S. 804 is almost identical with H. R. 4428, which was unanimously passed by the Seventy-ninth Congress but was vetoed by the President. In the President's statement, it was apparent that the 5 percent reserve required to be established by each insured institution under section 403 (b) of the National Housing Act was confused with the provision in section 404 (a) of the act that a premium shall be paid to the Corporation by each association insured

annually until a reserve fund has been established by the Corporation equal to five per centum of all insured accounts and creditor obligations of all insured institutions.

Total reserves of insured institutions average considerably more than 5 percent, although the reserve account of the Federal Savings and Loan Insurance Corporation itself, like the reserve of the Federal Deposit Insurance Corporation, bears a much lower ratio to the total insured liability because of the rapid growth of both banks and savings and loan associations. The ratio of reserves of the Federal Savings and Loan Insurance Corporation to insured liabilities was 1.2 percent, while that of the Federal Deposit Insurance Corporation was 1.02 percent as of June 30, 1946, the end of the last fiscal year.

As of the end of the last fiscal year, the Federal Savings and Loan Insurance Corporation had realized losses on only 15.39 percent of its premium income to the same date. Its annual premium income is currently greater than its estimated total losses since its organization in 1934. It is our opinion that the financial condition of the insured savings and loan associations of the country is the best in the history of the business. Their total reserves are 712 percent of their liabilities to members and depositors. In our opinion, it is perfectly safe to reduce the premium as proposed from one-eighth of 1 percent to onetwelfth of 1 percent.

In fairness to our institutions, the premium should be reduced. The recommended rate is the same that is paid by banks to the Federal Deposit Insurance Corporation. Why should our institutions pay a 50 percent higher rate than the banks? We submit that they are just as safe an insurance risk when all factors such as type of investment and the nature of their respective liabilities are considered.

There is a further reason why the premium rate should be reduced. We believe such reduction would increase the long-range stability and success of the Insurance Corporation. It would broaden the scope of this important program which is so beneficial to the many millions of people who have entrusted their many billions of thrift savings to these institutions. In any system of insurance, the greater the number of healthy premium-paying policyholders, the safer and the better the system. In the insured savings and loan system, the larger the number of strong member institutions the greater the stability, because the Insurance Corporation risk thus becomes smaller in relation to its premium income.

The proposed premium reduction should result in an increase in the number of strong premium-paying member institutions. Many such associations have refused to apply for insurance of accounts because of the amount of the required premium. We think a reduction in the insurance premium from one-eighth of 1 percent to one-twelfth of 1 percent would encourage these institutions to join in the system.

We certainly do not quarrel with the principle set forth in the President's statement that the Government investment in corpora

tions of all kinds should be reduced and in fact eliminated as soon as feasible. We believe the time will come when the Government's investment in the stock of the Federal Savings and Loan Insurance Corporation can be entirely eliminated, but we do not believe that any reasonable plan for the liquidation of the Government's holdings in this Corporation need depend upon the continuance of the present excessive premium rate paid by the insured institutions. As a matter of fact, the premium rate was reduced from one-fourth to one-eighth of 1 percent in 1935 because it was found that the original rate was excessive and unnecessary.

In the light of the continued favorable experience of the Insurance Corporation, we believe the insurance premium can safely and should be further reduced to the same rate as that paid by banks to the Federal Deposit Insurance Corporation; namely, one-twelfth of 1 percent.

Therefore, we earnestly urge the enactment of S. 804 with, however, a change in the effective date of the adjustment in the rate of dividends in section 1 thereof to 1946 instead of 1947, and with the further addition there of subsection (b) of section 501 of the subject bill, S. 866.

While we are on the general subject of title V, sections 501 to 506, inclusive, of S. 866, we would like to urge the enactment of S. 801, a bill to amend the Federal Home Loan Bank Act and for other purposes, now pending before this committee. It was introduced by Senators Tobey and McGrath on March 7, legislative day, February 19,

1947.

