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opinion, a valid reason against separation but, even so, it is considered of less importance than the disadvantages heretofore mentioned that would result in the event of separation.

8. Inasmuch as no Federal funds are used either by the Insurance Corporation or the Board to defray expenses, the question of reducing Federal expenditures is not involved.

9. It is the Board's view that no change should be made which would alter the present relationship between the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation.


The Home Owners' Loan Act of 1933 authorized the Board "to encouraged local thrift and local home financing, and to promote, organize, and develop the associations herein provided for or similar associations organized under local laws.

* The sums appropriated and made available pursuant to this section shall be used impartially in the promotion and development of local thrift and home-financing institutions, whether State of federally chartered.”

There were two types of expenditures authorized by Congress for the development of savings and loan associations:

1. Money provided by Congress for strictly promotional purposes.

2. Money provided by Congress for investment in shares of Federal savings and loan associations and State-chartered insured associations.

Under the terms of the act, Congress appropriated $150,000 “to enable the Board to encourage local thrift and local home financing and to promote, organize, and develop the associations herein provided for or similar associations organized under local laws * * An additional $700,000 was later authorized-$500,000 in April 1934 and $200,000 in May 1935—for this purpose.

All expenditures from this total of $850,000 were authorized to be taken directly out of the Federal Treasury and the Secretary of the Treasury was directed to allocate and make the funds available to the Board subject to its call. Under the language of the authorizations, the funds were to "remain available until expended.” The Board's calls from these funds totaled $815,943.91, so that there remained, when the accounts was closed, an unexpended balance of $34,056.09 which was finally transferred to the surplus fund of the Treasury.

The act also authorized $100 million for investment by the Treasury to be used in the purchase of shares of Federal savings and loan associations. Of this amount, the Treasury actually invested $49,300,000. On May 28, 1935, Congress authorized the Home Owners' Loan Corporation to invest $300 million in obligations of the Federal home loan banks and shares of Federal savings and loan associations and State-chartered insured associations. Of this HOLC money, a total of $223,856,710 was invested.

The Federal Home Loan Bank Board, by resolution of November 8, 1935, directed its Savings and Loan Division to perform extensive field work in connection with:

1. The admission of applicant institutions to membership in the Federal Home Loan Bank System.

2. The organization of new Federal savings and loan associations; and cooperation in their development during the early period of their existence.


3. The conversion of existing thrift associations to Federal charter and assistance therewith.

4. The insurance of accounts by the Federal Savings and Loan Insurance Corporation and necessary related services.

5. Assistance to the Federal home loan banks and associations in supervisory matters.

These activities were carried on by presenting to the officers and directors of thrift and home financing institutions the various facilities offered by the Federal Home Loan Bank Board to promote the welfare of the associations and to enhance the services they render to their respective communities. These personal contacts were made primarily by the field representatives of the Division, but in many instances locally organized groups of thrift institutions invited representatives from the Washington staff to describe the services to them.

Field representatives of the Division contacted approximately 572 institutions each month, resulting in an average coverage of 348 cities and towns monthly. Each visit was primarily to explain the advantages of membership in the bank system and how it is obtained, or the benefits of insurance of accounts and the standards of eligibility, or the procedure of converting a State institution to a Federal charter, or how, through capital investments by the Home Owners' Loan Corporation in the institution to supplement the local savings, the home financing needs of the particular community might be cared for

The field representatives also investigated applications to organize new Federal savings and loan associations in communities not adequately served by thrift and home financing institutions. In all of this work, the responsibility of the Division and its active assistance continued until an association had completed its proposed program and was functioning in a normal manner.

In addition, the Division took an active part in rehabilitation programs for those local thrift and home-financing institutions which were unable to qualify under the Board's standards of eligibility for insurance or conversion. These programs included financial and corporate reorganizations.

On January 11, 1938, the Savings and Loan Division of the Federal Home Loan Board was discontinued and the field services were taken over by the officers of the regional Federal home-loan banks. Promotional activities on the scale previously carried on by the Savings and Loan Division were discontinued as practically all of the funds appropriated by Congress for that purpose had been expended and the fact that the original need for which this activity was started had been fulfilled.

The Board has no future plans for promotional activities. been stated elsewhere in this report, there are relatively few communities that are of sufficient size to successfully support a savings and loan association that do not already have such facilities available. According to our records, the inability of worthy applicants to raise the required amount of capital is rarely the reason for a charter not being granted. Sincerely,





Washington, D. C., September 17, 1956. Hon. JOHN J. SPARKMAN, Chairman, Subcommittee on Housing, Committee on Banking and Currency,

United States Senate, Washington, D. O MY DEAR MR. CHAIRMAN: This will reply to your letter of August 14, 1956, requesting the Bureau of the Budget's answers to a series of questions relating to the Federal Home Loan Bank System in general and specifically to the desirability for separate management for the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation.

