View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

81st Congress, 1st Session

House Document No. 209

REPORT ON AUDIT OF
FEDERAL HOME LOAN BANK ADMINISTRATION
AND THE FEDERAL HOME LOAN BANKS

LETTER
FROM THE

COMPTROLLER GENERAL OF THE UNITED STATES
TRANSMITTING

A REPORT ON THE AUDIT OF THE FEDERAL HOME
LOAN BANK ADMINISTRATION AND THE
FEDERAL HOME LOAN BANKS FOR THE
FISCAL YEAR ENDED JUNE 30,1947

JUNE 6, 1949.—Referred to the Committee on Expenditures in the
Executive Departments and ordered to be printed

UNITED STATES
GOVERNMENT PRINTING OFFICE
•1774




WASHINGTON : 1949

J




LETTER OF TRANSMITTAL
GENERAL ACCOUNTING OFFICE,
COMPTROLLER GENERAL OF THE UNITED STATES,

Washington 25, June 8, 1949.
The honorable the SPEAKER OF THE HOUSE OF REPRESENTATIVES.
D E A R M R . SPEAKER: There is presented herein report on the audit
of FEDERAL HOME LOAN BANK ADMINISTRATION and the FEDERAL
HOME LOAN BANKS for the fiscal year ended June 30, 1947. This

audit was made by the Corporation Audits Division of the General
Accounting Office, pursuant to and in accordance with the requirements of section 202, title II, of the Government Corporation Control
Act (31 U. S. C. 857).
Respectfully submitted.




LINDSAY C. WARREN,

Comptroller General of the United States.
m




CONTENTS
Fait
SUMMARY

1

Federal Home Loan Bank Administration
1. Authority for audit
:
2. History, organization, and functions
•
3. Allocation of administrative expenses.
4. Survey of organization
5. Status and cost of savings and loan association examinations.
6. Public Law 895 and Public Law 901, 80th Congress
7. General
Federal home loan banks
1. Creation and purpose
2. Organization a n d management
3. Sources of f u n d s . .
!
4. General
RECOMMENDATIONS TO THE CONGRESS

6

Federal Home Loan Bank Administration
Recommendations adopted by the Congress
1. Examination expense classified as "nonadministrative"
(Public Law 895, 80th Cong.)
-_
.
Previous recommendations to the Congress
1. Reorganization of Home Loan Bank Board
,
2. Separation of regulatory and insurance functions
t -_
3. Title I of Government Corporation Control Act be amended to include H L B B
New recommendations to the Congress
4. P a y m e n t of Government's share of the cost of civil
service retirement system and employees' compensation
fund
_
Federal home loan banks
Previous recommendations to the Congress
1. Change in composition of bank directorates
2. Capitalization of banks
3. Dividends equal interest cost to the United States
Treasury
New recommendations to the Congress
4. Titles I I a n d I I I of Government Corporation Control Act
applicable to bank after retirement of Government
investment
5. Annual examination of banks
RECOMMENDATIONS TO THE M A N A G E M E N T

6
6
6
7
7
7
7
7
7
8
8
8
8
9
9
9
9
9

Federal Home Loan Bank Administration
Recommendations adopted
1. Review and approval of applications for insurance
2, Elimination of operating functions from legal department
Previous recommendations to the management
1. Examinations to be under administrative control of
Federal Savings and Loan Insurance Corporation
2. Revision of budgetary procedures „.
3. Revision of accounting system
4. Disposition^of H L B B surplus
New recommendations to the management
5. Discontinuation of budget office
6. Consolidation of comptrollers' offices
7. Expansion of auditor s duties
8. Discontinuation of home loan banks as supervisory
agents of the H L B B
_




2
2
2
2
2
3
3
3
4
4
4
4
6

X

9
9
9
10
10
10
11
11
11
11
11
12
12
12

"VI

CONTENTS
Fae

RECOMMENDATIONS TO T H E M A N A G E M E N T — C o n t i n u e d

Federal h o m e loan banks
New recommendations to the management
9. Fill "public interest" vacancies in bank boards
10. Improve financial reporting by banks

--

®

}3
13
13
13

-, —

P A R T I—FEDERAL HOME LOAN B A N K ADMINISTRATION
COMMENTS ON OPERATIONS
COMMENTS ON FINANCIAL POSITION

:

15
19

Cash
Accounts receivable
Surplus
EXCEPTIONS
SCOPE OF AUDIT
OPINION
FINANCIAL STATEMENTS

'

—

-

19
19
20
21
22
22

Exhibit

Balance sheet, June 30, 1947
Statement of expenses, their allocation, and surplus, for the
fiscal year ended June 30, 1947
Summary of expenses, their allocation, and surplus, for the
fiscal years 1933 to 1947, inclusive
___
Administrative Department—Statement of expenses and
their allocation, for the fiscal year ended June 30, 1 9 4 7 . ,
Federal Home Loan Bank System—Statement of expenses
and their allocation, for the fiscal year ended June 30, 1947,

1

25

2

26

3
Schedule

27.

1

28

2

29

PART II—FEDERAL HOME LOAN B A N K S
COMMENTS ON OPERATIONS.-COMMENTS ON FINANCIAL POSITION

.-_

Statutory and unrestricted reserves
Investments in United States Government securities
Advances
_'
Members7 deposits
Interbank deposits
„__
Consolidated obligations
Capital stock, surplus, and reserves

31
32

.

