Similarly, under Section 205(f) (1), which allows the Administrator to establish minimum standards as to the installation, maintenance of security devices and procedures to discourage robberies, burglaries and larcenies, we would hope that any such requirement would be commensurate with the extent of the risk of such criminal acts, the extent of the assets exposed to loss, and in consideration of the expense to the credit union in relation to its assets or income. As you know, presently 70% of all credit unions in the United States today have assets of less than $300,000. In comparison with most other financial institutions these credit unions are basically small operations. In most cases, their gross income in any one year would be $30.000 or less, and the problem of trying to operate within this amount of income in view of ever increasing costs is becoming more difficult on a daily basis. Accordingly, the additional expense to the smaller credit unions resulting from such requirements to have safety procedures and devices, is of paramount concern to us. As important, it should be noted that all Federal credit unions are required to have a bond which, among other things, protects against direct loss or damage of property due to fraudulent, dishonest, or criminal acts of credit union employees, directors or any other person, which we urge should also be considered in the establishment of these requirements.

In addition, a substantial question exists as to the necessity for the extensive cease and desist procedures outlined in these subsections particularly in view of the substantial authority given to the Administrator under Section 206(b) to terminate a credit union's insurance in the event that it does not correct unsafe and unsound practices or conditions or violations of the laws or regulations. Under the latter provision, the Administrator can require the correction of deficiencies within 20 days, if he considers such deficiencies serious enough to warant such action. This authority appears to be more than adequate.

Similarly, the provisions of Section 206 (g) and (h), giving the Administrator authority to remove directors, officers or committee members for certain prohibited activities is in our opinion a pre-emption of the right of shareholder credit union members to appoint and remove, if necessary, the persons they chose to run their credit union. In this respect, credit union members have far greater rights to control the management of their credit unions than the depositors in banks and savings and loan associations. It is considered essential to credit union philosophy that this right be maintained. Traditionally, the credit union has encompassed groups of people bonded together to provide for themselves a place to save and to borrow money at reasonable rates. Collectively, they have selected their managers and officers. In the event an officer, manager or committee member fails to meet his obligations to the group he serves, it should be the right of the group collectively to remove him.

Similarly, in the event the credit union members remove one or more directors so that there is less than a quorum, credit union members should retain the right to select new Board members, rather than the Administrator, and in this respect Section 206 (h) (2) is objectionable.

On a different subject, it is noted that Section 207(a)(1) of the bill provides that upon the Administrator's finding that a Federal credit union insured under the Act is bankrupt or insolvent, he shall close the credit union and appoint himself as liquidating agent. Mr. Chairman, as you and the members of the Committee are well aware, leagues and other credit union organizations have for many years assisted in the liquidation proceedings of liquidating credit unions. We believe the existing structure of the state league organization could materially assist the Administrator, and certainly reduce the cost of liquidation to the credit unions. We therefore recommend that the language of Section 207 (a) (1) be amended (page 43, line 5) so as to permit the Administrator to appoint a liquidating agent other than himself.

Concerning Section 9 of S. 3822, we have reservations as to the necessity to change reserve requirements for Federal credit unions in order to implement an effective program of Federal share insurance. In this regard, we strongly believe that the current reserves of Federal credit unions are more than adequate to meet anticipated delinquencies. For example, the latest published figures of the National Credit Union Administration for the period ending December 1968, reveal that Federal credit unions had reserves of $417.387.000 in relation to assets of $6.902,175,000. In fact, the reserve to delinquent loan ratio was 272.2. Furthermore, the total loans charged off by Federal credit unions since 1934 through December 1968 is $134,809,000, a loss ratio of 0.25% of loans made during this

period. Although the 1969 figures have not been published, there is every indication that the amount of reserves has kept pace with the growth in assets in our Federal credit unions.

Turning to the proposed changes in the reserve requirements in S. 3822, we would agree that reserves should be accumulated in relation to the total of outstanding loans and risk assets rather than total assets. However, there is no necessity for increasing the amount to be transferred to the regular reserve account on an annual basis in view of our current built up reserves and particularly in the event a Federal share insurance program becomes a reality. The formula proposed in S. 3822 would have the effect of increasing the amount required to be transferred to the reserve account, particularly for the credit unions which have not as yet built up a 5% reserve. This provision would seriously impair the dividend paying capability of many of our smaller credit unions as well as our faster growing credit unions which would jeopardize their efforts to attract share capital and probably stultify their growth.

Accordingly, we have serious reservations as to the formula proposed in S. 3822 and would suggest that this is a subject which deserves additional study and deferral at this time as it is of such vital importance to our Federal credit unions and their members.

Mr. Chairman, a final comment we would like to offer for Committee consideration concerns the role of the National Credit Union Board in matters pertaining to the operations of the insurance fund. We, of course, do not believe it necessary for the Administrator to consult the Board relative to the day to day operations of the Fund. On the other hand, we firmly believe the Administrator should seek counsel and guidance from the Board in the development of broad operational policies and the issuance of guiding regulations. We therefore recommend, Mr. Chairman, that the language of S. 3822 contain provisions spelling out the role of the National Credit Union Board in matters pertaining to the operation of the National Credit Union Share Insurance Fund.

This concludes my testimony. Thank you, Mr. Chairman, and members of the Committee.

