section, nothing in this subsection shall limit or affect the operation of subsection (g) of this section."

SEC. 2. Subsection (g) of section 11 of the Federal Home Loan Bank Act, as amended, is amended by inserting the language "one-half" before the language "the sums paid in on outstanding_capital.'

SEC. 3. Section 11 of the Federal Home Loan Bank Act, as amended, is amended by adding at the end thereof the following new subsections:

"(i) The Secretary of the Treasury is authorized to purchase any obligations issued pursuant to this section, as heretofore, now, or hereafter in force and for such purpose the Secretary of the Treasury is authorized to use as a public-debt transaction the proceeds of the sale of any securities hereafter issued under the Second Liberty Bond Act, as now or hereafter in force, and the purposes for which securities may be issued under the Second Liberty Bond Act, as now or hereafter in force, are extended to include such purchases. The Secretary of the Treasury may, at anytime, sell, upon such terms and conditions and at such price or prices as he shall determine, any of the obligations acquired by him under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such obligations under this subsection shall be treated as public-debt transactions of the United States. The Secretary of the Treasury shall not at any time purchase any obligations under this subsection if such purchase would increase the aggregate principal amount of his then outstanding holdings of such obligations under this subsection to an amount greater than $1,000,000,000. Each purchase of obligations by the Secretary of the Treasury under this subsection shall be upon such terms and conditions as to yield a return at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of such purchase.

"(j) Notwithstanding the provisions of the first sentence of section 202 of the Government Corporation Control Act, audits by the General Accounting Office of the financial transactions of a Federal home-loan bank shall not be limited to periods during which Government capital has been invested therein. The provisions of the first sentence of subsection (d) of section 303 of the Government Corporation Control Act shall not apply to anv Federal home-loan bank." SEC. 4. The second sentence of section 19 of the Federal Home Loan Bank Act, as amended, and the second sentence of subsection (j) of section 4 of the Home Owners' Loan Act of 1933, as amended, are amended to read as follows:

"No such officer, employee, attorney, or agent shall be paid compensation at a rate in excess of the rate provided for the members of the Home Loan Bank Board.” SEC. 5. Section 20 of the Federal Home Loan Bank Act, as amended, is amended by striking out the word "twice" where it appears in the first sentence.

SEC. 6. Section 402 of the National Housing Act, as amended, is amended by the addition of the following new subsections:

"(h) The Home Owners' Loan Corporation shall transfer to the Secretary of the Treasury, as of the date of the enactment of this subsection, all the capital stock of the Corporation. Any other provision of law to the contrary notwithstanding, the Secretary of the Treasury shall cancel, as of the date of enactment of this subsection, bonds of the Home Owners' Loan Corporation, and sums due and unpaid upon or in connection with such bonds as of said date, in an amount equal to the sum of (1) the cost of said stock, which is hereby fixed at $100,000,000, and (2) the actual interest cost to the Home Owners' Loan Corporation of carrying said stock, which is hereby fixed at 3 per centum per annum on $100,000,000 from July 1, 1935, to and including May 1, 1944, and 1 per centum per annum on $100,000,000 from May 1, 1944, to and including the date of enactment of this subsection. The capital stock of the Corporation is hereby increased by an amount equal to the amount of bonds of the Home Owners' Loan Corporation canceled pursuant to the foregoing provisions of this subsection (after deduction of $100,000,000 therefrom), reduced to the nearest multiple of $1,000. The increased amount of such capital stock shall be held by the Secretary of the Treasury on the same terms and conditions as the capital stock of the Corporation transferred to him under the first sentence of this subsection.

"(i) After the effective date of this subsection the Corporation is authorized and directed to pay off and retire annually at par an amount of its capital stock equal to 50 per centum of its net income for the fiscal year next preceding that in which such retirement is made, unless the Home Loan Bank Board by resolution shall determine that a smaller amount shall be retired. Such payments shall be made at the end of each fiscal year (beginning with the first fiscal year which begins after the date of enactment of this subsection) until the entire capital stock is retired. In lieu of any and all unpaid dividends, whether for any present, past,

or future period, on its capital stock, all of which dividends are hereby waived, the Corporation shall pay to the Secretary of the Treasury, at the end of each fiscal year (beginning with the first fiscal year which begins after the date of enactment of this subsection) a return on the average amount, at par, of its capital stock outstanding during such fiscal year at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the sixth month of such fiscal year. The retirement of such capital stock shall not affect the applicability to said Corporation of the Government Corporation Control Act, as amended.