EXCEPTIONS
_
SCOPE OF SURVEY
OPINION
AUDIT CERTIFICATE OF THE COMPTROLLER OF THE HOME LOAN BANK
BOARD
FINANCIAL STATEMENTS
Exhibit

Consolidated balance sheet, by banks, June 30, 1947-_
1
Notes to consolidated balance sheet
Consolidated statement of income, by banks, for the fiscal
year ended June 30, 1947..
2
Consolidated surplus, by banks, for the fiscal year ended June
30, 1947
._
3
Consolidated statement of sources and application of funds,
by banks, for the fiscal year ended June 30, 1947
4
-,
,., . , . ±
. .
,,
Schedule
Consolidated statement of compensation, travel, and other
expenses, by banks, for the fiscal year ended June 3 0 , 1 9 4 7 .
1
Statement of compliance with section 11 (g) of the Federal
Home Loan Bank Act, by banks, June 30, 1947.__
2




33
33
34
36
37
37
39
40
40
41
41

44

CONTENTS

VII
Appendix

HISTORY, ORGANIZATION, AND FUNCTIONS
HOME LOAN BANK ADMINISTRATION

OF

THE

A

Origin and purpose
Organization and management
Federal Home Loan Bank Administration
Administrative Department, Federal Home Loan Bank
Administration
Federal Home Loan Bank System
Functions
Federal Home Loan Bank Administration
Administrative Department-.,
Federal Home Loan Bank System
HISTORY, ORGANIZATION, AND FUNCTIONS OF FEDERAL. H O M E
LOAN BANKS

Origin and purpose
Organization and managements
Functions




Page

FEDERAL
47

47
47
47
48
48
49
49
49
49
B

51

51
51
52

REPORT ON AUDIT OF
FEDERAL HOME LOAN BANK ADMINISTRATION
AND THE FEDERAL HOME LOAN BANKS
FOR THE FISCAL YEAR ENDED JUNE 30, 1947

GENERAL ACCOUNTING OFFICE,
CORPORATION AUDITS DIVISION,

Washington 25', D. G.
Hon.

LINDSAY C. WARREN,

Comptroller General of the United States.
We submit herewith our report on the audit
of the financial statements and records of the FEDERAL H O M E LOAN
D E A R M R . WARREN:

BANK ADMINISTRATION and

the FEDERAL H O M E LOAN BANKS for

the

fiscal year ended June 30, 1947.
The audit of the Federal home loan banks was made in accordance
with the requirements of section 202, title I I , of the Government Corporation Control Act (31 U. S. C. 857). As required by section 301
(a) of title I I I of the act (31IL S. C. 866 (a)), we utilized, to the fullest
extent deemed practicable, the reports of examinations made by the
supervising administrative agency pursuant to law.
SUMMARY

The Federal home loan banks perform substantially the same function in the field of home mortgage credit as the Federal Keserve
System performs in providing a credit reservoir for private banks
and as the Federal land banks perform in the field of farm finance.
Created in 1932, pursuant to the Federal Home Loan Bank Act
(12 U. S. C. 1421), they exert a stabilizing and strengthening effect
upon the savings and loan and similar institutions which are members
of the system, as well as nonmembers, by providing both with a source
of short- and long-term mortgage credits. The banks are owned in
part by the private associations and savings banks which they serve'.
During the fiscal year ended June 30, 1947, the banks, as an integral
system, along with Federal Savings and Loan Insurance Corporation
and Home Owners' Loan Corporation, under the supervision of the
Federal Home Loan Bank Administration, were a constituent agency
of the National Housing Agency.1
J

The President's Reorganization Plan No. 3 of 1947, vrhich became effective July 27,1947, created a
Housing and Home Finance Agency with the same constituents as the former National Housing Agency.
H&HFA is headed by an Administrator who has the responsibility for general supervision and coordination of its constituents. The plan also created a Home Loan Bank Board of three members who were given
the functions of the Federal Home Loan Bank Board, the board of directors of HOLC, and the board
of trustees of FS&LIC, and abolished these three boards. Inasmuch as this report covers the fiscal
year 1947, the terminology applicable to that year has been used.
- - M M . . .

91774—49




.

2

_

_

*

•

t

2

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS
FEDERAL HOME LOAN BANK ADMINISTRATION

1. The Federal Home Loan Bank Administration received no
appropriated funds from the United States Treasury, but the Congress
authorized and limited its administrative expenses for the year under
audit. With the exception of the costs of examining savings-and
loan associations, all of these expenses were allocated to and paid by
wholly or partly owned Government corporations (Home Owners'
Loan Corporation, Federal Savings and Loan Insurance Corporation,
and the 11 Federal home loan banks). Under the circumstances,
and although the Administration is not a corporation, we concluded
that a satisfactory audit of the 13 supervised corporations could not
be performed without'making an examination of the Administration's
operations. (See, in this connection, recommendation 3, p. 7.)
However, in examining and testing the financial transactions of the
Administration, considerable reliance was placed on the audit made
by another division of the General Accounting Office under the
Budget and Accounting Act of 1921.
2. There were no major changes in the organizational structure
of the FHLBA during the year under reviewi The chart presented
as an appendix to our audit report for the fiscal years 1945 and 1946
(H. Doc. 706, 80th Cong.) outlines the organization as it existed a t
June 30, 1947. The history, organization, and functions of the
Administration are summarized in appendix A of this report (p. 47).
3. The expenses of the FHLBA for the fiscal year 1947 totaled
$2,038,004, approximately $220,000 more than for the preceding
year. (See p. 15.) These expenses were allocated for reimbursement by:
Federal home loan banks
HOLC
FS&LIC
_
_
Insured associations, for examinations
Long Beach conservatorship
Miscellaneous
Total
Deficiency in assessments charged to surplus

_
__.

$530,000
144,332
178,0S5
1,065,500
83,170
455
2,001,542
36,462
$2,038,004

No funds were appropriated from the United States Treasury to
defray any part of the expenses of the Federal Home Loan Bank
Administration. The administrative expenses were limited by the
Congress to $1,641,000; such expenses, totaling $1,634,059 for the
year, were $6,941 less than the authorization. (See p. 17.)
The surplus, $387,239 at June 30, 1947, was accumulated from excessive assessments against the district banks and has been reduced by
the absorption of underassessments in several years and by the
deficits sustained by the Examining Division through insufficient
charges for examinations of savings and loan associations. In our
opinion, the surplus has been unjustifiably accumulated. (See recommendation on p. 11.)
4. Our survey of the organization disclosed a lack of coordination
between divisions and constituent units, overlapping of functions, misplaced functions, divided authority, assignment of responsibilities
without commensurate authority, and several small departments with
functions that could be consolidated to produce greater efficiency and
permit a reduction in the number of high-salaried personnel employed.



FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

3

The Home Loan Bank Board has made some changes, but further improvements await its attention. (See p. 17.)
5. Public Law 895, 80th Congress (62 Stat. 1239), effective July 3,
1948, amends section 19 of the Federal Home Loan Bank Act and
section 402 (c) of the National Housing Act to provide that "All necessary expenses in connection with the making of supervisory or other
examinations (except examinations of Federal home loan banks),
including the provision of services and facilities therefor, shall be
coDsidered as nonadministrative expenses." On October 2, 1948, the
Examining Division staff consisted of 193 examiners. (There were
152 examiners at June 30, 1948, and 165 at the preceding year-end.)
FHLBA policy requires annual examinations of all insured institutions. The division is considerably in arrears in its examinations but,
since June 30, 1948, has decreased the number of delinquent examinations. The following data showing the number of examinations in
arrears at selected dates were furnished by the Examining Division:
Number of
insured asso~ Examinations
ciations
tn arrears
June 30,1046
June 30f 1947.
June 30, 1948
Nov. 30,1948

2,490
2,529
2,566
2,604

385
47S
746
611

During the fiscal year 1947 the division's expenses were $1,115,225
and the examination fees were $1,065,500, leaving a deficit of $49,725.
In 1945 and 1946 the deficits were $19,757 and $19,217, respectively,
and for the fiscal year 1948 the deficit amounted to approximately
$100,000. (These deficits are charged against the surplus of the
FBLBA.) In August 1948 the HLBB established a single per diem
rate which it believes is sufficient to place the division on a selfsustaining basis. (See p. 20.)
6. In addition to the legislation mentioned in (5) above, the
Eightieth Congress enacted the following legislation affecting the
Home Loan Bank Board:
a. Public Law 895, 80th Congress (62 Stat. 1239), amends the
Home Owners' Loan Act of 1933 and provides that (a) subject
only to the conditions stated in the amendment, any Federal
savings and loan association may convert itself into a savings and
loan (mutual) type of institution and (b) subject to approval by
the Home Loan Bank Board and Federal Savings and Loan
Insurance Corporation, any Federal savings and loan association
may convert itself into a State institution upon an equitable
basis.
b. Public Law 901, 80th Congress (62 Stat. 1268), amends the
National Housing Act and provides that, effective upon the date
of enactment (August 10, 1948), the members of the Home Loan
Bank Board shalf receive compensation at the rate of $15,000
per annum.
7. The system of internal control is generally satisfactory; however,
accounting records, although adequate for current needs, were maintained in unnecessary detail. Many of our suggestions for improvements have been adopted, and we understand that others will be p u t
into effect in the near future. On pages 11 and 12 of this report, we
have proposed a reorganization of the accounting and budgetary functions in the interest of greater efficiency and economy.



4

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS
FEDERAL HOME LOAN BANKS

1. The Federal home loan banks were established by the Federal
Home Loan Bank Board, which was created for that purpose by the
Federal Home Loan Bank Act (12 U. S. C. 1421, et seq.), approved
July 22, 1932. The banks constitute a credit reserve system for thrift
and home-financing institutions, including savings banks and insurance companies. (See p. 51.)
2. Under the act and Executive Order 9070, the operations of each
bank were controlled by a board of directors whose actions were subject to approval by the Federal Home Loan Bank Administration.
Each board consists of 12 members, of whom four are appointed by
the FHLBA (now HLBB) and the remainder are elected by the member-associations. Thus the member associations have majority representation on each board, although the Government owns the majority
of the aggregate capital stock of the banks (in 1947, 56 percent; in
3 banks it held the minority interest).
3. The principal sources of the funds with which the banks financed
their activities during the year were:
Net Income (exhibit 4)
Add amortization of premiums

_

$4,012,000
248,000
4,260,000
2,600,000
—

Less dividends paid (U. S. Government, $1,500,000)...-:
Net realization from sale of bonds
Capital stock purchased by members (net increase)
Less retirement of Government's investment
Deposits by members (net increase)
Decrease in cash and other assets

$1,760,000
73,000,000

16,0,00,000
1,000,000

15,000,000
31,000,000
240,000

_

Total funds available for investment

$121,000,000

These funds were used for:
Increased advances to members
Additional investments in Government securities
Total, as above

$86,000,000
35,000,000
$121,000,000

The net income of all of the banks for the fiscal year 1947 was
$4,011,654, including $358,703 profit on the sale of Government securities; the comparable figures for 1946 were $4,666,142 and $1,559,012,
respectively. The return on the average of the capital and surplus
at the beginning and end of the 37ear was 1.7 percent (1946, 2.1 percent). The net operating income for 1947 was $3,651,883 (1946,
$3,105,131), which approximated 1.6 percent (1946, 1.4 percent) on
the average of the capital and surplus at the beginning and end of
the year. (See p. 31.)
Each bank is required by law to transfer to a reserve account 20
percent of its net earnings until the reserve equals 100 percent of its
paid-in capital. Some of the banks have credited substantial additional amounts to reserves for contingencies. The amounts so added
to reserves were approximatelv $1,456,000 for the fiscal year 1947 and
$1,895,000 for the fiscal year 1946.
Dividends declared were (unpaid at June 30, 1947, $943,627):
Year ended June SO
1947
Member associations
Reconstruction Finance Corporation»
1

See note 1, p . 39.




