savings accounts within their institutions, provided that accounts of the same classification receive the same rate. This proposal is recommended on the basis that in various sections of the country, different types of accounts receive greater competition from outside. investments, and, further, that small, active accounts are more costly to handle than stable, long-term accounts.

(b) It is recommended that authorization be granted on an optional basis to pay dividends on savings share accounts on a quarterly basis or such other procedure in the payment of dividends which may be considered necessary to meet services offered by other local institutions.

(c) It is recommended that authority be granted to member institutions to make capital investments not to exceed 20 percent of share capital in land and/or buildings for the purpose of slum clearance, community rehabilitation, minority housing, and such other real estate developments that are in the interest of community development and public welfare. This recommendation is made because it is recognized that the savings and loan industry has an obligation to the community to improve the standard of living of the citizens of the

area.

(d) It is recommended that member associations be authorized to purchase conventional mortgage loans in areas outside of their normal lending area on a direct basis or a participating basis, so long as such loans are serviced by another member institution and the total of such loans does not exceed 20 percent of their mortgage loan portfolio. This recommendation is made in recognition of the differences in funds available between the geographic areas of the country.

(e) There should be attempts made to provide a self-insurance program within the Federal Home Loan Bank System in connection with life insurance on mortgage loans to retire the indebtedness in the event of the death of the principal mortgagor.

(f) It is recommended for the purpose of relieving a hardship on many of the savings members of associations in the lower economic levels that authority be granted to make personal loans to any member of a Federal savings and loan association not to exceed $500 for a term not exceeding 3 years, such loans not to exceed 10 percent of the savings accounts of the association.

(g) It is recommended that the policy of the Board with regard to the issuing of authorization for branch offices of Federal savings and loan associations be relaxed. Careful consideration should at all times be given to the possibility that a branch office might serve the needs of the community better than a newly chartered association. Areas not presently served with adequate financing facilities and localities not able to be served by branch facilities of existing nearby institutions should be granted new charters where public need is indicated.

15. In order to provide a sounder savings and loan system for the furtherance of thrift and home financing, the National Savings and Loan League recommends a broader base of investment powers for Federal savings and loan associations which would authorize investment in such municipal and other bonds or obligations as are authorized from time to time by rules or regulations of the Federal Home Loan Bank Board. This authority would extend to savings and loan

associations investment powers now held by savings banks and many State-chartered institutions in the savings and loan field.

16. The National Savings and Loan League favors striking the words "and Loan" from the name "Federal Savings and Loan Insurance Corporation" since loans are not insured and the inclusion of that word in the title is not properly descriptive.

17. On the subject of international relationships, it is recommended that the Federal Government and the Congress be urged to channel through the Federal home-loan banks such funds as may be appropriated for assistance to housing in foreign countries, particularly with emphasis upon aid to housing to be provided in the foreign countries through counterparts of savings and loan associations.

18. In the international field, it is further recommended that the Federal Government undertake the study of the possibilities for direct investment in housing in Latin American countries by savings and loan associations through the medium of a guaranteed or insured mortgage. In view of the fact that commercial banks of the United States have branches in many of the Latin American nations, it is believed that there is no justifiable reason for barring savings and loan associations from having offices in such countries if the countries themselves permit foreign banking and mortgage institutions. JAMES E. BENT,

Chairman, Federal Home Loan Bank System Committee.

UNITED STATES SAVINGS AND LOAN LEAGUE,

Senator JOHN SPARKMAN,

Washington, D. C., October 1, 1956.

Chairman, Subcommittee on Housing,

Senate Banking Committee,

Senate Office Building, Washington 25, D. C.

DEAR SENATOR SPARKMAN: Attached is the response of the United States Savings and Loan League to your questionnaire regarding the organization of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. This reply was developed by a special committee consisting of the past presidents of the league and represents that committee's official action. For practical purposes, this can be considered the official view of the United States. League, although it is subject to confirmation by the league's executive committee at the annual convention.

As you know, our committee spent 2 days developing these answers after each committee member had been given an entire file of back-ground information for careful study prior to the meeting. We were delighted to have the opportunity to consult with Mr. Percival Brundage, Director of the Bureau of the Budget, and his associates, and Mr. Jack Carter, staff director of your subcommittee, and we also had the benefit of consultation with Mr. Preston Delano, former Comptroller of the Currency. I can assure you that the committee was honored and inspired by your personal interest as evidenced by your attendance at luncheon.

We believe that the answers in our reply provide the basis for substantial improvement and strengthening of the Government agencies dealing with the savings and loan business. We are firmly convinced

that they will accomplish the broad objectives sought by the President in the submission of Reorganization Plan No. 2 without the adverse results of an actual splitting of the two agencies.

Sincerely yours,

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 Federal Home Loan Bank Board and of the Federal Savings and Loan Insurance Corporation is to enable savings and loan institutions to make their maximum contribution to their respective communities and to the national economy. Therefore, an accurate statement of the purpose of these two instrumentalities requires some analysis of the objectives of the savings and loan institutions themselves.

It is commonly accepted that a savings and loan association has two purposes: (1) To provide a dependable system of mortgage credit for those who wish to buy, build, or remodel their homes; and (2) to create and maintain a safe repository and profitable employment for the savings of the general public. By carrying out these specific assignments, savings and loan associations serve the broader general purpose of furthering debt-free homeownership and of increasing the sum total of savings in the community and the Nation; they thus ultimately serve the individual as well as the community by bolstering his self-reliance and enhancing his economic status.

The Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation have contributed to the effectiveness of savings and loan associations in pursuing these objectives for more than 20 years. The Board, through its several activities: The Federal Savings and Loan Insurance Corporation, the Federal Home Loan Bank System, the Federal Savings and Loan System; has fostered higher standards of effectiveness on the part of the management of these institutions and has been engaged in a continuous endeavor to help the associations meet those standards. These instrumentalities seek to encourage the development of a savings and loan system where safety for the saver is unquestioned and availability of home mortgage money is sufficient to meet the bona fide home credit demand in each community.

It should be noted that the operations of the Board and the Insurance Corporation are completely self-supporting. The Board exists. by assessing its entire cost of operation against the institutions dealt with and the Insurance Corporation operates on its premiums and other earnings, and, of course, all of such cost falls finally upon the savers and borrowers who are served by these institutions. The Congress authorizes the amount of administrative expense to be incurred, but there is no appropriation of tax money for expense in Washington or in the field.

2. State your opinion of what these primary purposes should be, if in your opinion they should be changed

The United States Savings and Loan League believes there should be no changes in the primary purposes, and that the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation should continue to have as their main purpose the maximum contribution of all the savings and loan associations to their respective communities.

3. State your understanding of the present functions and relationships of the FHLBB and the FSLIC

The Federal Home Loan Bank Board directs or supervises the three major activities through which the Federal Government seeks to strengthen the Nation's savings and loan system: The Federal Home Loan Bank System, the Federal Savings and Loan System, and the Federal Savings and Loan Insurance Corporation. Thus, as the league understands it, the functions of the Board are many and varied. These functions include acting as the Board of Trustees for the Federal Savings and Loan Insurance Corporation and the executive direction of the Corporation All of the Board's functions are connected with assistance to the savings and loan institutions and through them to the borrowers and the savers in the associations. In a certain sense, the functions of the Insurance Corporation are functions of the Board, but by no means all of the functions of the Board are likewise functions of the Corporation.

FEDERAL HOME LOAN BANK SYSTEM

The earliest effort of the Federal Government to strengthen the existing savings and loan or building and loan associations as savings institutions and as home-lending institutions was the establishment of the Federal home-loan banks in 1932. Eleven district Federal home-loan banks, each with its own board of directors, each a corporate entity and semiautonomous, form a network of reserve credit for approximately 4,400 of the 6,000 savings and loan institutions in the country. All of the other savings and loan institutions are eligible to apply for membership in the Federal Home Loan Bank System and to participate in its facilities. Not all of them, especially the small ones, have elected to qualify for this membership. The Federal home-loan banks make advances to their member associations to meet their seasonal and emergency credit requirements. They also offer deposit facilities for the funds for which the associations do not have immediate employment.

The Federal Home Loan Bank Board exercises general supervision over the 11 district Federal home-loan banks. It sets broad patterns for their credit policies, prescribes rules and regulations for their conduct, and amends these from time to time. It examines each of the banks annually, keeps statistics of their operations, and keeps contact with the banks on the movements of mortgage credit and the trends in savings inflow and outflow in the member savings and loan associations.

The Board issues consolidated obligations to raise funds for the banks in the capital markets. It approves the rates and terms of each issue and makes the funds available to the several banks.

The Board conducts the election of directors for the district banks and appoints a specified number of public-interest directors for each of the banks as well as naming the chairman and vice chairman of the board.

As far as the member associations of the Federal home-loan banks are concerned, the Board has one major regulatory function. It sets the liquidity ratio to which all bank members must adhere, being permitted by law to vary the ratio from 4 to 8 percent from time to time as the circumstances permit.

FEDERAL SAVINGS AND LOAN SYSTEM

The Federal Home Loan Bank Board received its second permanent responsibility in 1933 when the Congress commissioned it to charter and supervise a system of Federal savings and loan associations. Until the enactment of this law, all associations had been operated under State charter. A major purpose of the newly authorized Federal charters was to spread the benefits of the already proven savings and loan system to corners of the country where such institutions were not in operation. A byproduct of the establishment of the Federal Savings and Loan System was an impetus toward uniformity of practice and a new prestige factor accruing from the very fact of a Federal charter, since the Federal Government had risen to new heights of prestige in the 1930's.

Because of this chartering function, the Federal Home Loan Bank Board now has the chief public responsibility for the sound operation of some 1,700 locally owned and operated savings and loan associations whose assets constitute 53 percent of all savings and loan assets in the United States and Territories. Included are both newly organized associations and those which have converted from State to Federal charter sometime in the past 23 years. New charters continue to be granted as the population of the country shifts and as decentralization of industry changes the urban pattern.

Along with the chartering function of the Federal Home Loan Bank Board is the responsibility of processing applications by the Federal associations for the establishment of additional offices. The Board must either approve or disapprove such applications.

A substantial part of the Board's function in the supervision of Federal associations consists of the making of rules and regulations. Some of these must be made as required by the statute. Others are promulgated within the statutory framework of the Board's powers at the suggestion of savings and loan leaders or as the Board itself considers them important to the sound conduct of a savings and loan institution.

In connection with the authority of the Federal Home Loan Bank Board to make regulations, it should be noted that the act providing for Federal savings and loan associations and the act creating the Federal Savings and Loan Insurance Corporation are substantially shorter than the National Banking Act and the Federal Deposit Insurance Corporation Act. In regulation of the Federal savings and loan associations, the Board has substantial regulatory making authority with respect to the nature and operation of federally chartered associations. The trustees of the Federal Savings and Loan Insurance Corporation have substantial regulatory powers with respect to