"(j) The Corporation is authorized to borrow from the Treasury, and the Secretary of the Treasury is authorized and directed to loan to the Corporation on such terms as may be fixed by the Corporation and the Secretary, such funds as in the judgment of the Home Loan Bank Board are from time to time required for insurance purposes, not exceeding in the aggregate $750,000,000 outstanding at any one time, and the Corporation hereafter shall not exercise its borrowing power under the first sentence of subsection (d) of this section for the purpose of borrowing money from any other source: Provided, That each such loan shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of such loan: Provided further, That nothing in this subsection shall prevent the Corporation from issuing debentures in accordance with the provisions of subsection (b) of section 404. For the purposes of this subsection the Secretary of the Treasury is authorized to use as a public-debt transaction the proceeds of the sale of any securities hereafter issued under the Second Liberty Bond Act, as now or hereafter in force, and the purposes for which securities may be issued under the Second Liberty Bond Act, as now or hereafter in force, are hereby extended to include such loans. Any such loan shall be used by the Corporation solely in carrying out its functions with respect to such insurance. All loans and repayments under this subsection shall be treated as public-debt transactions of the United States." SEC. 7. Section 407 of the National Housing Act, as amended, is amended to read as follows:

"SEC. 407. Any insured institution other than a Federal savings and loan association may terminate its status as an insured institution by written notice to the Corporation, and the Corporation, for violation by an insured institution of its duty as such may, after written notice of any such alleged violation of duty and. after reasonable opportunity to be heard, by written notice to such insured institution, terminate such status. In the event of the termination of such status, insurance of its accounts to the extent that they were insured on the date of such notice, less any amounts thereafter withdrawn, repurchased or redeemed which reduce the insured accounts of an insured member below the amount insured on the date of such notice, shall continue for a period of two years, but no investments or deposits made after the date of the notice of termination shall be insured. The Corporation shall have the right to examine such institution from time to time during the two-year period aforesaid. Such insured institution shall be obligated to pay, within thirty days after any such notice of termination, as a final insurance premium, a sum equivalent to twice the last annual insurance premium paid by it. In the event of the termination of insurance of accounts as herein provided the institution which was the insured institution shall give prompt and reasonable notice to all of its insured members that it has ceased to be an insured institution and it may include in such notice the fact that insured accounts, to the extent not withdrawn, repurchased or redeemed, remain insured for two years from the date of such termination, but it shall not further represent itself in any manner as an insured institution. In the event of failure to give the notice to insured members as herein provided, the Corporation is authorized to give reasonable notice."

SEC 8. Without regard to the provisions of any other law respecting the investment of, or security for, such funds, shares, deposits, certificates, and all forms of accounts which are insured under title IV of the National Housing Act as now or hereafter in force shall be lawful investments, and may be accepted as security, for all fiduciary, trust, and public funds the investment or deposit of which shall be under the authority or control of the United States or any officer, officers, agency, or agencies thereof.

SEC. 9. Notwithstanding any other evidences of the intention of Congress, it is hereby declared to be the controlling intent of Congress that if any provisions of this Act, or the application thereof to any person or circumstances, is held invalid, the remainder of this Act, or the application of such provision to persons or cir

cumstances other than those as to which it is held invalid, shall not be affected thereby.

SECTION-BY-SECTION SUMMARY OF THE PROPOSED AMENDMENT OF H. R. 2799

SECTION 1. CAPITAL STOCK AND FINANCING OF FEDERAL HOME-LOAN BANKS

This section relates to the capital stock of the Federal home-loan banks. The capital stock of the banks is owned partly by the Government and partly by the member institutions, which are required to hold such stock equal to at least I percent of the unpaid principal of their home mortgage loans, with a minimum of $500. On December 31, 1947, the Government stock totaled $122,672,200, and members' stock totaled $103,077,575.

Section 1 of the proposed amendment would increase the members' stock holdings by requiring each member, within 1 year, to hold such stock equal to at least 2 percent of the unpaid principal of such member's home mortgage loans, homepurchase contracts, and similar obligations, retaining the present $500 minimum. Upon the taking effect of this requirement each Federal home-loan bank would be required to retire an amount of its Government-owned stock equal to the amount by which the stock then held by members exceeded the amount required under the old law. Annually thereafter each Federal home-loan bank would be required to retire Government stock equal to 50 percent of the net increase in members' stock since the last previous retirement. The existing Government capital could not at any time be retired under the new provision if such retirement would reduce the aggregate capital stock, reserves, surplus, and undivided profits of all the banks below $200,000,000. That amount was $249,873,233 at December 31, 1947.