im

Total
dividends
from
inception

$1,075,367
1,505,992

$902,860
1,482,287

$8,169,826
21,325,234

$2,581,359

$2,385,147

$29,495,060

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

5

The dividends received by R F C (since 1934 each bank has been required to apply the same dividend rate to all stockholders (12 U. S. C.
1426 (k))) were at a rate lower than the average interest rate (1.83
percent) on marketable issues of the public debt. To the extent that
the Government's interest cost exceeds the return on its investment,
it is subsidizing the banks. The average cost to the Treasury on the
Government's investment in the banks was approximately $748,000
(1946, $718,000) more than the income received from the investment
in 1947. The Chicago bank is the only bank which failed to earn its
current dividends. (See p. 40.)
Undivided profits decreased approximately $83,000 during the year
as a result of transfers to "legal reserves", transfers to reserves for
contingencies, and declarations of dividends, the total of which exceeded the net income of $4,011,654. (See p. 39.)
Thus the net increase in surplus of all the banks was $1,373,000
against $2,252,000 in 1946.
Open market financing was used to a greater extent during the
fiscal year 1947. The consolidated obligations outstanding at June
30,1947 ($140,000,000), were $73,000,000 greater than at the preceding
June 30. These bonds, bearing interest at the rate of 1% percent and
maturing April 15, 1948, were the joint and several obligations of all
the banks. At maturity date, $84,500,000 of these bonds were
refinanced by issuance of consolidated notes bearing interest at the
rate of 1% percent and maturing April 15, 1949. The cost of borrowed money ($1,794,000) was $1,207,000 (206 percent) greater than
in 1946. The average cost of borrowed money increased from 1.007
percent in 1946 to 1.370 percent in 1947. (See pp. 38 and 39.)
The original investment of the Government of $124,741,000 in
the banks has been reduced $2,068,800 by the partial retirement of its
capital stock in the following banks during the past 3 years.
Federal home loan bank
Fiscal

year

1947
1946
1945

Total

• • •

•—

Cincinnati

—

Indianapolis

$979,000
858,700
231,100

$581,100
329,600

$397,900
529,100
231,100

$2,068,800

$910,700

$1,158.100

At June 30, 1947, the Government's investment in the banks ranged
from 37 percent of the total capital stock in the Indianapolis bank to
71 percent in the Little Eock bank.
The investment of the member associations was increased during
the year by $16,040,350 ($17,373,350 additional investment less
$1,333,000 retirements) to $95,599,800 at June 30, 1947.
Deposits of member associations at June 30, 1947, amounted to
$85,885,527 (June 30, 1946, $54,794,700), about 77 percent (1946, 69
percent) of which were time deposits. These deposits, the highest in
the banks' history, were 56 percent greater than at June 30, 1946.
The maximum interest rate on time deposits was 1 percent, and the
interest cost was $389,380; in 1946 the interest cost was $269,831.
(See pp. 36 and 37.)
Loans (advances) are evidenced by notes of borrowers (member
associations), and if their terin exceeds 1 year they must be secured.
The average interest rate earned on advances was 1.89 percent; in
1946 it was 1.73 percent and in 1945, 1.82 percent.




6

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

The advances outstanding at Jane 30, 1947, aggregated $289,088,899, an increase of about $85,800,000 (42 percent) over the preceding year-end. Advances made totaled $302,500,000 in 1947 and
$314,800,000 in 1946; these two years accounted for nearly 30 percent
of the $2,098,000,000 loaned by the banks since their inception in
1932. Although membership in the banks was virtually unchanged
during the year, the borrowing members at June 30, 1947, had
increased 30 percent to 1,455, or 39 percent of the total membership
of 3,700.
At June 30, 1947, long-term advances represented 50 percent of the
total outstanding whereas at the close of the preceding year they
represented 20 percent of the total. The face value of mortgage
collateral at the close of 1947 was 126 percent greater than at the end
of 1946 and was 78 percent of the total collateral.
During the year under review, the banks earned $4,614,300 in
interest on advances, an increase of $2,114,000 (85 percent) over the
1946 income. (See p. 36.)
The banks held $155,463,500 (par value) in Government securities
at the close of 1947—nearly $35,000,000 more than at the beginning
of the year. Of the total, approximately $55,000,000 was needed to
comply with statutory reserve requirements, leaving $100,000,000 as
an unrestricted secondary reserve. Earnings on these investments
totaled $2,755,079 during the year, $62,000 less than in 1946. (See
p. 33.)
At June 30, 1947, the Government (RFC) owned 56 percent of the
outstanding capital stock of the banks. If it is assumed, for purposes
of comparison, that the Government's equity in the United States
securities owned by the banks amounted to 56 percent or $87,060,000,
it is interesting to note that the interest of $1,543,000 (out of a total
of $2,755,000 for 1947) paid on this equity by the Treasury approximately equals the dividends of $1,506,000 on FHLB capital stock
owned by RFC. In other words, the income on $87,060,000 of United
States securities was sufficient to pay the dividends on $122,672,000
of capital stock owned by the Government.
4. In general, the accounting records and system of internal control
of the banks were adequate. We found some deficiencies in the system
of internal control of certain banks and made suggestions for their
correction. The volume of transactions in some banks was and still
is too small to justify the employment of personnel in a number
sufficient to provide adequate internal checks and balances. In those
cases we recommended greater vigilance on the part of the bank
examiners. Our suggestions were adopted promptly.
RECOMMENDATIONS TO THE CONGRESS
FEDERAL HOME LOAN BANK ADMINISTRATION
(NOW HOME LOAN BANK BOARD)

Recommendations adopted by the Congress
The substance of a recommendation included in our 1945-1946
audit report was embodied in an act (62 Stat. 1239) approved on
July 3, 1948, which granted authority to the HLBB to classify as
nonadministrative expenses the costs of examination of savings-andloan-type institutions made by its Examining Division.



FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

7

Previous recommendations to the Congress
We offer for further consideration by the Congress the following
recommendations the substance of which was included in our previous
audit report (H. Doc. 706, 80th Cong.).
1. In common with our recommendations concerning Government
corporations, we believe that the functions of the Home Loan Bank
Board should be those of policy-making and general supervision rather
than administration and operation. Under this plan the members
should serve and be compensated on a part-time basis. The membership of the Board should be increased to five or seven members in
order to provide a balanced representation of the interests of the
public at large with the interests of the institutions it supervises.
The chairman of the Board should be elected by the directors. We
recommend, therefore, that the Board be reconstituted somewhat along
the general outline suggested on page 8 of our previous report.
2. We believe that there is a serious question as to the desirability
of permitting an agency having the authority to promote and charter
Federal savings and loan associations, which are required by law to
be insured, also to administer insurance underwriting. Experience
has shown that the responsibilities for these functions are inherently
conflicting. (See pp. 13 and 16 of our 1945-1946 audit report on
Federal Savings and Loan Insurance Corporation, H. Doc. 660, 80th
Cong.)
Therefore, it is recommended that the Congress consider separation
of Federal Savings and Loan Insurance Corporation from the Federal
Home Loan Bank Administration (now HLBB) but not, of course,
from the overall supervision of National Housing Agency (now
H&HFA). Such a separation of functions exists in the commercial
banking field. Federal Deposit Insurance Corporation is independent
of the Federal and State bank supervisory authorities, but coordination is an objective of the requirement that the Comptroller of the
Currency be one of the members of the board of directors of FDIC.
Such a separation would necessitate the creation of a board of
trustees (directors) for Federal Savings and Loan Insurance Corporation. Detailed suggestions as to the composition of the board were
offered on pages 4 and 5 of our 1945-1946 audit report on FS&LIC.
3. The financial transactions of the Administrative Department
and the Federal Home Loan Bank System of the Federal Home Loan
Bank Administration (now HLBB) should be subject to budgetary
control and audit in the same manner as Government corporations,
under the Government Corporation Control Act (31 U. S. C. 841,
et sen.) rather than under the Budget and Accounting Act of 1921
{31 U. S. C. 41-58, 71 et seq.) t since all of the revenues (exclusive of
reimbursements for examinations of savings and loan associations)
are obtained from wholly or partly owned Government corporations
and no appropriations are received from the United States Treasury.
Therefore, it is recommended that the Congress consider amending
title I of the Government Corporation Control Act (31 XL S. C. 841,
et seq.) to include the Home Loan Bank Board. 1
New recommendations to the Congress
4. In accordance with generally accepted accounting principles and
sound business practice, all costs in connection with the operations
1

The HLBB has expressed agreement with this recommendation.




8

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

of an organization should be reflected in its accounts and financial
statements. The Home Loan Bank Board does not bear its portion
of the Government's share of the cost of the civil service retirement
system or of the Federal employees' compensation fund.
While this condition exists generally in Government agencies whose
employees are under the civil service retirement system, we recommend that the Congress enact legislation to require that the Home
Loan Bank Board contribute to the civil service retirement and disability fund on the basis of annual billings, as determined by the Civil
Service Commission, for the Government's share of the cost of the
civil service retirement system applicable to the Board's employees
and their beneficiaries and for a fan portion of the cost of administration of the fund.
"We recommend further, for the same reason, that the Board reimburse the Federal employees' compensation fund, on the basis of
billings determined by the Federal Security Agency, for the cost of
benefits paid under the provisions of the Federal Employees' Compensation Act of September 7,1916, on account of employees of the Board
and for a fair portion of the cost of administration.
FEDERAL HOME LOAN BANKS

Previous recommendations to the Congress
We offer for further consideration by the Congress the followingrecommendations the substance ol which was included in our previous
audit report.
1. It is recommended that consideration be given to changing the
method of electing directors as now provided by law. Representation
on the board of directors of each bank should be proportionate to the
degree of risk of the stockholders. In the case of member institutions
this risk is measured by their stockholdings alone. In the case of the
Government it must comprehend also the moral and potential financial responsibilities inherent in the policy of the underlying legislation.
The Government supervises the banks, approves or disapproves the
election of bank directors, holds a veto power over the acts of the
boards of directors, establishes credit limits, requires that public
borrowings and transactions in Government securities by the banks
have the approval of the Secretary of the Treasury; and may be called
upon for financial support in periods of recession or depression in order
to maintain an adequate credit reserve system.
Under existing law the Government is represented by four of th&
twelve directors on the board of each bank. A more desirable plan
would be an arrangement similar to that prescribed for the corporations supervised by the Farm Credit Administration. The members
of the district farm credit boards are elected as follows: Three members are chosen, one each by the national farm loan associations, the
production credit associations, and the cooperatives which are stockholders of the banks for cooperatives; four members are appointed
by the Governor of Farm Credit Administration, one of whom is
selected from three persons nominated by the national farm loan
associations.
2. We believe that the Federal home.loan banks should not have
excessive capital. I t is recommended, therefore, that:




FEDERAL HOME /LOAN BANK ADMINISTRATION AND; BANKS

,9

a. The banks should not be permitted to borrow for any pur r
pose other than to provide funds for advances to member institutions.
b. Provision should be made for flexibility in the capital, structure of the banks. To this end, the revolving fund plan employed
in the corporations supervised by Farm Credit Administration
should be considered.
3. I t is suggested that the banks be required to pay cumulative
dividends or interest on the Government's investment, at a rate
determined by the Secretary of the Treasury, calculated to reimburse
the Treasury for its cost. (See p. 40.)
New recommendations to the Congress
4. At January 31, 1949, member institutions owned all of the
capital stock in one bank (Indianapolis) and a majority in three banks
(Winston-Salem, Cincinnati, and Des Moines).
'' ' .
Upon retirement of the Government's investment, the banks, individually or as a system, are not subject to the General Accounting
Office audit or to certain other controls contained in titles II and I I I
of the Government Corporation Control Act (31 U. S. C. 841, et seq.),
but, as noted in recommendation number 1 on page 8, the Government's responsibilities are not diminished. Therefore, it is recommended that so long as the responsibilities for direction and potential
financing remain with the Government, each bank should be subject
to the provisions of the cited titles of the Government Corporation
Control Act. 1
5. The law provides that "The board shall from time to time, at
least twice annually, require examinations * * * of all Federal
Home Loan Banks * * V
Our recent field survey of the 11 banks
and our review and observation of the examination program and
procedures of the bank examination staff of the Home Loan Bank
Board indicate that under existing conditions an annual examination
would be sufficent, so long as the General Accounting Office is authorized to audit the banks in accordance with requirements of the Government Corporation Control Act. In our opinion, however, the Board
should be permitted, as a safeguard against unsatisfactory conditions
in the banks, to make more frequent examinations if necessary. We
recommend, therefore, that the,act be amended to provide that the
Board shall from time to time, at least annually, require examinations
of all Federal home loan banks. 1
RECOMMENDATIONS TO THE MANAGEMENT
FEDERAL HOME LOAN BANK ADMINISTRATION
(NOW HOME LOAN BANKBOARD)