The Bureau's replies to the questions asked by your committee are set forth in an enclosure to this letter. We will be glad to supply any further information which your committee may desire in connection with its study of the relationships between the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. Sincerely yours,





1. State your opinion of the primary purposes of the FHLBB and of the

FSLIC under existing law and administration The primary purpose of the FHLBB, as the controlling agency for the Federal Home Loan Bank System, is to assure adequate funds for member institutions both to meet emergency withdrawals and to provide financing for home construction and purchase to the extent consistent with sound operation of both the home loan banks and the savings and loan institutions. Thus it provides a credit reservoir for savings institutions comparable to the credit facility provided for banks by the Federal Reserve System. Similarly, as the agency authorized to charter and regulate Federal savings and loan associations, the primary purpose of the FHLBB is to encourage sound home financing through provision for local thrift and home financing institutions.

The primary purpose of the FSLIC, like that of the FDIC, is to protect the savings of investors in share-accounts and thus indirectly to stimulate a more stable flow of savings into these institutions where it will be available for home financing. 2. State your opinion of what these primary purposes should be, if in

your opinion they should be changed These primary purposes in general appear to be appropriate for both institutions. The purpose, of the FHLBB might well, however, be clarified, as in the case of the Federal Reserve Board, by more specific reference to the need for maintaining sound credit conditions. Such a clarification should emphasize more adequately the Board's responsibility to prevent excessive use of its credit facilities in inflationary periods.

3. State your understanding of the present functions and relationships

of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation


The FHLBB supervises the operations of the Federal home loan banks, approves or disapproves major policies affecting member associations and nonmember borrowers, charters, examines and regulates Federal savings and loan associations and performs all functions of the former Board of Trustees of the FSLIC. The FSLIC insures share-accounts in Federal and State-chartered associations, examines and supervises insured associations, acts to prevent defaults and/or in some cases as receiver of associations in default.

A more extensive catalog of the basic functions of the Board and the Corporation is contained in attachment A. In general these functions are set forth in the Federal Home Loan Bank Act of 1932, as amended, the Home Owners' Loan Act of 1933, as amended, and the National Housing Act of 1934, as amended.


The Board and the Corporation are two distinct agencies of the Federal Government established under separate statutes, with distinct duties, powers and responsibilities even though they deal to a large extent with the same group

of financial institutions. The management of both agencies has been vested in the Federal Home Loan Bank Board and units of the Board perform a wide variety of services jointly for the Board and the Corporation.

1. Examinations. The Division of Examinations of the Board examines insured and member savings and loan associations for both agencies, including examinations covering eligibility for insurance. As the following table indicates over 95 percent of this work involves the periodic examination of insured Federal and State savings and loan associations and relatively little time is spent on examinations of uninsured State associations which are members of the bank system:

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The Division of Examination of FHLBB (under the authority of the Insurance Corporation) and State authorities conduct joint examinations wherever possible of State-chartered associations. These examinations are based on general agreements concluded by the Board and State authorities, and the details of scheduling are completed at the district level. In general, the Board has allowed State authorities to determine when, and in what manner examinations of State-chartered, insured associations are to be undertaken. State agents are also in charge of the joint examining team in many cases. In a few States this practice has handicapped Federal examiners. For the most part, however, examinations of Federal and State associations are handled alike. Indeed, in about half the States, the standard Federal examination forms are also used by State authorities.

Copies of the examination report are sent by the district office to the Division of Examinations in Washington, to the State authority in the case of a State-chartered association), and to the responsible supervisory agent of the FHLBB and FSLÍC who is generally the president of the Federal home-loan bank in the district. The latter is also sent the copy which ultimately goes to the association.

2. Supervision. The Division of Supervision of the Board is likewise responsible for supervising insured and member savings and loan associations for both agencies. It operates generally in the first instance through a number of supervisory agents who are officers of the various Federal home-loan banks. Except for correction of minor shortcomings and violations of regulations, the Division of Examination and its examiners are not directly involved in the process of supervision.

The general procedure of supervision begins with the review of an examination report by the responsible supervisory agent. The agent then prepares a supervisory letter indicating corrective action to be taken by the association and normally sends the letter directly to the association (in the case of federally chartered associations) or to the State supervisory authority in the case of State-chartered associations) without consulting with the Division of Supervision. In unusual cases, involving possible defaults or cases where the supervisor lacks necessary guidance, the Division of Supervision is first consulted.

Generally, the Division of Supervision takes no direct action. As examination reports and copies of supervisory letters prepared by supervisory agents are received and docketed in Washington, they are reviewed by the analysts in the Division. If necessary, the supervisory agent is asked to amend his original instructions to the association. On rare occasions the Division of Supervision may act directly on a case involving a problem association. The Division also has sole authority to order a special examination of a suspect association.

3. Other joint services.—Units of the Board perform general housekeeping services, legal services, and internal audits of accounts and records required by the Corporation on a reimbursable basis. Conversely, the Operating Analysis Division of the Corporation does certain statistical work for both agencies.

4. Role of FSLIC.—The Corporation is not generally involved in the day-by-day job of examining and supervising associations and lacks the resources to participate in this process. It necessarily relies on units of the Board to make sure that its duties and responsibilities are carried out and that the Government's potential liability for insurance loss is safeguarded. It is seldom consulted on the problems of any insured association until one involving potential default has been brought to its attention by the Board's Division of Supervision.

The limited nature of the Corporation's operations is also indicated by the four major units of which it is comprised:

(a) The Underwriting Division, which develops programs and standards for insurance of accounts and passes on applications


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