discretion, to purchase obligations of the Federal home-loan banks up to a limit of three times the outstanding capital stock, reserves, and surplus of the banks. Such a provision is contained in S. 801, introduced on March 7 of this year by the chairman of this committee, for himself and Senator McGrath.

The obligations of the Federal home-loan banks, which at present are issued in the form of consolidated bonds which are the joint and several liability of all the banks, have a well-established market position and whenever offered to the public they have been oversubscribed. However, in the event of unexpected conditions under which these bonds might not be salable to the public on reasonable terms, or under which it might be impossible to refinance a maturing issue on a reasonable basis, the Government should be in a position not only to protect the investment which it holds in the banks through the Reconstruction Finance Corporation but to prevent the development of incidents within the Federal Home Loan Bank System which might spread to other segments of our financial system and seriously disturb our entire economy.

It is therefore essential in the public interest that the Secretary of the Treasury have authority to purchase obligations of the Federal home-loan banks. The authority which it is proposed to confer would be entirely discretionary with the Secretary of the Treasury, and, as I have previously stated, would be subject to a limit of three times the outstanding capital stock, reserves, and surplus of the Federal home-loan banks. The need for such support has been recognized in the case of other financial agenices of the Government.

The Government supports the commercial banking system through the authority 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 authority to purchase the bonds of that Corporation.

The Federal Public Housing Authority and the Reconstruction Finance Corporation are similarly protected by provisions both for guaranty of their obligations by the Government and for authority in the Secretary of the Treasury to purchase their obligations,

The Secretary of the Treasury also has authority to purchase the obligations of the Federal Deposit Insurance Corporation, and the debentures of the Federal Housing Administration are guaranteed as to principal and interest by the United States.

No such protection, however, has been made in the case of the Federal home-loan banks and the Federal Savings and Loan Insurance Corporation which, representing the Government, have very great responsibilities in connection with the savings and home mortgages of a vast army of people of small means.

If the bank system were confronted with temporary difficulties which could not be dealt with immediately, we might face some pretty serious financial problems.

The present bill, S. 866, already contains in section 506 (b) a provision which would confer on the Secretary of the Treasury discretionary authority to purchase obligations of the Federal Savings and Loan Insurance Corporation up to a limit of three times the capital stock, reserves, and surplus of that corporation. To afford similar

protection in the case of the Federal Home Loan Bank System, I would suggest that the present bill be amended by adding after section 503 a new section to read as follows:

Section 11 of the Federal Home Loan Bank Act, as amended, is hereby amended by adding at the end thereof the following new subsection:

"(i) The Secretary of the Treasury is authorized to purchase any obligations issued pursuant to this Act 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 I.iberty 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 any time, 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 three times the aggregate amount of the then outstanding capital stock, reserves, and surplus of the Federal home-loan banks."

I shall refer to this provision later, in the course of my comments on S. 801.

Section 504 of the bill would amend section 20 of the Federal Home Loan Bank Act so as to 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, retaining the existing power to examine them at any time. This provision was also contained in S. 1592. Its enactment is desirable as an economy measure. would make possible the accomplishment of savings both in money and personnel.

It

Section 505 of the bill would add a new subsection to section 21 of the Federal Home Loan Bank Act, which deals with unlawful acts and penalties. It would extend to Federal savings and loan associations, and other institutions which are members of the Federal Home Loan Bank System or insured by the Federal Savings and Loan Insurance Corporation, protection similar to that extended to banks by the Federal Bank Robbery Act.

Section 506 of the bill contains provisions respecting the divdend rate on the capital stock of the Federal Savings and Loan Insurance Corporation and the discretionary purchase by the Secretary of the Treasury of obligations of that Corporation. Similar provisions were also contained in S. 1592. The enactment of this section is desirable for the reasons I stated when I appeared before your committee at the hearings on that bill. A section containing similar provisions as to adjustment of the dividend rate is included in S. 804, which I shall later discuss.

In the last Congress the House and the Senate passed provisions providing for the adjustment of the dividend rate along the lines contained in this bill.

