FEDERAL HOME LOAN BANK SYSTEM

The Federal Home Loan Banks were created by act of Congress approved July 22, 1932, to serve as a permanent reservoir of credit for thrift and home financing institutions. The Banks assist both borrowers and investors in such institutions through the supply of money to maintain liquidity or to provide for mortgage lending when local funds are insufficient. With the establishment of the Federal Home Loan Banks, a basic weakness of the American home financing structure the lack of any credit reserve facilities-has been eliminated. The principal function of the Federal Home Loan Banks is to supply, primarily on first mortgage collateral, funds required by member institutions in order to enable them to meet the home financing needs in their communities as well as the withdrawal demands of savers and investors. Through the Federal Home Loan Bank System, thrift and home mortgage finance have been better protected against local and Nation-wide economic fluctuations, home ownership has been placed on a more secure basis, and the construction of new homes as well as the improvement of housing conditions has been encouraged. The establishment of the Federal Home Loan Bank System has afforded member home financing institutions not only a larger volume of potential credit, but cheaper money and a type of credit adapted to their special needs.

Membership of the Bank System

Membership in the System is open to building and loan associations, savings and loan associations, cooperative banks, homestead associations, insurance companies, and savings banks. On December 31, 1948, the membership of the Federal Home Loan Bank System comprised 3,769, consisting of 3,733 savings and loan associations, 26 savings banks, and 10 insurance companies. This total membership represented a net increase of 64 members during the year, resulting from the admission of 74 State-chartered savings and loan associations, 7 new Federal savings and loan associations, 4 cooperative banks, and 2 savings banks, and the cancellation of 23 memberships through withdrawals. Eight of the withdrawals represented voluntary liquidations, 1 reincorporation, and 9 consolidations; 4 were due to members' requests, and 1 resulted from removal by action of the Home Loan Bank Board. As of December 31, 1948, 51 applications for membership were pending.

Advances to members

From October 15, 1932, when the 12 Federal Home Loan Banks (now 11 Federal Home Loan Banks) first opened for business, to December 31, 1948, advances to home financing institutions totaled $2,687,049,028.65, of which $2,172,032,939.46 has been repaid, resulting in a balance of $515,016,089.19 outstanding on the latter date. This indicates the extent to which the Federal Home Loan Bank System has been called upon to serve as a national credit reservoir.

Advances made by the Federal Home Loan Banks during the year ended December 31, 1948, totaled $359,612,776.74. Repayments of advances aggregated $280,168,873.35, and the balance outstanding at the close of 1948, as stated above, aggregated $515,016,089.19. Exhibit 1 contains a summary of the lending operations of the Banks, by years, through December 31, 1948.

Number of borrowing members

On December 31, 1948, there were 1,993 member borrowers from the Banks, representing 52.9 percent of the total membership, as compared with 1,804 member borrowers and 48.7 percent of the membership on December 31, 1947. During the year 1948 the average number of borrowers was 1,863, which represented an increase of 24.5 percent over the average of 1,496 borrowers during the preceding calendar year. There have been no nonmember borrowers from the Federal Home Loan Banks since August 1939.

The 1,993 borrowing members as of December 31, 1948, consisted of 868 Federal savings and loan associations, the outstanding advances to which aggregated $308,100,000, which represented 5.9 percent of the share accounts in this type of association; 632 insured Statechartered members, the indebtedness of which to the Banks totaled $145,500,000, or 4.9 percent of the savings held by this type of institutional member; and 491 noninsured State-chartered associations with advances of $55,800,000, which amount approximated 3.3 percent of the total savings held by all members of this type. One insurance company and one savings bank member held advances outstanding to the Federal Home Loan Banks aggregating $5,400,000 and $300,000, respectively.

The following tabulation presents comparative figures on the number and percent of borrowing members as of December 31, 1948, and December 31, 1947:

The growth in the volume of secured advances outstanding to a peak of $400,800,000 on December 31, 1948, represented the borrowings of 1,461 members. More than one-half of such advances were for terms in excess of 1 year. A total of 146,237 home mortgages having unpaid balances aggregating $684,300,000 together with $93,600,000 face amount of United States Treasury obligations and 16 insured home mortgages having a principal amount of $3,100,000, collateralized these advances. The face value of all collateral, exclusive of Federal Home Loan Bank stock, was $780,900,000, or 194.8 percent of the secured advances, while the collateral value assigned by the Banks was $556,500,000. A continued increase in the average unpaid balance. of individual home mortgages is noted from the amounts of $4,680 on December 31, 1948, $4,426 on June 30, 1948, and $4,207 on December 31, 1947. The prewar average approximated $2,300.