Recommendations adopted by the management
Of the recommendations included in our audit report for the fiscal
years 1945-1946, the HLBB has adopted the following:
1. The review of the eligibility for insurance of associations seeking
a Federal charter and the approval of all admissions should be assigned
to Federal Savings and Loan Insurance Corporation; final approval
1

Legislation proposed by the HLBB has been submitted through the Bureau of the Budget to thePresident.
91774—49




3

10

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

and issuance of the insurance certificates should rest with the Board.
(For the part of this recommendation not yet adopted, see item 1
below.)
2. The Board should remove the policy and operating functions
previously granted to the Legal Department.
Previous recommendations to the management
Pending the possible enactment of legislation for the separation of
FS&LIC from the HLBB (see recommendation to the Congress on
p . 7), the following recommendations are renewed in light of the
conditions that existed at the date of preparation of this report
(December 1948).
1. In order to protect the insurance fund more adequately, the
administrative responsibility for examining insured institutions and
enforcing insurance regulations, now operating functions of the
HLBB, should be transferred to FS&LIC. These activities are primarily the responsibility of FS&LIC by law, and it is desirable also
from the standpoint of internal control that such functions be divorced
from the HLBB, which is responsible for promotion and development
of Federal associations and the Federal home loan banks. However,
the HLBB would continue to promote and charter Federal associations, to review examination reports of Federal associations to determine that its supervisory regulations are complied with, and to initiate
action for the correction of deficiencies in Federal associations.
Although the administrative responsibility for examinations of
insured institutions and applicants for insurance would rest with
FS&LIC and for examinations of noninsured institutions with the
HLBB, for purposes of economy and efficiency the technical responsibility for conducting the examination of savings-and-loan-type institutions should be assigned to the recently created Office of the Auditor
of the HLBB acting on behalf of FS&LIC. The subject matter to be
included in examinations and the schedule of examinations to be
undertaken should be determined by the cooperative and coordinated
efforts of FS&LIC and of the chief supervisor and the Office of the
Auditor of the HLBB. Examination standards and the extent of
examination procedures would be the responsibility of the auditor.
Copies of all examination reports made for insurance purposes should
be issued to FS&LIC by the auditor. In addition, copies of reports
on examinations of Federal associations and noninsured associations
should be submitted to the Office of the Chief Supervisor of the
HLBB.
The Office of the Auditor is charged now with the internal audit of
the HLBB, HOLC, and FS&LIC, as well as audit of the 11 district
Federal home loan banks. The addition of the audit of savings-andloan-type institutions to his responsibilities would eliminate the
present lack of coordination between the Office of the Chief Examiner
of the HLBB (savings and loan associations) and the Office of the
Auditor (audits of 11 Federal home loan banks). There are phases of
the examination of the associations which should be but are not now
complementary to the audit of the 11 banks; common control of both
programs, we believe, would remove this deficiency. Consolidation
of the functions should provide also an opportunity to develop a more
competent audit staff through diversification of assignments and
reduction of existing travel requirements.



FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

11

2. We believe that administrative determination of the nature and
extent of legal, budget, personnel, and housekeeping requirements and
their control should rest with the chief operating executive for the
HLBB, HOLC, and FS&LIC. In the past this determination has
been made by the Administrative Department of the Federal Home
Loan Bank Administration without sufficient consideration of the
constituent units. The HLBB, however, should retain the responsibility for general supervision and coordination of its constituents in
order to insure compliance with its policies. I n our opinion, such a
policy would promote economy, facilitate operations, and more clearly
define management responsibility. We recommend that (1) operating
managements of the constituents prepare and justify their respective
budget estimates, (2) managements of the constitutents be consulted
in the preparation of the Board's own budget in order that there may
be no duplicated or unnecessary services or facilities in the Board's
offices, (3) constituents submit their estimates to a representative of
the HLBB for coordination and approval by the Board and for
transmittal to the Bureau of the Budget through Housing and Home
Finance Agency, (4) the respective managements adjust their estimates
to reflect any changes made by the Congress, (5) the several managements be charged with full responsibility and authority for compliance
with the budgets, and (6) a system of monthly reports of operations in
comparison with the total budgeted allowance for each expense
classification replace the present system of monthly allotments, separate budget reports, and approval of variations from the allotments. 1
(See items 5 and 6, below and on p. 12.)
3. The accounting system of the HLBB should be maintained on
a corporate basis in order to reflect readily the total operating costs
and the allocation of such costs to its constituent organizations.
Elimination of budgetary accounts from the general accounting
records and adoption of the accrual basis of accounting (rather than
the "obligation" basis) would curtail administrative expenses and
simplify procedures. Since the subject was broached, some revisions
have been made, 2 and others requiring further study are under consideration. (For additional recommendations see items 5 and 6, below
and on p. 12.)
4. The surplus of the HLBB (exhibit 1, p. 25), has been unjustifiably accumulated over a period of years. Its origin was in excessive
assessments against the district banks, and the aggregate has been
reduced by the absorption of underassessments in several years and'
by the deficits sustained by the Examining Division through 1 insufficient charges for examinations of savings and loan associations.
Therefore, we recommend that (1) the excessive assessments be returned to the district banks, (2) the Examining Division deficits be
paid by FS&LIC, (3) policies and procedures for the final settlement
of advances made by the constituent units for each year be established, and (4) a uniform closing date for the accounting records of
all constituent units be adopted. (See pp. 20 and 21.)
New recommendations to the management
As a result of further study during our audit for the fiscal year
1947, we offer the following additional recommendations.
5. We have proposed (item 2 above) a simplified procedure for the
preparation of budget estimates and the control of operations under
J1 Adopted by the HLBB on December 29,1948.
Adopted by the HLBB during the fiscal year 1948.