S. 801, one of the bills introduced by the chairman of this committee on March 7, 1947, for himself and Senator McGrath, would amend section 11 of the Federal Home Loan Bank Act so as to confer discretionary authority upon the Secretary of the Treasury to purchase obligations of the Federal home-loan banks up to a limit of three times the capital stock, reserves, and surplus of the banks. I

would like to emphasize the fact that under any conditions the right to purchase is discretionary with the Secretary of the Treasury. There is nothing mandatory about it at all. It is to be presumed, of course, that he would only exercise that authority in the event of the development of an emergency or other conditions which made it the wise thing to do.

This is very desirable legislation and I have previously suggested that it be incorporated in S. 866 as a new section, following section 503 of that bill.

As I have already pointed out, the enactment of such a provision is amply supported by precedent for Government protection of other Federal agencies, as in the case of the Federal Reserve System, the farm credit system, the Federal Public Housing Authority, the Reconstruction Finance Corporation, the Federal Deposit Insurance Corporation, and the Federal Housing Administration.

S. 802, introduced by the chairman of this committee and Senator McGrath would amend subsection (b) of section 10 of the Federal Home Loan Bank Act so as to authorize Federal home loan banks to make advances to members under that section on the security of 25year mortgages. The provisions of this bill are identical in effect with those of section 503 (b) of S. 866. The limit so far, I might add, has been 20 years.

The safety of the 25-year mortgags has now been so completely demonstrated that this is merely a workable amendment that would place the Federal Home Loan Banks in a position to accept mortgages of that kind as a basis for advances to their member institutions.

S. 803 would provide for the reestablishment of the Federal Home Loan Bank Board and would require that at least two members of the Board have 2 years' experience in the savings and home loan field. The salary of each member of the five-man Board would be established at $15,000 per annum.

It is my opinion that there is no justification for the restoration of the Federal Home Loan Bank Board, particularly at this time when utilization of the limited earnings of the Federal home-loan banks to the greatest possible advantage is absolutely necessary. A board of five with the deputies and personnel attached to each member of the board, plus travel expense and other incidentals, would run into a large sum of money. There is today no work to be done by a board which would warrant this expenditure.

The Home Owners' Loan Corporation, which took much time of the former Board, is now over 83 percent liquidated. From 400 offices the number has been reduced to 2. There are practically no new applications for membership in the bank system for a board to pass upon, as contrasted with the situation when a board was in existence. The volume of applications in the case of the Federal Savings and Loan Insurance Corporation has been reduced to a handful a year.

While the volume of work to which the Board gave its attention has contracted radically, the flow of necessary staff work has increased greatly. The examining and other staffs of the Federal Home Loan Bank Administration, as they exist today, are wholly inadequate and we are seriously behind on vital work as a result of wartime develop

ments.

The volume of business in the institutions in the past 5 years has practically doubled the task of getting at the significance of the many operations. The amount of staff work is greater than it ever has been, and it would be a waste of money to pay out money for an unnecessary board while this work, which should not be delayed, cannot be done because of insufficient funds.

Restoration of a board would hardly be logical in view of the present demand for economy in Government and would be inconsistent with the organization of other Government agencies such as the Farm Credit Administration, the Federal Housing Administration, the Federal Security Agency, the Veterans' Administration, the Federal Public Housing Authority, and various others which have great. responsibilities, direct the efforts of many employees and disburse large funds.

For example, the Veterans' Administration, the largest operation of its kind in.existence, with over 200,000 employees, is under the direction of a single administrator. This Administration includes the greatest mutual insurance operation in existence, insuring the lives of 5,000,000 persons with outstanding policies of over $35,000,000,000. Its guaranty and insurance of loans to veterans for the acquisition of homes will dominate the entire housing program for the next 5 years, at least, in my opinion. It already has commitments in this field in excess of $3,400,000,000. For the current fiscal year the disbursements of the Veterans' Administration will exceed $6,000,000,000.

