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August 13.

Cap*. Clark M, Clifford,
The ^Tiite House,
Washin^on, D, C #
Dear Captain Clifford?
In accordance with our telephone conversation of last even*
in&, I enclose a general memorandum outlining the three aajor reasons
why I so strongly feel, as I an confident John Snyder and Maple Harl
do, that the President should not sign H,R, U&$, which reduces the
premium on Federal Savings and Loan insurance Iron l/3 of 1 per cent
to l/Vt of 1 per oent, making it the same as premium of the Federal
Deposit Insuranoe Corporation, Actually, if any change were to be
nade in the Federal Savings and Loan premium it should be Increased,
not decreased, and It would be wholly inconsistent with Senator Wagner's
recently introduced bill, which has the support of the Treasury, contemplating that FDIC Insuranoe premiums shall be maintained with a view
to paying off the Government funds provided for PDIC which are, in effect, a subsidy, The Federal Savings and Loan Insuranoe Corporation
has a similar subsidy amounting to $100,000,000, Their rate should
oertainly be maintained for the sane purpose, that Is, to pay off
mhat amounts to a Government subsidy. This Is all the more imperative at the present tins In view of our budgetary situation. Getting
this Bill, H # H, 1&28, slipped through in the closing days of the
Congress without any specific hearings on It appears to have been
engineered by the Building and Loan people. The proposal to reduce
the insuranoe premium was a part of the Wagner-Ellender-Taft housing
bill, and the Board, in reporting on that Bill, vigorously opposed
this provision. We had no chance to testify against H,R, Ui28» nor
did the Treasury or FDIC,
Current figures covering Federal Savings and Loan operations
are not readily available so that the only figures we can obtain to
show the comparison with the FDIC are as of l$4u However, there Is
no reason to suppose that the ratios have materially changed in the
I oertainly appreciate your Interest in this matter, which
is of real importance to the banks of the country.
Sincerely yours.



M, S, Socles,

Memorandum on H,Ht U#Bm
Reducing federal Savings and Loan InsuranceCorporation Preaiua
Charged for Insurance from I/ft o^ 1 per pent to y J 2 of 1 yer oont
The major provision of this Bill is tho reduction of tho insurance
premium* On a logical basis If any change were to bo mde in tho premium i t
should bo increased, not reduced* The Bill should not bo permitted to become
law for these reasons?
tho Federal Savings and Loan Insurance Corporation's rosonro against
i t s insured risk Is s t i l l grossly deficient* Congress originally oontesiplated
that tho rosonre should aoeaedey roach § per oent of tho Insured risk, but
after 10 years of operation the rmmw had reaohod only 0,57 por oeat of
the Insured risk, as of Juno 30 t M
Tho risk exposure of the fSLXC i s far greater than that of WXCm
It has been contended that the risks are about the ssjte and that therefore*
the P8LXC premium should be the ssne as that of WXC — X/lSt of 1 per oent*
However, based oa the latest available figures, insured banks (taking into
aeeotait their capital, surplus and undivided profits and the aaount of their
deposits not oovered by their holdings of fJovemaeat seourlties and oash)
have a cushion of approximately $1 for every |2 # 7 of risk* FSLIC insured
institutions, tm thm mam basis, have a cushion of only $1 to 18 of risk.
In s word, the WW cushion is three tisass as big. In faet, on any basis
of comparison, the FSLIC exposure i s fur greater than PDIC, so that the
loglo of any argument based on ooraparability would lead t o increasinR not
reducing the FSLIC rate*
It would be Inconsistent for the A(toini«tration to approve this
Bill *hich Is disaaetrieally the opposite of B# 2it9U, recently introduced by
Senator 3agner and endorsed by the Treasury, conteaplatlnp: that the ft>XC
premium shall be maintained with a view to repaying the Government funds
which are, in effect, a subsidy to the HW* As a matter of principle,
neither WW nor fSLXC should reduce their premiuas until this Govenssimt
aoney has been paid off* It i s particularly important, from the budgetary
standpoint, that the Mosey be returned to the Government as rapidly as possible* The F8L1C has 0D , Q P Of <lovem»(»nt-furnished Money. It aaounts
3 O QO o
to a subsidy for the benefit of private institutions just as the Ooveraaentfurnlshed raoney in the WHO i s a subsidy to private banks* These private
institutions constantly oonplain against subsidies for agricultural or
other f5ovema»nt institutions and logleally they should apply the ssae ml*
to thenselves* At present, uhon the national debt i s so great and such
vigorous efforts are being mde by the Ad»lnistration to increase Government receipts and reduce expenditures, prudent policy requires that the
premiuK of the mtl€ be maintained or even increased with t^ie ultimte
view of refftying the 1100,000,000 of subsidy to the Treasury*

August 1 3 . 19U6.