When the Federal Home Loan Bank Act was enacted in 1932, it was intended that the banks would ultimately be sustained by investments of participating members and that the Government's investment would be retired when that could be done with safety. Section 1 provides a safe and orderly method for accomplishing this purpose.

SECTION 2. REQUIRED INVESTMENTS OF BANKS

This section amends subsection (g) of section 11 of the Federal Home Loan Bank Act. That subsection now requires that each Federal home loan bank at all times have "an amount equal to the sums paid in on outstanding capital subscriptions of its members, plus an amount equal to the current deposits received from its members" invested in obligations of the United States, deposits in banks or trust companies, and certain types of advances with maturities of 1 year or less. The change which would be made by this section of the proposed amendment consists of the addition of the word "one-half" before the words "the sums paid in on outstanding capital".

This is a technical provision which is advisable in view of the provisions of section 1 of the proposed amendment. Since section 1 of the proposed amendment would practically double the amount of bank stock which members are required to carry, its effect, in the absence of further provisions, would be to increase by the same amount the investments which the banks are required to carry under subsection (g) of section 11 of the act. Section 2 of the proposed amendment would preserve approximately the existing situation with respect to these required investments.

When the requirement that such investments be equal to the sums paid in on members' capital was placed in the act in 1932, all the savings and loan associations, building and loan associations, and other institutions eligible for membership were institutions which were and are entitled to withdraw from membership on 6 months' notice, and the requirement was intended to provide a source of liquid funds for the repayment of stock of members which might withdraw. In 1933, however, Congress authorized the establishment of Federal savings and loan associations and required that they be bank members. In view of the fact that the membership now includes Federal associations which have no authority to withdraw from membership, it is believed that a requirement that half the amount of the payments made on outstanding capital subscriptions of member institutions be invested in these investments is sufficient.

SECTION 3. TREASURY PURCHASE OF BANK OBLIGATIONS

This section provides that the Secretary of the Treasury may purchase obligations of the Federal home-loan banks up to a total principal amount of

$1,000,000,000 held at any one time, such purchases to be made upon such terms and conditions as to yield a return at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of the purchase.

For this purpose the Secretary of the Treasury would be authorized to use the proceeds of the sale of securities under the Second Liberty Bond Act as from time to time in force. Obligations of the Federal home-loan banks purchased by him under the proposed legislation could be sold by him upon such terms and conditions and at such price or prices as he might determine.

Obligations of the Federal home loan banks have a well established market position and whenever offered to the public they have been oversubscribed. However, there may occur unexpected conditions under which they cannot be sold to the public on reasonable terms, or under which it may not be possible to refinance a maturing issue on a reasonable basis. This has, in effect, been recognized by the Treasury Department when it utilized the banks as depositaries of public funds when recent governmental fiscal policy changes made it inadvisable for the banks to attempt to obtain needed funds by the sale of consolidated bonds in the private market.

It is therefore essential that the Secretary of the Treasury have statutory authority to purchase obligations of the Federal home loan banks, in order to assure that Government support can be made available to the Federal home loan banks at times when funds are required and, because of emergency or other particular conditions, such funds cannot be readily obtained from private sources.

The need for such assurance of Government support has been recognized in the case of other financial agencies of the Government. The Government supports the commercial banking system through the power of the Federal Reserve System to issue currency which is an obligation of the United States. The farm credit system is protected through the Federal Farm Mortgage Corporation, which has authority to issue Government-guaranteed bonds, and the Secretary of the Treasury has the authority to purchase bonds of that Corporation. The Federal Deposit Insurance Corporation is authorized to borrow money from the Treasury. Under this section of the proposed amendment a similar measure of protection would be provided for the support of the Federal Home Loan Bank System, whose member institutions now number more than 3,700 and have assets in excess of $11,000,000,000.

This section would also provide that, notwithstanding the provisions of the first sentence of section 202 of the Government Corporation Control Act, audits by the General Accounting Office of the financial transactions of a Federal home loan bank shall not be limited to periods during which Government capital has been invested therein. In addition, the provisions of title III of the Government Corporation Control Act with respect to depositaries of mixed-ownership Government corporations and with respect to their issuance of obligations to the public and their purchases and sales of Government obligations or Government-guaranteed obligations would, under this section, continue to be applicable to the Federal home loan banks after the retirement of the Government capital.