47-444-70-10

membership.

ADDENDUM TO STATEMENT OF R. C. ROBERTSON, PRESIDENT, CUNA INTERNATIONAL, INC.

Mr. Chairman, there is another matter we would like to discuss in connection with S. 3822 which concerns the problem of providing liquidity and meeting the capital requirements of liquidating credit unions. As you know, the present legislation is principally concerned with the avoidance of member loss in insolvent credit unions. However, the majority of credit unions which liquidate do, in fact, pay at least 100 cents on the dollar. Oftentimes the liquidation of these credit unions is quite lengthy and members must wait for their money principally because the credit union does not have sufficient liquid assets to pay off member accounts immediately. Therefore, some procedure is desired whereby the member accounts in these liquidating credit unions may be paid off with the least possible delay. In this regard, the experience of our state league stabilization programs has shown that one very effective way to provide immediate funds to liquidating credit unions is to guaranty central credit unions and other agencies which purchase the notes of and loan to these liquidating credit unions to the extent of 100 cents on the dollar. This procedure permits a more orderly and efficient liquidation with early satisfaction of member share accounts.

We would strongly recommend that S. 3822 be amended to authorize the Administrator to guaranty any organization or agency, including a central bank facility for credit unions (which the organized credit union movement has already approved in principle and is now preparing for early implementation) which lends to or purchases the notes of a liquidating credit union.

The extent of any such guaranty should, of course, be limited to the same amount of insurance now provided in S. 3822 for member accounts. With such authority, the Administrator could encourage the flow of liquid capital into liquidating credit unions from sources outside the share insurance fund itself without any additional risk or demand on the insurance reserve and would provide an effective way to quickly pay off member's share accounts and avoid potential hardship for our credit union members.

Senator PROXMIRE. Our next witness is Mr. Mack Rogers, president of the National Association of Federal Credit Unions, Los Angeles, Calif.

We are happy to have you before us, Mr. Rogers. You have a rather concise statement, so you proceed in any way you wish. It is only four pages or so.

You might identify the young ladies with you as well as the gentle

men.

STATEMENT OF MACK ROGERS, PRESIDENT, NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS, LOS ANGELES, CALIF.; ACCOMPANIED BY MAL NESTLERODE, TREASURER, NAFCU AND MANAGER, MARQUARDT EMPLOYEES FEDERAL CREDIT UNION; LORENA CAUSEY MATTHEWS, TREASURER-MANAGER, Y-12 EMPLOYEES FEDERAL CREDIT UNION, OAK RIDGE, TENN.; KATHRYNE VACHON, TREASURER-MANAGER, TROPICAL TELCO FEDERAL CREDIT UNION, CORAL GABLES, FLA.; AND RALPH J. PARCHINI, GENERAL MANAGER, PAN AMERICAN FEDERAL CREDIT UNION, NEW YORK, N.Y.

Mr. ROGERS. Mr. Chairman and Senator Bennett, my name is Mack Rogers, president of the National Association of Federal Credit Unions and Manager of the Farmer's Insurance Group Federal Credit Union of Los Angeles.

With me on my right is Mal Nestlerode, treasurer of our association and manager of Marquardt Employees Federal Credit Union, Van Nuys, Calif.

On my extreme right is Mrs. Lorena Causey Matthews, manager of the Y-12 Federal Credit Union, Oak Ridge, Tenn.

On my immediate left is Mrs. Kathryne Vachon, manager of Tropical Telco Federal Credit Union, Coral Gables, Fla.

And on my far left, Ralph Parchini, manager of the Pan American Federal Credit Union, New York.

These credit unions are members of our association.

Following my prepared statement, Mrs. Vachon and Mrs. Matthews would like to present brief statements. However, we shall try to stay within 15 minutes.

I would like to preface my statement with the observation that we are very happy to see the organized movement now committing its support to a system of Federal share insurance. And in view of its changed position, my remarks may have less relevance than they would have had prior to that change.

The National Association of Federal Credit Union supports S. 3822. This support is based on the fact that early in 1968, 79 percent of our members requested that a share insurance feasibility study be conducted. The study was completed and circulated to our members in November 1968. It recommended the establishment of a share insurance corporation with mandatory coverage for Federel credit unions and permissive coverage for State-chartered credit unions with substantially the same features found in S. 3822.

Since the passage of the Federal Credit Union Act in 1934, and particularly during the past 20 years or so, during which time credit union growth has flourished, intermittent efforts have been made by some segments of the credit union community to secure the passage of share insurance legislation. Oddly enough, the opposition has come from the leadership of the organized credit union movement.

As late as 4 months ago, the official position of CUNA International and the traditional reasons advanced over the years by those who opposed a Federal share insurance program were restated. Those reasons are quoted, as follows, from the February 1970 issue of the Federal Credit Union Observer:

1. Credit unions have an excellent safety record, and the movement's own stabilization programs are constantly being improved and broadened to provide further security.

2. Credit unions are not doing business with the general public and the Government does not insure the shares of other private corporations.

3. Regulations imposed by the Government would likely interfere with the traditional operations of the credit unions and severely limit the consideration of character as the major security factor in cretit union lending.

4. Increased costs and additional paperwork would impose unreasonable burdens on the small voluntary credit union and would force credit unions of all sizes to lower their dividends and interest refunds.