inconsistent with economical home financing or with the purposes of insurance.

In order to obtain complete facts upon which a decision as to insurability of an applicant may be based, examiners of the Home Loan Bank Board conduct a thorough examination of the applicant's assets, liabilities, financial policies, and operating procedures. If the association has not had an audit of its affairs within the preceding year, the eligibility examination is extended to include an audit of its accounts.

Following analysis of the facts included in the examination and additional information supplied by the association, determination is made by the Corporation as to whether the association is insurable in its present condition, whether the association could qualify for insurance by meeting certain conditions or whether the application should be rejected. If conditions are stipulated, the association is insured following compliance.

Admissions.-The steady upward trend in insurance admissions which began in 1946 continued to a high in 1949, when 148 associations were admitted to membership. The 1949 admissions constitute a record for the decade, and apparently reflect a more general understanding of the value of insurance and an increasing demand from the public for the added protection which insurance provides. The associations admitted to membership during 1949 had total assets of $220,835,000 at the time of insurance.

Terminations.-Associations have the right, granted by law, of terminating their insurance contract, provided adequate notice is given to all insured account holders. No association canceled its insurance during 1949 in order to continue operations as an uninsured institution. There were, however, eight withdrawals from the insured membership during the year. Four associations consolidated with other insured institutions and two voluntarily dissolved. The remaining two associations changed their corporate entity, one of them becoming an insured mutual savings bank and the other an insured State-chartered savings and loan association.

The Corporation has never found it necessary to terminate the insured status of an institution for a violation of law or the rules and regulations of the Corporation.

Nature of Insurance Protection

To achieve its purpose of protecting the saver against loss, the Corporation has authority to act in two specific areas-rehabilitation of impaired institutions and payment of insurance to account holders of institutions placed in liquidation. In every case in which the insured institution operates under State charter, the Corporation works in close cooperation with the State supervisory authorities. By this

cooperation the program agreed upon represents the combined judgment and participation of State and Federal supervisors and seeks not only to comply with the State and Federal laws involved, but to give full protection to local and public interests. If the facts warrant, the Corporation may prevent the default of an insured institution or restore an impaired association to normal operation under capable management, in this manner protecting the savings entrusted to the institution not only from loss but also from any disturbance. To effect rehabilitation of an institution in trouble, a cash contribution may be made to the association or the Corporation may make a loan or may purchase assets with cash.

In cases where rehabilitation does not appear feasible and the decision is made to liquidate the institution, the Corporation immediately effects payment of insurance, in the form of two methods of settlement which are optional with the saver. First, the individual may choose an insured account in another operating institution equal to his insured savings in the liquidating association. If he selects this method, his new account will share in earnings and be entitled to the same rights and privileges as other accounts of that association. To make this type of settlement, the Corporation contracts with other insured institutions to issue the required number of accounts, reimbursing those associations in cash. It is also possible to create a new savings and loan association solely for this purpose.

If the investor prefers, he may choose to receive 10 percent of his insured account in cash and the balance in negotiable noninterestbearing debentures of the Corporation, half of which are payable within 1 year and the remainder within 3 years from the date of default.

The Payment Record

In any insurance operation, claims under the insurance contract are a natural and expected development. For over 5 years, the Corporation has experienced no new losses and for over 8 years no insured institution has been placed in liquidation. This record is due in large part to the favorable economic conditions which have existed during the recent period and also to preventive efforts of the Corporation and Federal and State supervisory authorities which have minimized eventual loss by encouraging adherence to sound operating policies by the insured membership.

Condition of Corporation

Recognizing the importance of liquidity in the operation of an insurance fund, the Corporation maintains the bulk of its assets, over 98 percent to be exact, in cash and United States Government securities. Of the total assets of $218,905,000 on December 31, 1949,

about $551,000 consisted of cash and $215,100,000 of Government securities. The major portion of the remaining assets consisted of insurance premiums due but not yet payable, in the amount of $3,035,000.

The entire capital stock of the Corporation, in the amount of $100,000,000, is held by the United States Treasury. In accordance with a statute enacted on June 30, 1948, accumulated but undeclared dividends on the capital stock were computed at the figure of $25,182,000. Because of the uncertainty of the status of dividends since that date, clarifying legislation is being sought.