This bill would authorize the Secretary of the Treasury to purchase bonds or obligations of the Federal home loan banks at his discretion. Although the Federal Home Loan Bank System has been highly successful in marketing the joint obligations of the several Federal home loan banks, it is felt that the Secretary of the Treasury should have discretionary authority to purchase these obligations in the event of some future emergency. It is our belief that the existence of this authority would adequately support the market for these bonds without necessitating the actual use of the authority.

The Secretary of the Treasury-this is important-already has such authority with respect to other Federal credit agencies, such as the Federal Reserve System, Farm Credit System, Reconstruction Finance Corporation, Federal Public Housing Authority, Federal Deposit Insurance Corporation, and the Federal Housing Administration. Why should not the Treasury have the same authority with respect to the Federal Home Loan Bank System and the Federal Savings and Loan Insurance Corporation?

I think in all spirit of fairness you will come to the conclusion that the answer to that last question is "Yes." We feel that, as the situation stands at the present time, the Federal Home Loan Bank System and the Federal Savings and Loan Corporation are really being discriminated against, as compared to this provision which has been made available to these other Federal agencies.

In our judgment the proposed amendments to the Federal Home Loan Bank Act, the Home Owners' Loan Act, and the National Housing Act would materially aid home owners, prospective home owners, and. the thrifty people of America by increasing the capacity of the Federal Home Loan Bank System, as well as the individual savings

and loan associations of the country who constitute its membership, to finance additional shelter for veterans and nonveterans in the period ahead.

By adoption of these amendments such aid will be extended without expense to the Federal Government or the taxpayers. Therefore, we urge the enactment of these proposals.

In regard to the other provisions of S. 866, we are making no detailed comment at this time. We wish, however, to call attention to the importance of giving serious consideration to the effect on Federal taxes and the national budget in the event that a program shall be embarked upon involving such large additional expenditures and extensive use of Federal credit.

We also respect fully call attention to existing competition for the limited supply of labor and building materials, which at the present time is preventing private industry from doing a full job in the homebuilding field; and to raise the question as to the possibility that additional competition for such labor and materials, in the form of public housing, would not seriously retard the production of much-needed residential structures for both veterans and nonveterans, and possibly increase the present high cost of home construction still further.

I thank you very much for bearing with me. I realize your time is limited. I am sorry that Mr. Ray Harold, of Worcester, Mass., president of the National Savings and Loan League, was not heard. I wish there could have been an opportunity for him to be heard. We thank you for the time.

(Exhibit A of the prepared statement is as follows:)

EXHIBIT A. BRIEF HISTORY OF FEDERAL HOME LOAN BANK ADMINISTRATION

I. ORIGIN, HISTORY, AND FUNCTIONS OF THE FEDERAL HOME LOAN BANK BOARD, FEDERAL HOME LOAN BANK SYSTEM, HOME OWNERS' LOAN CORPORATION, FEDERAL SAVINGS AND LOAN SYSTEM, AND FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION Federal Home Loan Bank Board: Public Law 304, of the Seventy-second Congress, known as the Federal Home Loan Bank Act, set up the Federal Home Loan Bank Board and established the Federal Home Loan Bank System. The act specified that the Board should consist of five persons on a bipartisan basis, with not more than three members from the same political party. Appointments were by Presidential action subject to confirmation by the Senate, and the President was authorized to designate one member as Chairman. The Board was given wide authority for carrying out the purposes of the act. At the time of its creation the Board was given only one constituent agency; namely, the Federal Home Loan Bank System.

1. Federal Home Loan Bank System

The act set up a reserve credit system for savings, building and loan associations of all types, insurance companies, and savings banks, and directed the Board to divide the country into districts, numbering not less than 8 nor more than 12, in each of which was to be a Federal home loan bank. The Board was given full authority over the establishment and supervision of the Bank System and of its policies, directors, officers, and employees. Coming in the depth of the national depression and world economic collapse of that time, the Bank System provided a means of stabilizing the savings and loan business and made available urgently needed reserve credit facilities.