12

FEDERAL HOME LOAN. BANK- ADMINISTRATION, AND BANKS

the approved budgets. The adoption of this plan would eliminate
virtually all of the detail work of the present Budget Office.* We
recommend that the Budget Office be discontinued and that its remaining functions of coordination and submission of the several
budgets be transferred to the Office of the Comptroller of the HLBB.
6. The volume of transactions and the resulting accounting work in
the offices of the comptrollers of FS&LIC and the HLBB do not
appear to be sufficient to warrant the employment of the present
staff (26 including supervisory personnel). In addition, the revised
budgetary procedures (item 2, p. 11) would greatly reduce the work
of the Office of the Comptroller of both the HLBB and FS&LIC. Also
the transfer of the computation of insurance premiums from the
comptroller's office of FS&LIC to the insured associations (proposed in
our 1947 audit report on that Corporation) would eliminate a substantial part of the work now performed by that office. We have
suggested (item 3, p. 11) that the accounting records of the HLBB
be revised and simplified. The adoption of these proposals would, in
our opinion, make both practicable and desirable the consolidation
of these offices under the comptroller of the HLBB. We therefore
recommend the consolidation of these functions under a single
comptroller who would be directly responsible to the HLBB. The
comptroller's office would be a service organization responsible for
formulating budget, fiscal, accounting, and statistical procedures
and maintaining related records, rendering to the general manager
and/or operating division chiefs necessary financial and statistical
information and reports pertinent to their operations, and submitting
special reports or data to the operating executives as requested
by them.
7. The auditor, who is responsible directly to the HLBB, should
have the duty of surveying the organizational structure and the
operating procedures of all the constituents and offices under the
Board's control. Such a continuing survey would be designed to insure
compliance with the Board's policies and to provide an independent
basis for the evaluation of performance and the improvement of
organization and procedures. I n other words, to be of maximum
service the auditor should be specifically authorized to extend his
functions beyond the mere examination of accounting records.2 The
auditor should attend meetings of the HLBB if the Board is to realize
the greatest benefit from his services as an advisor and an important
element of internal control.
8. Officers of the district Federal home loan banks, as agents for
the HLBB, review reports of examinations of insured associations
and take such supervisory action as they deem necessary. The bank
officers are elected by the district bank directors, most of whom are
officials of institutions subject to examination and to supervisory
criticism and action. This situation could interfere with the independence of the supervision and so constitute a weakness in the
administration of the law. However, an offset to this contingency is
the existence of the Office of the Chief Supervisor of the HLBB, which
receives examination reports and independently reviews both the
reports and the actions of the district supervisors and takes such
action as the circumstances warrant.
» Adopted by the HLBB on December 29,1948.
»Effective January 1949 these additional responsibilities were assigned to the auditor by the HLBB.




FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

13

At present the general manager of FS&LIC does not receive copies
of examination reports for his review, nor does he receive official
notification of important deficiencies, whether disclosed by examinations or otherwise, prior to the time that the imminence of default
requires financial assistance to insured institutions or payment of
insurance claims to shareholders. The general manager should have
under his control all available data bearing on conditions in insured
associations in order to determine weaknesses in each association and
to initiate corrective action for protection of the insurance fund. At
present the general manager has the operating responsibility but lacks
the means and the authority to take action to eliminate deficiencies.
Therefore, we recommend that:
a. Use of bank officers as agents of the HLBB in the supervision
of Federal associations and of FS&LIC in the enforcement of
insurance regulations be discontinued.
b. Direct responsibility for the supervision of Federal associations rest with the Office of the Chief Supervisor of the HLBB
and the function be performed by representatives of his office.
c. Direct responsibility for the enforcement of insurance regulations rest with the general manager of FS&LIC. A copy of
each examination report of insured institutions should be issued
directly to FS&LIC for review and analysis and for determination of any action that may be necessary for protection of the
insurance fund. Requests for corrective action with respect to
State associations should be directed by FS&LIC to the State
regulatory bodies; with respect to Federal associations, such
requests should be directed to the Office of the Chief Supervisor
of the HLBB. In all cases in which action may be necessary,
FS&LIC, in cooperation with regulatory officials, would formulate a plan for correction of the deficiencies.
FEDERAL HOME LOAN BANKS

New recommendations to the management
9. We have stated in our suggestions to the Congress (item 1, p. 8)
that the statutory provisions for the selection of directors results in
majority representation for the minority stockholders. The disproportion has been increased by the Administration's failure to fill
vacancies among the "public interest" directors in several of the
banks. We recommend that the Board make appointments to present
and future vacancies as promptly as possible.1
10. Our review of the banks 7 published financial statements disclosed wide variations in their form and degree of disclosure. We
observed, also, that there is no uniform policy as to the financial
statements and minimum information to be included in the banks'
reports to their stockholders. We recommend that the HLBB set
requirements for such published statements that will be in keeping
with generally accepted standards of financial reporting and prescribe
the minimum content of reports to be released to the banks' stockholders^^
1

As of February 9,1949, all vacancies among the "public interest" directors have been filled.