Because capital and reserves show the extent to which insurance claims may be paid and losses absorbed at a given moment, the reserve is an important indication of the strength of an insurance fund. In addition to its $100,000,000 of capital the Corporation had accumulated a reserve of $113,128,000 by December 31, 1949. Exhibit 6 presents a detailed comparative statement of condition of the Corporation at the end of 1949 and 1948.

Operations of Corporation

The primary source of income of the Corporation is the premiums paid by insured members at the annual rate of one-eighth of 1 percent of their savings accounts and creditor liabilities. During 1949, nearly 70 percent of gross income was received from this source, with the balance coming in large part in the form of earnings on United States Government securities.

Of the gross operating income of $15,711,000 during 1949, $10,948,000 consisted of premium income, $4,678,000 of interest income, and $80,000 represented admission fees paid by associations upon qualifying for insurance. The admission fee is computed at $400 for each $1,000,000 of total savings accounts and creditor liabilities of the applicant institution.

Administrative expenses of the Corporation, which in effect show the cost of operation of the Corporation, amounted to $602,000 during 1949. The major portion of these expenses was paid in the form of salaries of $349,000 to Corporation employees. Other items included in the heading of administrative expenses were the sums of $185,000 paid for services of the Home Loan Bank Board and $49,000 paid for rent, supplies, communications, and audit expenses.

All furnitures, fixtures, and equipment owned by the Corporation. are carried on the records at cost and are fully depreciated at the time of purchase. Depreciation charges during 1949 amounted to $5,000. The amount of $11,000 represented expenses during 1949 in connection with the minimizing of insurance losses and the conduct of receiverships. Upon the termination of two receiverships during the year, $278,000 was charged against operations for the excess of

book value of insured accounts paid by the Corporation over liquidating dividends received.

A complete income and expense statement of the Corporation for the calendar years 1948 and 1949 appears in exhibit 7.

Condition of Insured Associations

Average association. With recognition of the danger of misinterpretation inherent in the use of averages, a concrete picture still may be gained by examining the condition of the hypothetical "average insured association" on December 31, 1949. The average association had assets of $4,102,000, reflecting an increase of 10 percent during the year. Nearly 2,600 savers and investors of the community had entrusted their savings to the institution. Its first mortgage loans had increased 10 percent during the year and were equivalent to 80 percent of assets. Liquid holdings, consisting of cash and United States Government securities were equivalent to 16 percent of assets, showing the same ratio of liquidity existing a year earlier. It had accumulated reserves and undivided profits, which were available for future losses, of about $282,000, or 6.9 percent of assets. Actual figures showing the condition of the insured membership at the end of 1949 are given below.

Assets. Total assets of the insured membership grew during the year by about 16 percent to a total of $11,305,000,000. This increase reflects to some extent the addition of new members to the insured group, but principally the growth experienced by those associations already insured at the beginning of the year. Mortgage loans amounted to $9,038,000,000 and liquid holdings, consisting of cash and United States Government securities, totaled $1,862,000,000, equivalent to 16.5 percent of assets. Exhibit 8 shows a comparison of the number and assets of insured associations at the end of 1949 and 1948, by States.

Included in the mortgage loan portfolio were $2,065,000,000 of loans insured or guaranteed by the Veterans Administration and an additional $593,000,000 of loans insured by the Federal Housing Administration. About 29 percent of the mortgage loan portfolio, therefore, consisted of insured or guaranteed loans, with the balance in loans of the conventional uninsured type.

Savings. Study of activity in the savings field reveals that the net increase in savings experienced by insured associations was at a rate nearly 30 percent greater than the rate of increase during 1948. The flow of new savings into such institutions was nearly 15 percent greater than during the preceding year, but withdrawals were only 8 percent higher.

Expressed in dollar amounts, new savings of, $3688,000,000 were received by insured associations during 1949. After deduction of

total withdrawals of $2,425,000,000, the net increase in savings during the year amounted to $1,263,000,000. The ratio of withdrawals to new savings received was 65.7 in 1949 as compared with 69.7 during 1948.

Reserves. The reserves and undivided profits accounts of insured associations, which are available for the absorption of losses arising in the course of business, increased nearly 20 percent during 1949. Insured institutions now hold aggregate reserves and undivided profits of $776,000,000, equivalent to 6.9 percent of assets, while a year earlier these accounts amounted to $648,000,000, or 6.7 percent of assets.