a branch by a member bank the question of competition
with an insured nonmember bank is frequently an important consideration. The issue is more closely related to the principal function of the Federal Deposit Insurance Corporation than it is to the
general credit and monetary functions of the Board of Governors
of the Federal Reserve System. Nevertheless, it is not desirable
that the Federal Reserve System be obliged to accept new branches
against its judgment.
Holding company affiliates.*—Under the Banking Act of 1933 the
Board of Governors exercises certain discretionary powers with
regard to the voting of stock of member banks held by holdingcompany affiliates. It also exercises powers of examination over
affiliates of member banks. In line with our recommendation for
the concentration of examining functions in the Federal Deposit
Insurance Corporation, we recommend that all the powers which
the Board of Governors exercises in this connection be transferred
to the Federal Deposit Insurance Corporation. We call attention
to the fact that the provisions of law in this regard, which apply
to State member banks, do not apply to insured nonmember banks.
Interlocking directorates.—Under the provisions of the Clayton
Act, the Board of Governors of the Federal Reserve System grants




44

EXECUTIVE AGENCIES OF THE GOVERNMENT

or withholds permission for directors of member banks to serve at
the same time as directors of other financial institutions. No similar
provision has been made as to interlocking directorates affecting
insured nonmember banks. We recommend that the function be
transferred to the Federal Deposit Insurance Corporation. We lay
no great stress on this recommendation, however, as it is likely that
the function can be performed about as well in one place as the
other. Our recommendation is based simply on the desirability of
freeing the Board of Governors, as far as possible, from purely
administrative responsibilities.
Research and statistics.—Extensive research in the field of banking and credit is now conducted by both the Board of Governors of
the Federal Reserve System and the Federal Deposit Insurance
Corporation. It does not appear, however, that there is an undesirable duplication of activity between these agencies. Each has a
special need for certain types of information and needs its own
research agency to carry them out. Some realignment of tasks
would doubtless be necessary if the recommendations of this report
are carried out, but this could best be worked out in conference
between the agencies.
We suggest that the collection of statistics of world production
and consumption of gold, now collected by the Bureau of the Mint,
might well be turned over to the Board of Governors, as this task
is closely related to statistical work which that agency now performs, and the information is needed largely for use in connection
with general credit policy.
We suggest that the Federal Reserve Bulletin be enlarged by the
grant of space to the Federal Deposit Insurance Corporation for
publication of statistical data which it collects and the results of
research in progress. Statistical data are now released separately
by the Federal Deposit Insurance Corporation in quarterly condition
reports, and valuable research results are published in its Annual
Report. Publication in the Federal Reserve Bulletin would enhance the Bulletin's usefulness to students of banking problems, and
simplify the filing work of libraries and the bibliographical work of
research students. I t would also give wider publicity to the research
work of the Federal Deposit Insurance Corporation.
Interest rates on time deposits.—The Federal Deposit Insurance
Corporation now has authority to fix the maximum rate of interest
which may be paid on time and savings deposits by nonmember
insured banks, while the Board of Governors exercises the same
power with respect to member banks. In line with preceding recommendations, strict logic probably requires that the function be concentrated in one agency or the other, and this would presumably bei
the Federal Deposit Insurance Corporation, since such authority
over nonmember banks can hardly be transferred to the Federal
Reserve System. We believe, however, that this authority was intended to be used as an agency of credit control and not merely as
a means of safeguarding banks against the weakening of their
financial position or by excessive interest payments (or by rates so
low as to drive funds out of the banks into other agencies). We are
not prepared, therefore, to recommend that the function be concentrated in either agency. We believe, however, that there should be




EXECUTIVE AGENCIES OF THE GOVERNMENT

45

unity of action, not only as to rates fixed but as to the definition of
terms and the interpretation of regulations. We recommend that
these functions be exercised jointly by a committee of five, two members being designated by each agency, and the fifth being the Secretary of the Treasury or a representative designated by him.
Location of agencies.—If possible, we believe that provision should
be made in the new Federal Reserve Building in Washington for the
housing of the Federal Deposit Insurance Corporation. This would
facilitate communication between the agencies and promote desirable
cooperation.
Fiscal services of Reserve hanks.—We have recommended elsewhere that certain assets now held by the Reconstruction Finance
Corporation and the Public Works Administration be transferred to
the Treasury and their collection transferred to the Federal Reserve
banks as fiscal agents. (See pt. I I , above.)
Currency issuance.—The administrative tasks of the Comptroller's
office in connection with the retirement of outstanding national bank
notes and the issuance of Federal Reserve notes are recommended for
transfer to the Public Debt Service. Since the national banks have
deposited funds with the Treasury to cover their outstanding liability
for national bank notes, these notes are no longer bank obligations,
but Government obligations. The Public Debt Service already looks
after the cancelation and reissuance of United States notes, and the
retirement of obsolete forms of currency. The saving in expense of
operation resulting from the consolidation of the retirement of national bank notes with the handling of United States currency w^ould
not be significant if the Comptroller's office were to be continued as
a separate agency for other reasons. But the task is a purely administrative one, and there would be no advantage in continuing the
existence of the Comptroller's office to take care of this task if its
other more important functions w^ere transferred elseAvhere. Some
supervision of the issuance of Federal Reserve notes by the Treasury
is necessary, since these notes are obligations of the United States
Government, but the operations involved are of a routine character,
since the Board of Governors of the Federal Reserve System is
responsible for the policies which result in the issuance of the notes.
Organization plan.—The recommendations which we have offered
provide for a reorganized system of Federal supervision of banking
and credit, with the following allocation of tasks between agencies:
Board of Governors of the Federal Reserve System:
Control of discount rates of Reserve banks.
Control of reserve requirements of member banks.
Control of security lending operations of member banks.
Control of margin requirements for brokers.
General policy-making functions with respect to the Federal Reserve
System.
Research and statistics; publication of Federal Reserve Bulletin.
Permissive control over admission of banks to the Reserve System, subject to the approval of the Federal Deposit Insurance Corporation.
Examination of Reserve banks.
Supplementary examination of member banks as needed.
Control of interest rates paid by insured banks on time and savings deposits (jointly with the Federal Deposit Insurance Corporation and the
Secretary of the Treasury).
Open market committee:
Security purchases and sales of Reserve banks.




