Over 5,400,000 savers and investors were receiving the advantages of insurance through the Federal Savings and Loan Insurance Corporation on December 31, 1947. These individuals held total savings of $7,200,000,000 in the 2,536 Federal and State-chartered savings and loan associations which had qualified for insurance; each account holder was insured against loss on his savings up to $5,000. Total assets of the institutions aggregated $8,500,000,000.

Since the Corporation was organized, 62,600 savers in 35 associations have benefited directly from insurance. In seven liquidation cases the Corporation has disbursed a total of $6,696,000, of which all but $313,000 has been recovered. By means of a cash grant known in the insurance law as a "contribution," the Corporation has restored 28 impaired associations with assets of $56,977,000 to normal operation; ultimate loss in these cases is not expected to exceed $4,898,000. Purpose and Legislative Background

The Federal Savings and Loan Insurance Corporation was born out of the chaotic days of the early 1930's, when the financial structure of the Nation was near collapse. Banks were more immediately affected by the troubled economic conditions than savings and loan associations and bank failures soon became widespread, whereas associations, because of the nature of their operation, did not face serious difficulties until a later period.

Drastic measures were called for and courageous steps were taken. As one of the means of restoring the banking structure to a sound basis, the Congress established the Federal Deposit Insurance Corporation in early 1933 for the purpose of insuring bank deposits. The salutary effect was almost immediately apparent, and it was soon obvious that confidence had been restored in the banking field. The success of deposit insurance led savings and loan leaders and other public

spirited citizens to request similar legislation for the savings and loan business. Congress responded by creating the Federal Savings and Loan Insurance Corporation in 1934, under title IV of the National Housing Act, approved by the President on June 27, 1934.

One of the purposes of the Corporation, as expressed in congressional committee hearings preceding consideration of the bill by Congress, was to increase the flow of savings into savings and loan associations so that more funds might become readily available for the financing of home ownership.

The other major purpose of the Corporation was to restore and assist in maintaining the confidence of the public in savings and loan associations by removing the threat of financial loss on savings.

A year's operation of the Corporation indicated that some changes in the basic law would make for greater efficiency and more equitable treatment of insured member institutions. Several amendments were therefore incorporated in an act to provide additional home mortgage relief, which was approved by the President on May 28, 1935. Briefly, these amendments reduced the annual premium payments by insured. institutions from one-fourth to one-eighth of one percent of share and creditor liability, extended the term for the accumulation of a 5 percent insurance reserve by insured associations from 10 to 20 years, authorized the Corporation to extend financial assistance to insured institutions in default or threatened with default, and effected several other minor improvements in the basic law.

The act was further amended by the National Housing Act Amendments of 1938, approved on February 3, 1938. These changes brought about several improvements in the criminal and penalty provisions pertaining to operations of the Corporation.

Progress Toward Realization of Purposes.-Appraisal of the Insurance Corporation's record indicates substantial progress toward realization of the objectives expressed by Congress.

In the basic law, the Congress required that all federally chartered savings and loan associations be insured, but placed insurance of Statechartered institutions on a voluntary basis, with application for insurance at the option of the institution. To date, approximately 42 percent of operating associations in the United States have become insured by the Corporation; this relatively small percentage is not indicative of the size of the insurance program, however, for the insured members hold about 72 percent of the assets of all operating associations in the United States. In the majority of cases, the uninsured associations are found in areas which have a large number of associations not operating on a full-time basis. It is estimated that approximately two-thirds of the uninsured institutions have assets of less than $500,000 each.

To show the part which insured members are playing in the national economy and to give some idea of their contribution to the areas which they serve, it is significant to note that during the last 5 years insured associations have made new loans on homes in the amount of $9,000,000,000. To bring the broad picture into focus, it may be noted that they currently hold about 22 percent of the total home mortgages of the country.

This large volume of home financing has been made possible by the increased inflow of savings, providing the funds necessary to meet the needs of borrowers. During the past 5 years insured associations have attracted gross savings of $9,900,000,000, while the net gain has amounted to $4,100,000,000. Such a record can only reflect the confidence of the public in insured associations, and it is not surprising that these institutions have experienced a much greater growth than similar-type institutions whose accounts are not insured.

Only 35 loss cases have developed since the creation of the Insurance Corporation, but their prompt settlement has strengthened public knowledge that insurance is in reality a safeguard preventing the loss of funds. There are no means of measuring the extent to which trouble might have spread without the protection of insurance, but memories of the 1920's suggest that the insurance program has already saved the financial economy from considerable difficulty. In brief, because the accounts are insured, the public is certain that its funds are safe and no panic attitude develops.