The Federal Housing Administration, which Congress set up under a single administrator, has outstanding approximately $5,000,000,000 of insurance commitments in the mortgage field, has handled a total of nearly $10,000,000,000 of mortgage insurance, and now has greater responsibilities than ever.

The Federal Public Housing Authority, formerly the United States Housing Authority, was also placed under a single head when established by Congress. In recent years it has directed the construction of and managed over $2,000,000,000 of war housing and 800 low-cost housing projects, and advanced $800,000,000 for the development of these projects.

The widespread operations of the Farm Credit Administration are under the direction of a single governor, in place of the board which was eliminated some time ago, who supervises the operations of the Federal land banks and many other agricultural credit and financial institutions. It had total advances outstanding at the beginning of this year of nearly $2,000,000,000.

I doubt very much if any of these administrations could be eliminated to advantage and boards substituted to direct their operations. S. 804 would adjust the rate of dividends paid by the Federal Savings and Loan Insurance Corporation on its capital stock and decrease the premium charge for its insurance. I have referred to that already. It was included in the proposed legislation of the last Congress which was approved by both Houses of Congress. It was vetoed by the President because the insurance premium itself was reduced.

The first section would adjust the dividend rate paid by the Federal Savings and Loan Insurance Corporation to the Home Owners' Loan Corporation, which corporation holds all the capital stock of the

Insurance Corporation. Section 506 (a) of S. 866 contains provisions which are identical in effect, except that under S. 866 the adjustment would be as of July 1, 1946, whereas in S. 804 the adjustment would be as of July 1, 1947.

I would recommend the enactment of these provisions, and I see no objection either to a July 1, 1946, effective date or to a July 1, 1947, effective date for the adjustment. The dividend rate on the capital stock of the Insurance Corporation was originally fixed at 3 percent per annum because the bonds with which the Home Owners' Loan Corporation made payment for the stock bore interest at that rate. The 3 percent rate is now out of line with realities, since all interest-bearing bonds of the Home Owners' Loan Corporation have at present an interest rate of 1 percent per annum. This section would make the dividend rate equal to the average interest rate on the bonds of the Home Owners' Loan Corporation outstanding during a particular dividend period. It would bring about the situation which undoubtedly was contemplated by Congress in passing the original act, and it is to be noted that the bill (H. R. 4428) which was passed in the last Congress by both Houses contained a similar provision.

The second section of S. 804 would reduce the premium rate of the Federal Savings and Loan Insurance Corporation from one-eighth of 1 percent to one-twelfth of 1 percent of the accounts of insured members plus creditor obligations of insured institutions. It would retain the existing power of the Insurance Corporation to assess additional premiums but would similarly reduce the maximum rate thereof.

In connection with an earlier bill on this subject, the Federal Home Loan Bank Administration indicated its assent subject to certain reservations. But because of significant and important inflationary developments in the real-estate market during the past year or so we believe that a reduction in the premium rate is not now justified.

Keeping pace with the rise in real-estate prices, average mortgage loans have increased in amount with consequent increases in risk. Indeed, the whole mortgage picture has changed during the past year both in the quantity and quality of the risk.

For the year ending December 31, 1946, the mortgage holdings of insured institutions increased by approximately $1,500,000,000 as compared with $500,000,000 in the previous year. During the same period the reserves held by the associations themselves diminished in relation to the mortgage loan holdings. In the light of these developments I cannot reasonably recommend the enactment of section 2 of S. 804 at this time.

I wish to thank the committee for the opportunity to express my opinion on the legislation affecting the Federal Home Loan Bank Administration which is pending before the committee. It is my firm belief that during this critical period there would be definite advantages in the establishment of a national housing policy as proposed by S. 866 and the coordinated execution of such policy. I urge the prompt enactment of S. 866 and the amendments to the basic statutes, affecting operations of the Federal Home Loan Bank Administration, which I have recommended.

Senator TAYLOR. I am sorry, Mr. Fahey, that I did not get here to hear all of your discussion.