Federal Savings and Loan Insurance Corporation.-Created in 1934, the Federal Savings and Loan Insurance Corporation insures, up to $10,000 each, savings or share accounts in approved savings and loan associations and similar institutions. Insurance of savings has been an important factor in stimulating the flow of savings into thrift and home-financing institutions. These savings are used largely for the financing of homes. The number of insured institutions at June 30, 1963, was 4,386; their combined assets were $96.2 billion.

All insured institutions are members of the Federal Home Loan Bank System. STATEMENT OF THE CHAIRMAN OF THE BOARD

Mr. MCMURRAY. Thank you.

My associates and I appreciate the opportunity to discuss with you the activities of the savings and loan business and the 1965 budget estimates of the Federal Home Loan Bank Board, including the Federal Savings and Loan Insurance Corporation.

Accompanying me are John deLaittre, Board member; Kenneth E. Scott, General Counsel; Nathaniel L. Armistead, Director, Office of Examinations and Supervision; Lawrence M. Walters, Director, Division of Examinations; Albert V. Ammann, Associate Director, Division of Supervision; and Thaddeus Corcoran, our budget officer. John Horne is attending a bank meeting in New York and Dr. Husband, of course, is ill this morning.

Senator MAGNUSON. We are glad to have them all here with us. Mr. MCMURRAY. Thank you, sir.

The budget assumptions anticipate a continuing upward trend in the total assets, mortgage loans, net savings, and reserves for losses of the member associations of the Federal Home Loan Bank System. Growth is expected to continue at a rate greater than that experienced in fiscal 1963.

BREAKDOWN OF ESTIMATES

The agency's 1965 budget estimates, submitted in three parts, as business-type budgets, originally consisted of:

Board and staff offices, positions 343, estimate $3,890,000; Office of Examinations and Supervision, positions 1,000, estimate $13,443,000; Federal Savings and Loan Insurance Corporation, positions 16, estimate $225,000; total positions 1,359, total estimate, $17,558,000. The estimates are based on the assumption that there will be no basic change in economic conditions during the budget year.

REDUCTION IN PERSONNEL

The estimates reflected two positions less than authorized for the current fiscal year, notwithstanding the fact that the estimate for the Board and staff offices includes the new Division of Regulations with seven positions, and the new Organization and Methods Division with two positions, no provision for which was made in the original Board estimate for the current fiscal year.

In its efforts to further increase efficiency and at the same time effect economies where possible in the agency's operations, the Board adopted, and made effective January 1, 1964, recommendations revising the functional and organizational structure of both the Board and staff offices, and the Insurance Corporation; the estimates reflect these actions.

I wish Senator Ellender were here because he wondered if I would actually succeed in bringing about the reduction.

Senator MAGNUSON. Well, let's stop right there.

Mr. MCMURRAY. Yes.

Senator MAGNUSON. Your total positions on the 1965 estimates are 1,359.

Mr. MCMURRAY. Yes, sir; you will see we cut this down further. Senator MAGNUSON. Go ahead then.

EFFECTS OF REORGANIZATION

Mr. MCMURRAY. Among other things, the reorganization merges into single units, basically parallel of like functions. These include the merging of the division in the Insurance Corporation handling applications, with the division in the Board also handling applications, and the merging of the Comptroller's Division of the Insurance Corporation with the Comptroller's Division of the Board. The Operating Analysis Division of the Insurance Corporation was also transferred to the Board for purposes of general program guidance. Increased efficiency is expected to result from these actions and a further reduction in personnel is anticipated after the transition period associated with the reorganization is completed.

PRESIDENTIAL MESSAGE ON PERSONNEL REDUCTION

Since the submission of our justification to the Congress, the President forwarded to the Speaker of the House of Representatives a proposed amendment of the 1965 budget estimates (H. Doc. 240, Mar. 9, 1964). The amendment reduces certain appropriations and limitations requested for various departments and agencies of the executive branch totaling $41,927,000. Included in this total are $65,000 for the Board and staff offices, and $35,000 for the Office of Examinations and Supervision. The reduction represents a decrease of 10 positions in the Board and staff offices and 5 positions in the Office of Examinations and Supervision.