(a) Functions and duties of the banks.-Each bank was empowered to borrow money and to issue debentures, bonds, and other obligations, under rules and regulations prescribed by the Board. The Board was authorized to issue consolidated debentures for the various banks. The various banks were empowered to accept deposits made by their members or by other Federal home loan banks or other instrumentalities of the United States, but were enjoined from transact

ing any banking business not specifically authorized by the act. Authority to incorporate their functions was given to the various banks, and various safeguards were set up to cover their operations. The principal function was stated to be service to member institutions as reserve credit agencies.

(b) In order to defray the expenses of the Board, the Board was empowered to levy assessments on the various banks. The banks in turn received funds in the form of interest paid by member institutions on credit advances. It is pertinent to state at this point that the Federal home loan banks were not designed to be a continuing burden on the taxpayer, nor are they an expense to the taxpayer.

2. Home Owners' Loan Corporation

As the full fury of the depression hit the country the Home Owners' Loan Act was passed in 1933 as Public Law 43, Seventy-third Congress, as a further means of further helping to stabilize the home-mortgage market and assist home-financing institutions. The HOLC was created and the Corporation was authorized to take over distressed home mortgages for refinancing, thus lowering the carrying costs of the home owners. Many properties had to be taken over subsequently through foreclosure or voluntary deed. The Corporation is now in the process of liquidating, having disposed of a large part of its foreclosed properties and having saved the homes of a large number of individuals. The Corporation ceased lending in 1936 after granting loans totaling $3,093,451,321 to 1,017,821 home owners. Its original capital of $200,000,000 was provided by the Congress, and the Corporation was authorized to issue bonds in order to carry out the purposes of the act. 3. Federal Savings and Loan System

The Home Owners' Loan Act also provided for the organization, incorporation, and supervision of a new, type of institution called Federal savings and loan associations. Such chaotic conditions then existed that many communities were left without adequate home-financing facilities. The chartering and supervision of these associations was placed in the hands of the Federal Home Loan Bank Board. Both the Home Owners' Loan Corporation and the Treasury were authorized to subscribe to shares of these Federal associations to help them and, in addition, the corporation was authorized to purchase shares of members of the Federal Home Loan Bank System; that is, State-chartered associations in addition to Federals. (Such Federal associations may be either new institutions or converted from State charter.)

4. Federal Savings and Loan Insurance Corporation

This Corporation was created by title IV of the National Housing Act, which was Public Law 479 of the Seventy-third Congress, approved June 27. 1934. The act was an additional step toward stabilizing the home-mortgage market, making it easier to finance homes and providing greater safety of funds invested in thrift and home-financing institutions. The function of the Corporation is to guarantee the safety of funds placed in insured institutions up to $5,000 of each investor, and the Corporation is authorized to insure such funds in both Federal and State-chartered associations with the added proviso that Federal associations must carry such insurance.

(a) Funds.-The Home Owners' Loan Corporation was empowered to provide the capital stock of the Insurance Corporation in an amount of $100,000,000, and the activities and operation of the Corporation were placed under the Federal Home Loan Bank Board. Funds for the operation of the Insurance Corporation are obtained in the form of premiums paid by member insured institutions and from the proceeds of investments made by the Corporation.

It might be well, at this point, to emphasize that while Congress must approve appropriations for the Federal Home Loan Bank Board (Administration), the Federal Home Loan Bank System, the Home Owners' Loan Corporation, and the Federal Savings and Loan Insurance Corporation, the constituent units are self-supporting, the funds so appropriated being received from private sources, not from taxation.