Unsecured advances of $114,200,000 represented 22.2 percent of total advances outstanding to 770 members. The Federal Home Loan Banks held a statutory lien on $68,500,000 paid-in stock as further security to both types of advances outstanding on December 31, 1948. Interest on advances

The changes in interest rates charged members on advances by the Federal Home Loan Banks followed the general firmness of the money markets during the year. One Federal Home Loan Bank increased its rate on all types of advances to members from 2 percent to 2.25 percent, while two Banks discontinued their 2 percent rates on shortterm advances and placed all advances on a 2.5 percent basis. Exhibit 2 reflects the interest rates charged on advances which were in effect. on December 31, 1948. Since the organization of the Federal Home Loan Banks, interest rates charged on their advances to members have been substantially reduced. In 1932, at the inception of the Federal

Home Loan Bank System, when money was still scarce and costly, interest rates on Federal Home Loan Bank advances ranged from 4 percent to 5 percent. On December 31, 1948, however, as here reported, such rates ranged from 2 percent to 2.5 percent.

Source of funds

The Federal Home Loan Banks obtain their funds from their capital stock, the proceeds from the sale of consolidated Federal Home Loan Bank obligations to the public, and deposits received from member institutions. From these sources the Federal Home Loan Banks are able to advance funds to their member institutions on long terms, up to 10 years, in line with the essential long-term character of the mortgage loans made by these institutions."

The capital stock of the Federal Home Loan Banks is made up by subscription of member institutions and of the United States Government. In order to assist in the organization of the Federal Home Loan Bank System, the Congress authorized the Secretary of the Treasury, in behalf of the United States Government, to invest up to $125,000,000 in the capital stock of the Federal Home Loan Banks. The amount originally invested by the Government aggregated $124,741,000. Initial investments of members were small. Each is required to invest an amount equal to 1 percent of the aggregate of the unpaid principal of its home mortgage loans, but in no event less than $500. With the growth in number and assets of member institutions, the proportion of Federal Home Loan Bank stock owned by the United States Government to the total capital stock of the Banks has decreased during 1948 to a point where, for the first time, the members owned a majority of the stock.

Retirement of Government stock

Pursuant to the provisions of the Federal Home Loan Bank Act, whereby the Government-owned capital stock in the Federal Home Loan Banks must be retired to the extent of 50 percent of all payments on capital stock made by members subsequent to such time as the amount of member-owned stock equals that owned by the Government, four of the Federal Home Loan Banks made further statutory retirements of Government-owned stock during the year to the extent of $2,881,000.

Within the 12 months ended December 31, 1948, the paid-in capital stock of the Banks held by members increased $18,159,900, to a total paid in by members of $121,237,475, which amount is 50.3 percent of the total stock subscriptions on that date. During the same period, the United States Government-owned stock was reduced to $119,791200, resulting in a net increase in paid-in capital stock of $15,278,900.

On December 31, 1948, the total outstanding capital stock of the Banks was $241,028,675, of which $119,791,200 was owned by the Government and $121,237,475 was owned by the members. At that time the Government owned 49.7 percent of the outstanding total, whereas the members owned 50.3 percent. The following table reflects the capital structure of the Federal Home Loan Banks as of December 31, 1948, and December 31, 1947:

Consolidated obligations as a supplementary source of funds of the Federal Home Loan Banks have been marketed for the past 12 years. The first public sale of $24,700,000 was made May 10, 1937. Up to January 1, 1948, total obligations of $1,152,200,000 had been issued, of which $890,500,000 had been retired, leaving $261,700,000 outstanding at the beginning of the year. During 1948, four public offerings were made aggregating $416,500,000 and one private sale of $40,000,000 was made. This financing represented $247,000,000 of new funds, $209,500,000 of refunding, and the paying off of $92,200,000, resulting in a balance of $416,500,000 of consolidated Federal Home Loan Bank obligations outstanding on December 31, 1948. These mature on the dates and in the amounts indicated below:

Interbank deposits, i. e., deposits made by a Federal Home Loan Bank in another Federal Home Loan Bank, continued to play an