Organization of the Corporation

Relationship With Other Agencies.-As provided in Reorganization Plan No. 3 of 1947, effective July 27, 1947, the Corporation is under the direction of the Home Loan Bank Board, which is a constituent part of the Housing and Home Finance Agency.

The budget of the Corporation is presented to the Congress through the Bureau of the Budget, and annual audits of Corporation affairs are conducted by the General Accounting Office.

Internal Organization. The Corporation's pattern of operation may be seen by a quick analysis of its basic functions, which are as follows: 1. Administration.

2. Supervision and examination.

3. Extension of insurance.

4. Handling of loss cases.

5. Accounting.

Administration.-Functioning under the Home Loan Bank Board is a General Manager who has the broad duty of supervising the operations of the Corporation. In addition to his immediate staff, there is

a closely related Operating Analysis Division which provides operating and statistical data pertaining to Corporation activities. In addition, the Division analyzes financial and operating data of insured associations and members of the Federal Home Loan Bank System.

Supervision and Examination.-Under the present plan of organization, the supervision and examination of all insured members are under the direction of the Governor of the Federal Home Loan Bank System. Extension of Insurance. This function is the responsibility of the Underwriting and Rehabilitation Division, which develops programs for insurance of accounts, processes applications for insurance, and effects rehabilitation, reorganization and mergers of insured associations. In addition, it is concerned with various problems having a bearing on the insurance risk, such as the release of pledges obtained as additional protection at the time of granting insurance, approval of changes in required insurance reserve accounts, and various other miscellaneous, related activities.

Handling of Loss Cases.-There are two separate divisions which are used for the handling of insurance losses. This is brought about because the Corporation is required to serve in a dual role as receiver and insurer. To discharge the functions of the former, there is a Liquidations and Recoveries Division, which conducts the liquidation of insured associations for which the Corporation has been appointed receiver. To discharge the second function and to assure the proper identity of the two activities, the Claims and Adjustments Division supervises the payment of insurance to investors in member institutions in liquidation.

The Underwriting and Rehabilitation Division and the Liquidation and Recoveries Division jointly assist in the prevention of default of insured associations and the restoration of impaired institutions to solvency.

Accounting. To keep the necessary financial and accounting records, to collect insurance premiums and other amounts due, and to make all disbursements, there exists the usual Comptroller's Division, which is found in practically all corporations. This Division also prescribes and supervises the accounting records of insured associations in receivership and processes the payment of insurance claims.

To give a summary picture, the Corporation as a whole had 68 employees on its pay roll on December 31, 1947, at a total annual salary of $310,632. Sixty-six of these employees were assigned to the home office in Washington, D. C., and two were field employees. The number of employees was decreased by 15 during the year due to limitations on funds available for administrative expenditure.

Regulations. To implement the basic insurance act, clarifying its provisions and recognizing the standards which it contains, the Rules and Regulations for Insurance of Accounts have been promulgated by the Corporation. However, the regulations have been held to a minimum and in general pertain to the approval of forms and certificates, the accumulation of reserves, the approval of lending areas, the procedures followed in applying for or terminating insurance and payment of insurance by the Corporation, and other pertinent phases of the operation of insured institutions.

Only two changes were made in the Rules and Regulations during 1947. One provision prohibited the payment by an institution of a commission to any of its officers or directors for the sale of a withdrawable share, investment certificate or deposit account issued by the institution. The second eliminated the provision requiring that proposed rules, regulations, or amendments be filed and printed in the Federal Home Loan Bank Review, since that publication was discontinued during the year.

Condition and Operations of the Corporation

Condition. Provided in 1934 with a capital of $100,000,000, which was subscribed for by the Home Owners' Loan Corporation and paid for in bonds of that Corporation, the Insurance Corporation, on December 31, 1947, had accumulated total assets of $188,881,000, an increase of $12,493,000 during the year. The major portion of these consist of United States Government securities, which had a book value of $184,480,000 on December 31. Cash in the United States Treasury totaled $1,762,000, insurance premiums due but not yet payable amounted to $2,298,000, and the balance of $341,000 consisted of miscellaneous assets.

In addition to its capital, the Corporation has accumulated reserves amounting to $84,499,000, which are available for meeting losses incurred in the insurance operation. Included in the reserve fund is a contingency allowance of $37,500,000, which is equivalent to total cumulative dividends since June 30, 1935, on the capital stock of the Corporation. A comparative statement of condition as of December 31, 1946, and 1947 appears in exhibit 6.

Title IV of the National Housing Act provides that premium payments by insured associations shall cease when the Corporation has accumulated a reserve fund equivalent to 5 percent of total insured accounts and creditor obligations of insured institutions.

On Decem

ber 31, 1947, total reserves of the Corporation including the contingency allowance were equal to 1.17 percent of insured share and creditor liability; excluding the contingent reserve, the loss reserve