II. RELATIONSHIP OF THE FEDERAL HOME LOAN BANK BOARD (ADMINISTRATION) TO OTHER GOVERNMENT AGENCIES

A. Before the war.-The Federal Home Loan Bank Board as originally set up, was an independent agency comparable in its basic purposes to the Federal Reserve System in that it was given wide power to stabilize and assist the home

financing field and its service institutions, just as the Federal Reserve System serves as a credit reservoir for member banking institutions. In other words, here are two basic credit reservoirs set up for different purposes, but of comparable importance to the economic life and stability of the Nation.

B. Reorganization Act of 1939.-On July 1, 1939, President Roosevelt put into effect Reorganization Plan No. 1, under authorization of Public Law 19, Seventysixth Congress, and placed the Federal Home Loan Bank Board and its constituent agencies in the Federal Loan Agency. This was a coordinating setup for lending agencies. The consolidation was chiefly for the purpose of policy and budget supervision and discussion. Different agencies concerned with lending (RFC, FHA, FHLBB, Export-Import Bank, and Electric Farm and Home Authority) were brought together more closely.

C. Despite this coordination under Federal Loan Agency, the President nevertheless ordered a new grouping soon after the outbreak of war and so, under authority vested in the President by title I of the First War Powers Act of 1941, Public Law 354, Seventy-seventh Congress, the President issued Executive Order No. 9070 on February 24, 1942, creating the National Housing Agency and grouping various Government agencies concerned with housing under that Agency. In effect the President narrowed the grouping of agencies from the general lending field encompassed by the Federal Loan Agency to a fresh grouping encompassing the housing field, so-called. In the new National Housing Agency the President placed the Federal Housing Administration, Federal Home Loan Bank Board and its constitutent units, the Defense Homes Corporation, and the Federal Public Housing Authority. This was essentially a war expedient, and with no apparent gains then or later it brought about the grouping and direction of public housing activities with those of private home financing. It is under the provisions of that Executive Order 9070 that the various agencies are now functioning. In placing the Federal Home Loan Bank Board under the National Housing Agency the members of the Board other than the Chairman were dropped and their positions vacated, and the chairman was made the Commissioner of the Federal Home Loan Bank Administration. In other words, Administration succeeded Board with one man at its head and he under the direct order and supervision of the National Housing Administrator.

(Supplemental statement, bill, and H. R. 2799, submitted later for the record as follows:)

SUPPLEMENTAL STATEMENT OF NATIONAL SAVINGS AND LOAN LEAGUE BEFORE THE COMMITTEE ON BANKING AND CURRENCY OF THE UNITED STATES SENATE, APRIL 2, 1947

In response to the invitation to submit information in addition to that included in our statement before the committee on March 27, 1946, in regard to S. 866, we are glad to submit the following with further reference to section 506 and our previous recommendation that S. 804 dealing with the same subject be enacted in lieu thereof. We wish to make the further recommendation that in addition to the provision in section 506 authorizing, the Secretary of the Treasury to purchase obligations issued by the Federal Savings and Loan Insurance Corporation, there be included in legislation pertaining to the Federal Savings and Loan Insurance Corporation a provision for the orderly retirement of stock of the Corporation. Our membership favors a plan of retiring the stock of the Insuance Corporation annually in multiples of $1,000 by the use of 25 percent of net income of the Corporation for that purpose after the payment of losses and dividends, if any, provided, the Corporation is authorized to pay off and retire additional amounts of its stock whenever, in the judgment of the Board of Trustees, it is safe to do so. There is attached herewith a suggested revision of S. 804 which, if substituted for section 506, would accomplish these ends.

The proposal which has been made to the Senate committee that "the Corporation is authorized and directed to pay off and retire its capital stock in units of $1,000, from time to time, from its assets which are in excess of $150,000,000" (see H. R. 2799 on p.) is, in our opinion, a dangerous one. Conceivably, the time may come when the Insurance Corporation will issue debentures in a considerable amount in connection with the payment of insurance and the acquisition by it of subrogated shares resulting in a substantial increase of its assets above $150,000,000. Under the language proposed the Corporation would be obligated to use cash received through the sale of its debentures to retire its capital stock.