REVISED ESTIMATES

Thus the revised estimates for our agency are: Board and staff offices, 333 positions, estimate $3,825,000, Office of Examinations and Supervision, 995 positions, estimate $13,408,000; Federal Savings and Loan Insurance Corporation, 16 positions, estimate $225,000. Revised total, 1,344 positions, estimate $17,458,000.

EXPANSION OF SAVINGS AND LOAN BUSINESS

During fiscal 1963 the savings and loan business continued to expand. All of its activities reached new peaks as reflected in the following statistics:

Membership in the Federal Home Loan Bank System at June 30, 1963, was 4,971, an increase of 105 for the fiscal year. In the same period, total assets of the membership reached $100.8 billion, a gain of 16.1 percent.

LOANS' SITUATION

The dollar volume of mortgage loans made by member savings. and loan associations in fiscal 1963 aggregated $22.2 billion. This figure broke the alltime record set 1 year ago by $3.3 billion or 17.4 percent.

Of the total amount of loans made, representing 44 percent of the Nation's home-financing activities, 29 percent was for construction, 40 percent for home purchase, and 31 percent for other purposes such as reconditioning, refinancing, and so forth.

INCREASE IN MEMBERS' SAVINGS

Despite keen competition for the savings dollar, the gross flow of savings into member savings and loan associations during fiscal 1963 aggregated $33.3 billion, an increase of 14.8 percent over fiscal 1962. Withdrawals amounted to $22.4 billion leaving a net inflow of $10.9 billion; this latter figure broke the alltime record set 1 year ago by 25.3 percent.

Earnings, new savings, and reserves for losses in member savings and loan associations in fiscal 1963 also reflected substantial increases over 1962.

INCREASE IN BANKS' ACTIVITIES

The 11 Federal home loan banks reflected increases in every phase of their activities during fiscal 1963. Aggregate assets increased by 27.3 percent reaching $5.4 billion. Capital stock held by members only, increased by 1.9 percent to $1.1 billion. Total capital increased by 2.8 percent reaching $1.3 billion, and legal reserve increased by 14.6 percent to $72.7 million. Net income of the 11 banks for the fiscal year increased by 7.3 percent reaching $46.5 million. Investments increased by 45.1 percent to $1.9 billion. Loans or advances to members aggregated $4.5 billion, an increase of 25.5 percent over the peak figure established in fiscal 1962. Repayments totaled $4 billion, an increase of 48.7 percent over the previous year. Loans or advances outstanding at June 30, 1963, aggregated $3.3 billion, an increase over fiscal 1962 of 18.2 percent. The Board made 10 offerings to the public of consolidated Federal home loan bank obligations during fiscal 1963 aggregating $2.9 billion, an increase over fiscal 1962 of $536 million or 22.4 percent. The balance outstanding at June 30, 1963, reflected an increase of 54 percent over the balance at June 30, 1962.

Membership in the Federal Savings and Loan Insurance Corporation reached 4,386 at June 30, 1963, an increase of 119 for the fiscal year. Members' assets during the same period increased by 15.3 percent to $96.2 billion. I might mention here that although insured associations represent only 70 percent of all savings and loan associations, they hold 96 percent of the assets of all savings and loan associations.

MORTGAGE LOANS MADE BY MEMBERS

Mortgage loans made by the membership in fiscal 1963 aggregated $21.9 billion. This figure broke the alltime record set the previous year by 17.7 percent. Members' reserves for losses increased by 12.3 percent to $6.4 billion; such reserves for losses represent 7.7 percent of total savings accounts.

ASSETS AND LIABILITIES

The assets of the Insurance Corporation increased by 40 percent. during fiscal 1963 reaching $934.3 million at June 30, 1963. Its net income increased by 18.3 percent to $72.3 million at June 30, 1963. Its insurance reserves during the same period increased by 41.1 percent to $902.5 million. It will reach about 1.2 billion by June 30 of 1964. The Corporation's potential liability increased by 15.6 percent to $83 billion at June 30, 1963. Insurance losses for the fiscal year aggregated $3.2 million, an increase of 38.1 percent over the total at June 30, 1962.

