be approved. Based upon this determination, the Insurance Corporation recommends to the Board the action it thinks should be taken upon the application. While the time required for processing these applications may be accelerated, this can be accomplished by administrative action and no legislative action is recommended.

(e) (1) It is difficult to see how liaison between the Board and the regional banks could be improved. The Division of Federal Home Loan Bank Operations is in daily contact with all banks with respect to matters relating strictly to the operations of the bank. With respect to matters dealing with supervision of member institutions or matters involving insurance of accounts, the supervisory agent has ready access to the Division of Supervision, Division of Savings and Loan Operations, and/or the Federal Savings and Loan Insurance Corporation. This condition also applies to all matters which officers of the banks feel they should take up directly with the Board.

(2) While the banks maintain continuous liaison with their members through personal visits of their supervisory agents to their institutions, this is further augmented by group meetings, correspondence, conventions, etc. The officers and directors of all banks are available to any member who wishes to confer concerning the problems of a member institution. Liaison in this respect is considered satisfactory. (f) Supervisory problems, as a rule, are disclosed through information reported by the examiners. The procedure for handling these matters provides for immediate corrective action to be taken by the supervisory agents, who are officials of the district bank, with the member institution involved with notice by the agent to the director of supervision in Washington of the action being taken. However, if the analysis of the report of examination discloses serious violation of law or regulation or unsafe and unsound management, the agent consults with the Director of the Division of Supervision before taking action. The Director in all such cases is in close contact with the Board, the Insurance Corporation, and the Legal Department. Insofar as procedures are concerned, they are satisfactory and well coordinated.

(g) Close coordination is maintained with the Treasury, Federal Reserve System, Council of Economic Advisers, and all other departments and agencies of the Government concerned with the activities and policies of the Federal Home Loan Bank Board. This is accomplished satisfactorily through personal contact and through the exchange of information and periodic statistical data.

QUESTIONS RELATING SPECIFICALLY TO THE DESIRABILITY FOR SEPARATE MANAGEMENT OF THE FEDERAL HOME LOAN BANK BOARD AND THE FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION

1. The Board is of the opinion that the present organizational structure whereby the management of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation is the responsibility of one authority has many advantages that would be lost if there should be a separation of such management. Disadvantages, such as possible conflicts in regulations, dual supervisory and examining responsibility, additional personnel resulting in increased. cost, delays and added difficulties in providing services to the public would result. The confusion on the part of not only the public but

also the member institutions in dealing with 2 rather than 1 regulatory and supervisory authority would substantially hinder and complicate what has heretofore been a sound and efficient operation.

2. The present identity of management in the opinion of this Board contributes substantially to the purpose of protecting deposits. Under the present system, the Board has authority to charter newly organized Federal savings and loan associations. It also is charged with the responsibility for the insurance, up to $10,000 of all savings accounts in such associations as well as the responsibility for approving applications of State-chartered associations for membership and insurance of accounts. It is believed that this responsibility imposes upon the Board an obligation to determine that all standards applicable to a sound insurance risk are met before a charter is issued. In the opinion of this Board, this system is preferable to any arrangement whereby insurance of accounts by the Corporation would be mandatory once a Federal charter is granted by a separate agency having no responsibility for the insurance risk such actions would compel the Corporation to assume.

Periodic examinations by one group of Federal examiners reporting to one supervisory authority assures uniformity of supervision and provides an excellent safeguard against unsafe and unsound practices, thereby minimizing the insurance risk.

3. It would seem that the record growth experienced by savings and loan associations over the past 22 years is a clear demonstration of the public confidence enjoyed by these institutions. Close collaboration when interest and objectives are the same promotes public confidence, whereas, separation would tend to create conflicts and thus weaken public confidence in the overall supervision and guidance of the Nation's insured savings and loan associations.

4. No evidence to the Board's knowledge has been cited to illustrate this contention. Here again, experience has demonstrated that by virtue of supervisory and insurance authority being vested in one Board, difficult solutions in problem cases have been effected to the advantage of the investors and the communities affected without arousing adverse public reaction. It is doubtful if such a record could have been established had there been divided authority over the affairs of the members of the Federal savings and loan system and the Federal Savings and Loan Insurance Corporation.

5. The Board fails to see any real significance, because of the present relationship between the Board and the Corporation, in the $750 million borrowing authority of the Corporation. Even should there be a separation of the Board and the Corporation, the duties and responsibilities of the management of the Corporation would be the same as are presently imposed upon the Federal Home Loan Bank Board.

6. In the Board's opinion, the present identity of management contributes to the encouragement of local thrift associations, for the reason set out in question No. 1.

7. According to our best estimates, the operating expenses of the Corporation, in the event of separation, would increase approximately 37 percent in addition to the intangible expense imposed on the member institutions because of resultant conditions necessarily attendant as set forth in answer to question No. 1 without there being a corresponding decrease in the overall costs of operations of the Board. This is, of course, an important consideration, and in the Board's

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.

PROMOTIONAL ACTIVITIES OF THE FEDERAL HOME LOAN BANK BOARD

* *

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 fieldwork 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 sooner. 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. motional 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. As has 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,

WALTER W. MCALLISTER,

Chairman.

EXECUTIVE OFFICE OF THE PRESIDENT,
BUREAU OF The Budget,

Hon. JOHN J. SPARKMAN,

Washington, D. C., September 17, 1956.

Chairman, Subcommittee on Housing,

Committee on Banking and Currency,

United States Senate, Washington, D. C.

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,

PERCIVAL BRundage,

Director.

QUESTIONS RELATING TO THE FEDERAL HOME LOAN BANK

SYSTEM IN GENERAL

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.