SECTION 4. COMPENSATION OF EMPLOYEES

When the Federal Home Loan Bank Act was enacted in 1932, a provision was included therein fixing the salaries of the members of the Federal Home Loan Bank Board at the rate of $10,000 per annum. Several bills now pending in Congress provide that the members of the Home Loan Bank Board established under Reorganization Plan No. 3 of 1947 shall receive compensation at the rate of $15,000 per annum. The Federal Home Loan Bank Act also included a provision that no officer, employee, attorney, or agent employed pursuant to that act should be paid compensation at a rate in excess of the rate provided in the case of members" of the Federal Home Loan Bank Board, and a similar provision was likewise included in the Home Owners' Loan Act of 1933. Section 4 of the proposed amendment would make it clear that the effective limit for the compensation of such personnel is the rate provided for the members of the Home Loan Bank Board, so that if the rate of compensation of the members of the Home Loan Bank Board should be increased without amendment of the $10,000 figure in the Federal Home Loan Bank itself, said $10,000 figure could not be construed as the top limit for such personnel.

SECTION 5. EXAMINATIONS OF FEDERAL HOME LOAN BANKS

This section would require that the Federal home loan banks be examined at least annually, in place of the existing requirement that they be examined at least twice annually. Under the amendment contemplated by this section, the Home Loan Bank Board would continue to have authority, as at present, to examine the Federal home loan banks at any time, but there would be no requirement that they be examined more often than annually. This change, while preserving all essential authority, would make possible the accomplishment of some small savings both in money and in personnel. Annual examination is customary in the case of other institutions supervised by the Board and has been found by experience to be sufficient.

SECTION 6. CAPITAL STOCK AND FINANCING OF INSURANCE CORPORATION

This section relates to the capital stock and financing of the Federal Savings and Loan Insurance Corporation. As of December 31, 1947, there were 2,536 insured institutions, with assets of more than $8,500,000,000. The total potential liability of the Insurance Corporation with respect to insured investors in these institutions was in excess of $7,000,000,000 on that date. At the same date the total assets of the Insurance Corporation were $188,880,555, and its reserves and surplus totaled more than $84,400,000.

Congress, in establishing the Insurance Corporation, provided that the Home Owners' Loan Corporation should subscribe for all of its $100,000,000 of capital stock and make payment therefor in bonds of the Home Owners' Loan Corporation and that the Insurance Corporation should pay cumulative dividends on such stock out of net earnings at a rate equal to the interest rate on these bonds, which was 3 percent per annum. Section 6 of the proposed amendment provides that this capital stock shall be transferred to the Secretary of the Treasury, who would cancel bonds of the Home Owners' Loan Corporation equal to $100,000,000 plus the actual interest cost to the Home Owners' Loan Corporation of carrying said stock, which would be fixed at 3 percent through May 1, 1944, the date as of which the 3 percent bonds were called for redemption, and 1 percent thereafter. The capital stock of the Insurance Corporation would be increased by an amount equal to the amount of the Home Owners' Loan Corporation bonds canceled pursuant to the foregoing provisions after deduction of $100,000,000 therefrom, and this increased amount of stock would likewise be held by the Secretary of the Treasury. In view of the imminent liquidation of the Home Owners' Loan Corporation, the prompt transfer of the capital stock of the Federal Savings and Loan Insurance Corporation to the Treasury is highly desirable.

Section 6 of the proposed amendment would also direct the Federal Savings and Loan Insurance Corporation to retire annually at par an amount of its capital stock equal to 50 percent of its net income for the next previous fiscal year, unless the Home Loan Bank Board by resolution should determine that a smaller amount be retired. In lieu of any unpaid accumulated and future dividends, the Insurance Corporation would be required to pay to the Secretary of the Treasury, at the end of each fiscal year, a return on the average amount of its outstanding capital stock at a rate to be determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the sixth month of such fiscal year. When no capital stock was outstanding, these payments

would of course cease.

As a part of this plan for withdrawal of Government capital, section 6 of the proposed amendment authorizes the Corporation to borrow from the Treasury such funds as in the judgment of the Board are required for insurance purposes, not exceeding in the aggregate $750,000,000 outstanding at any one time, and upon the enactment of this section the Insurance Corporation would be prohibited from exercising its borrowing power under the first sentence of subsection (d) of section 402 of the National Housing Act for the purpose of borrowing money from any other source. The loans made by the Treasury to the Insurance Corporation would bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of such loan. This provision for Treasury loans is similar to that provided for the Federal Deposit Insurance Corporation by Public Law 363, Eightieth Congress, approved August 5, 1947.

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