1 In addition to retained earnings which are credited to the primary reserve, additional premiums (prepayınents) and return on additional premiums are credited to a secondary reserve, see statement C.

C. Statement of financial condition

617, 182, 556
572, 778, 435

Primary reserve.
Secondary reserve (additional pre-

792, 718, 897
967, 300, 924
15, 092, 717

The Federal Savings and Loan Insurance Corporation insures savings accounts up to $10,000 for each saver in Federal savings and loan associations and in approved State-chartered savings and loan or building and loan associations, known in some sections of the country as co-operative banks and homestead associations.

The 1966 budget of the Insurance Corporation is based on the need for maintaining its operations in a current status and on the assumption that there will be no basic change in economic conditions during the budget year.

The budget program is designed to permit the Corporation to handle adequately and with dispatch its various insurance activities and to protect the savings of people invested in insured associations of the savings and loan type.

SUMMARY

A comparison of the estimate for fiscal 1967 with the estimated expenses for the current fiscal year, and with actual expenses for fiscal 1965 is afforded in the following table:

As shown, the Corporation requests authority to expend up to $285,000 of its corporate funds for administrative expenses in fiscal 1967.

The estimate reflects an increase of 3 positions and 3.2 man-years over the current fiscal year and an increase in funds of $46,000 over the estimated expenses for the current fiscal year.

Of the increase in funds, $31,300 is in Personnel Compensation, $3,200 is in Personnel Benefits, and $11,500 is in Contractual Services and Supplies. Justification of the need for the increases will be found beginning on page 159.

HISTORICAL AND FINANCIAL BACKGROUND OF THE FEDERAL HOME LOAN BANK

BOARD The Federal Home Loan Bank Board was established by the Federal Home Loan Bank Act, approved July 22, 1932, to provide a permanent credit reservoir for thrift and home-financing institutions through the creation of regional Federal Home Loan Banks. The United States Government provided the original capital of the banks by investing, over a period, $124,741,000. This investment was retired by the banks, over the years, at a rate in excess of statutory requirements. As of July 2, 1951, the Government's investment had been fully repaid. Since that time the capital stock of the 12 banks is owned by the member institutions.

The Home Owners' Loan Act, approved June 13, 1933, gave authority to the Board to charter and supervise local mutual institutions to be known as Federal savings and loan associations. These associations were to serve as a means of encouraging local thrift and home financing.

On June 27, 1934, Title IV of the National Housing Act provided for the creation of the Federal Savings and Loan Insurance Corporation and placed it under the direction and management of the Federal Home Loan Bank Board. The capital stock of the Corporation was $100,000,000. It was subscribed for by the former Home Owners' Loan Corporation. Retirement of the stock began in 1951. By July 1, 1958, the Corporation had completed the retirement of the stock.

The Federal Savings and Loan Insurance Corporation insures the safety of savings against loss up to $10,000 for each saver or investor in all Federally chartered associations and in State-chartered associations which apply and qualify for such insurance.

From the date of its creation in 1932 until April 25, 1939, the Federal Home Loan Bank Board functioned as an independent establishment reporting directly to the Congress and the President. On April 25, 1939, by congressional approval of the President's Reorganization Plan No. 1, the Board and the organizational units under its jurisdiction were grouped under the Federal Loan Agency along with other related Government corporations and organizations.

The Board continued under the Federal Loan Agency until February 24, 1942, when by Executive Order No. 9070 the five-man Board was vacated and its Chairman was made Commissioner of the “Federal Home Loan Bank Administration,” the units formerly under the Board being retained. The Executive Order placed the Board under the National Housing Agency, together with the Federal Housing Administration and the Federal Public Housing Authority.

Under Reorganization Plan No. 3 of 1947, effective July 27, 1947, a bipartisan Board of three members was substituted for the single Commissioner and the "Home Loan Bank Board" became a component part of the Housing and Home Finance Agency.

The Board continued in this relationship until the enactment of the "Housing Amendments of 1955," approved August 11, 1955, which reestablished the "Federal Home Loan Bank Board” as an independent agency.

Reorganization Plan No. 6 of 1961, effective August 12, 1961, transferred to the Chairman of the Board, the Board's functions with respect to the overall management, functioning, and organization of the Agency. The appointment, removal, and direction of personnel, the distribution of business among and communication of Board policies to such personnel, the enforcement of policies, as well as other administrative and management functions were transferred to the Chairman. Nothing in the transfer impinges upon the ability of the Members of the Board to act independently with respect to substantive matters. In carrying out his managerial functions, the Chairman is governed by the general policies of the Board; the Board has the authority to approve the Chairman's appointments of the heads of major administrative units, and the other Members of the Board retain their control over the personnel in their immediate offices.

INTRODUCTION OF WITNESSES

STATEMENT OF CHAIRMAN HORNE Senator ALLOTT. We have before us Mr. Horne. You have your witness list included in your statement. Will you proceed, Mr. Horne?