I would like to present, if I may, a few statements in anticipation of questions which I think you might ask. One is on the Division of Examinations and I think it would be interesting if I read it to you. It is short, and then there is a statement on foreclosures and I know you are interested in that.

METHOD OF OPERATION OF BANKS

Senator MAGNUSON. All right. Why don't we discuss this general statement first?

For the record, the 11 Federal home loan banks, of course, are financed by contributions of the members, is that right?

Mr. MCMURRAY. We now, as you know, Senator, have 12.

Senator MAGNUSON. Twelve; but are they financed by the contributions of the members?

Mr. MCMURRAY. No, sir. They are run as banks and are capitalized by the stockholders of the banks.

Senator MAGNUSON. Which are the members?

Mr. MCMURRAY. Yes, sir. They operate and obtain earnings from their advances and their investments. As a matter of fact, they are a fairly profitable operation.

Senator MAGNUSON. Yes, I can see that they are.

CONSOLIDATED FEDERAL HOME LOAN BANK OBLIGATIONS

I have made 10 offerings to the public of consolidated Federal home loan bank obligations. For the record, just what are they; are they bonds, certificates, or what are they?

Mr. MCMURRAY. They are consolidated obligations or notes which are promises to pay, and they usually have about 10 months' maturity but they vary from 7 to 18 months. I guess 14 months is the longest issue we have had recently. We had one issue as long as 5 years. That was about 4 years ago, I believe, but for the most part they are within the period of generally 10 months. Senator MAGNUSON. Well, why do they have to

Mr. MCMURRAY. Eight of these offerings were for terms of 1 year or less. Two were for terms of more than 1 year and the interest ranged from 3.2 to 3.75, and compares with the 1962 range of 3 percent to 3.375.

Senator MAGNUSON. Are they tax exempt?

Mr. MCMURRAY. No, sir.

Senator MAGNUSON. They are not.

REASONS FOR SALES TO PUBLIC

For the record, why would the 12 boards, and the 10 offerings, why would they want to sell anything to the public when they have this financial condition statement?

Mr. MCMURRAY. Well, this is the-you mean a good financial condition?

Senator MAGNUSON. Yes.

Mr. MCMURRAY. This is the way they get their money. You see they are in a sense a Reserve bank

Senator MAGNUSON. Yes.

Mr. MCMURRAY (continuing). For the system. The associations secure their money from the savers, but there are other investors in the bond and note market, short-term market, particularly, who have money available, and our system takes advantage of that market and gets its money at a rate roughly about 20 to 30 basic points above those of the Treasury and with that money they make advances for seasonal needs and for expansion purposes to the associations.

Senator MAGNUSON. In other words, the offerings to the public is to get the ready cash that they can go and use in their day-to-day operations. Then they, in turn, pick up these notes and pay that amount of interest?

Mr. MCMURRAY. Yes, sir.

Senator MAGNUSON. And those notes are offered to the public at a variable interest rate, depending upon conditions of the market? Mr. MCMURRAY. It parallels the Treasury market, 20 to 30 basic points above.

OFFERINGS TO FINANCIAL INSTITUTIONS

Senator MAGNUSON. When you say the offerings are made to the public, I suppose "the public" in this case means other financial institutions that usually buy the short-term Treasuries and the shortterm notes that you put out?

Mr. MCMURRAY. Yes, the bill market generally. We have about, I think, 300 dealers and dealer banks and some investment banks that distribute these.

Senator MAGNUSON. Can a commercial bank buy these notes?
Mr. MCMURRAY. Oh, yes, sir.

Senator MAGNUSON. Because they might find themselves—

Mr. MCMURRAY. Large corporations, and the banks, in some cases individual, large individual, holders.

Senator MAGNUSON. There wouldn't be much purchase by single individuals, would there?

Mr. CORCORAN. No, sir; not much.

Mr. MCMURRAY. I would not be surprised if on occasion there might be such people but not too often. I don't think so. But it is mainly corporations, banks, investors.

Senator MAGNUSON. It is mainly the same type of people that invest in the short-term Treasuries, is that right?

Mr. MCMURRAY. Yes, sir.

Senator MAGNUSON. Banks particularly?