46

EXECUTIVE AGENCIES OF THE GOVERNMENT

Federal Reserve banks:
Present powers and duties, with a greatly enlarged volume of fiscal
agency work for the Treasury.
Federal Deposit Insurance Corporation:
Insurance of deposits.
Control of admission of banks to insurance, subject to the approval of
the Board of Governors in the case of national and State member*
of the Federal Reserve System.
Examination of all insured banks.
Receivership of all national banks, and of insured State banks, if appointed by appropriate State authority.
Ownership of preferred stock of all banks.
Permissive control over establishment of branches by insured banks, subject to the approval of the Board of Governors of the Federal Reserve
System in the case of National and State member banks.
Administrative functions in connection with affiliate relationships of National and State member banks.
Control of interlocking directorates of National and State member banks.
Research and statistics; issuance of reports through the Federal Reserve
Bulletin.

Effect of recom?nendations on Federal Reserve System.—One desirable effect of the recommendations made above, if they are carried
out, would be to reduce the volume of administrative work of the
Board of Governors of the Federal Reserve System and leave it free
to devote more time to the study of credit conditions and the formulation of credit policy. Ever since the creation of the System there
has been a tendency for it to absorb administrative jobs, such as the
control of interlocking directorates and of the establishment of
branches and supervision of holding-company affiliates, which are of
a type that before the creation of the System would presumably have
been assigned to the Comptroller of the Currency. The reason is
obvious; assignment of these tasks to the Board of Governors made
it possible to include the State member banks in the scope of the
regulations.
A large board is not an ideal body to carry on administrative
tasks. Moreover, the policy-making functions of the Board have
grown in importance with the increasing public reliance on credit
control as a panacea for business ills. We believe that there will be
a considerable gain in the effectiveness of the Board's more important work if it is relieved of much of its administrative responsibility. The Federal Deposit Insurance Corporation, on the other
hand, has comparatively minor policy functions and can presumably
handle additional administrative work without impairing its efficiency for its main tasks.
SUMMARY OF RECOMMENDATIONS

1. That the office of the Comptroller of the Currency be abolished.
2. That the responsibility for the issuance of charters for national
banks be transferred froni the Comptroller of the Currency to the
Federal Deposit Insurance Corporation, subject to the provision that
no national bank may be chartered without the consent of the Board
of Governors of the Federal Reserve System.
3. That no State bank member be admitted to the Federal Reserve
System without the consent of the Federal Deposit Insurance
Corporation.




EXECUTIVE AGENCIES OE THE GOVERNMENT

47

4. That the Federal Deposit Insurance Corporation be given
authority to examine all insured banks, reserving to the Board of
Governors authority to examine Federal Reserve banks, and to make
supplementary examination of member banks and of banks applying
for admission to the System, when necessary.
5. That the Federal Deposit Insurance Corporation be made receiver of all national banks in receivership, including those which
closed before the establishment of deposit insurance.
6. That the Federal Deposit Insurance Corporation purchase the
preferred stock of banks now held by the Reconstruction Finance
Corporation, the United States Government buying additional stock
in the Federal Deposit Insurance Corporation to finance the transaction.
7. That the consent of the Federal Deposit Insurance Corporation
be required for the establishment of branches by any insured bank,
whether a member of the Federal Reserve System or not; also the
consent of the Board of Governors in the case of a member bank,
whether national or State.
8. That the powers now exercised by the Board of Governors in
regard to holding-company affiliates be transferred to the Federal
Deposit Insurance Corporation.
9. That the control of interlocking directorates affecting member
banks, now exercised by the Board of Governors under the authority
of the Clayton Act, be transferred to the Federal Deposit Insurance
Corporation.
10. That the Federal Reserve Bulletin be enlarged by the allocation of space to the Federal Deposit Insurance Corporation for the
publication of statistical data and research reports.
11. That the power to fix maximum rates of interest on time and
savings deposits of all insured banks be vested in a committee of five,
two members being designated by the Board of Governors, two by the
Federal Deposit Insurance Corporation, and the fifth being the
Secretary of the Treasury or a representative designated by him.
12. That provision be made, if possible, for the housing of the
Federal Deposit Insurance Corporation in the new Federal Reserve
Building in Washington.
13. That the powers now exercised by the Comptroller of the Currency with respect to the retirement of national-bank notes and the
issuance and retirement of Federal Reserve notes be transferred to
the Public Debt Service.