Mr. Horne. Thank you very much, Mr. Chairman.

My associates and I appreciate the opportunity to discuss with the committee the fiscal 1967 budget estimates of the Federal Home Loan Bank Board which, as you have indicated, sir, the House of Representatives in H.R. 14921 approved as requested.

I should like to mention, sir, that Michael Greenebaum, a member of the Board, is also with us at my extreme right. Mr. John deLaittre, the other Board member is representing the Board today on a matter in New York in which one of the Board members should be present. The other members of the staff are here, and they are Harry S. Schwartz, adviser to the Board and Director, Office of Research and Home Finance; Simon H. Trevas, my executive assistant; Kenneth E. Scott, General Counsel; Lawrence M. Walters, Director, Office of Examinations and Supervision; Walter J. Brown, Deputy Director, Office of Examinations and Supervision; Lyndon R. Day, Director, Office of Federal Home Loan Bank Operations; Jerry D. Worthy, Director, Federal Savings and Loan Insurance Corporation; Clarence S. Smith, Director, Office of Applications; Robert F. Quigley, Comptroller; Elmer B. Callahan, our Budget Officer and Grady Perry, Assistant Secretary.

AREA OF REGULATION AND SUPERVISION As you know, the funds used to defray the expenses of the agency come-as you have indicated—from the savings and loan industry. In utilizing these funds the Board exercises authority in three areas of responsibility: it supervises and regulates the Federal Home Loan Bank System, the Federal Savings and Loan System, and the Federal Savings and Loan Insurance Corporation. Through these three systems, created by several acts of Congress, the Federal Government seeks to strengthen the Nation's savings and loan industry.

Since the justification submitted to the committee earlier in the year in support of the Board's portion of the President's budget, sets out in some detail the activities of the savings and loan industry in fiscal 1965, my remarks will be confined to summarizing the more significant statistics.

I should also like to do something a little different this time, and that is, tell more about some of our operating procedures. This might make my statement, Vir, Chairman, slightly longer than otherwise

Senator Allotr. You may proceed in your own way, Mr. Horne. Mr. Horne. Thank you.

GROWTH or SAVINGS AND LOAN INDUSTRY The Bank System, through its 12 regional Federal home loan banks, located strategically throughout the country, provides a source of reserve funds for stabilizing the home-financing activities of its over 5,000 members. The total assets of all members of the System at March 31, 1966, were $136.5 billion, an increase of $7.9 bilion over June 30, 1965. We use the March 31 figure here because that is the latest figure we have.

The Federal Savings and Loan System, authorized to provide federally chartered local thrift institutions where people may place their savings or obtain loans to finance their homes, consisted of 2,020 Federal savings and loan associations on March 31, 1966, with $67.7 billion in assets, an increase of $3.4 billion over June 30, 1965.

The Federal Savings and Loan Insurance Corporation insures, up to $10,000, savings accounts in Federal savings and loan associations and in approved State-chartered savings and loan associations and similar institutions. The total assets of its 4,509 members at March 31, 1966, was $126.2 billion, an increase of $6.5 billion over June 30, 1965.

IMPACT ON NATION's ECONOMY Some measure of the impact on the Nation's economy of institutions under the Board's jurisdiction becomes evident when we observe that the dollar volume of mortgage loans made by the savings and loan industry in fiscal 1965 totaled $23.8 billion. This amount represented 43 percent of the Nation's home-financing activities.

Through the Federal Home Loan Bank System, $5.7 billion in loans or advances were made to its member associations. To help finance this demand, as well as to refund existing maturing obligations, 13 offerings to the public of consolidated Federal Home Loan Bank obligations were made during fiscal 1965 totaling $4.4 billion.

We think it may be of interest to the committee, too, that while the 4,500 insured savings and loan institutions represent only 72 percent of all savings and loan associations in the country, numberwise, they hold over 96 percent of the assets of all savings and loan associations.

Senator ALLOTT. Mr. Horne, I am perfectly willing to do this any way you wish, and I do not want to interrupt your statement

Mr. HORNE. That is all right, sir.

Senator ALLOTT. But it occurs to me that perhaps, if you do not object, I might take up the questions as we go through these various items.

Mr. HORNE. That will be fine.
Senator ALLOTT. Do you have any objection to doing this?
Mr. HORNE. No, sir. You go right ahead, sir.

Senator ALLOTT. If you would prefer to do it the other way, it is all right with me.

Mr. HORNE. No; that is fine, sir. You go right ahead.

Senator ALLOTT. One of the things that bothers us—and I saw some statements, I believe, from your Board in the Wall Street Journal yesterday or the day before-- is the situation with respect to the flow of cash from savings and loan institutions into the certificates of deposit, et cetera. Do you go into that specifically later in your statement?

Mr. HORNE. Yes, sir.

I don't get into that particular thing but I do lead in that direction later in my statement.

Seantor ALLOTT. All right.