PART I
FEDERAL HOME LOAN BANK ADMINISTRATION
COMMENTS ON OPERATION

The expenses of the Administrative Department and the Federal
Home Loan Bank System of the Federal Home Loan Bank Administration for the fiscal year ended June 30, 1947, were $2,038,004, approximately $220,000 more than for the preceding fiscal year. A
summary of expenses for the two years and their allocation to the
organizations supervised by the Administration follows.
Year ended June SO

Salaries
Other operating expenses..
Office of Administrator, NHA

«

Increase
(—decrease)

me

1947
$1,607,655
415,118
15,231

$1,411,242
377,284
29,411

$196,413
37,834
-14,180

$2,038,004

$1,817,937

$220,067

$530,000
1,065,500
144,332
178,085
83,170
455
36,462

$450,000
958,707
140,572
235.137

$80,000
106,793
3,760
-57,052
83,170
-6,658
10,054

Allocated to:
Federal home loan banks
Insured institutions, for examinations.,
HOLC
FS&LIC
Long Beach conservatorship
Miscellaneous income
Balance transferred to surplus

7,113
26,408
$1,817,937

$2,038,004

$220,067

A comparison of the expenses of the Administrative Department
and their allocation for the fiscal years 1947 and 1946 follows:
Year ended June SO
1947
Salaries:
Office of Commissioner
Office of Executive Assistant to Commissioner
Office of Assistant to Commissioner
Legal Department
Personnel Department
Budget Office
Office of the Secretary
Other expenses:
Communications
Rents and utilities..
Other contractual services
Supplies and materials
Newspapers and periodicals

:

H

,

,

*
.,

Total expense to be allocated
Allocation of expenses:
FHLB System
FS&LIC,
1
HOLC
^
Total, as above




L
I

:„•
,„'„.i

,..

'

1946 _..

Increase
(-decrease)

$26,835
29,619
24,294
68,426
70,432
17,490
122,609

$24,330
29,665
19,392
64,538
45,489
15,569
109,110

$2,605
-46
4,902
3,888
24,943
1,921
13,499.

359,705

308,093

51,612

6,953
2,003

5,892
36,557
2,051
1,526
79

-5,892
-36,557
4,902
477
—79

$368,661

$354,198

$14.463,

$136,347
88,185
144,129

$126,161.
87,603
140,427

$10,184
577
3,702;

$368,661

$354,198

$14*463.

15

16

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

The expenses of the Federal Home Loan Bank System and their
allocation for the two years are compared:
Year ended June SO
1947
Operating expenses:
Salaries:
Office of the Governor
Office of the Chief Supervisor
Office of the Comptroller
*
Operating Statistics Division
Review and Analysis Section
Examining Division
Legal Department personnel assigned in the Administrative Department, carried on the payroll of the bank
system
Nonadministrative—Long Beach conservatorship
• Miscellaneous operating expenses:
' t Travel:'
FHLBS
Savings and Loan Advisory Council
Administrative Department, FHLBA
Transportation of things
Communications
.Rents and utilities
I
Printing-and binding.,.;
_-__-_
Other contractual services
Supplies and materials.
.-_
Newspapers and periodicals
J
Equipment-_:
Services rendered by HOLC (Personnel Department).Miscellaneous expenses, prior years (—reduction)
Other expenses:
* Office of Administrator, NHA
Administrative Department, FHLBA
FS&LIC (Operating Analysis Division)
..

.-

.-

Total expenses.!

"Less miscellaneous income
Net expenses
Expenses allocated:
Insured institutions, for examinations
FHLB„..i.-_
FS&LIC
HOLC..,:-.
z
Long Beach conservatorship
Total expenses allocatedw
Balance of expenses transferred to surplus

1

_

_

19+6

$60,537
101,577
96,799
64,105
12,516
735,874

-$3,842
-635
20,751
-64,105
1,916
128,586

34,844
59,027

31,741

3,103
59,027

1,247,950

1,103,149

144,801

179,080
3,935
1,460
1,322
25,971
82,591
1,647
18,618
9,135
62
15,246

184,719
3,789
1,797
1,329
10,515
63,033
287
26,58S
8,640
217
8,674
14,591

-5,639
146
-337
-7
15,456
19,658
1,360
—7,970
495
—155
6,572
—14,591
—468

338,599

324,179

14,420

15,231
136,34767,563

29,411
126,163
7,000

-14,180
10,184
60,563

-

$56,695
100,942
117,550

Increase
(-decrease)

14,432
894,460

—468

219,141

162,574

56,567

1,805,690

1,589,902

215,788

455

7,113

—6,658

1,805,235

1,582,789

222,446

1,065,500
530,000
89,900
203
83,170
1,768,773

958,707
450,000
147,529
145
1,556,381

106,793
80,000
-57,629
58
83,170
212,392

$36,462

$26,408

$10,054

These statements do not reflect the cost of employees' accumulated
annual leave. At June 30, 1947, the accrued leave amounted to
$77,129 for the Administrative Department and $234,660 for the
bank system; the combined liability was $311,789. Had this amount
been recorded and allocated in 1947, HOLC would have borne $31,581,
FS&LIC $41,921, and the FHLBA $238,287. The amount at June
30, 1946, is not readily available because the leave records were
maintained by the Personnel Department on a calendar year basis.
The increase. of $196,413 (FHLBS $144,801, Administrative
Department $51,612) in salaries is largely the result of salary increases
of $199,000 under the Federal Employees Pay Act of 1946 (5 XL S. C.
901, et seq.); periodic salary increases, $16,000; and additional
personnel, $58,000; partially offset by decreased overtime payments,
$14,000, and the transfer of the Operating Analysis Division to
FS&LIC, $64,000,



FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

17

Many significant items have been stated differently in the two
years, and, consequently, in those cases the variation shown is meaningless. In 1946 a number of expenses were paid by the Administrative Department and recovered through assessments against the
organizations under its supervision, but in 1947 some of these costs
were paid directly by the constituent organizations. Included in
this category were communications, $6,000, and rents and utilities,
$37,000. On the other hand, in 1946 some expenses were paid by
affiliated organizations and recovered through assessments by or
against FHLBS, but in 1947 certain of these costs were paid directly
~by the bank system; among these items were communications,
$15,000 (of which 812,000 was formerly paid by NHA); rents and
utilities, $16,000 (paid by Administrative Department, FHLBA in
1946); and Personnel Department salaries formerly paid by HOLC
$15,000.
A comparison of the administrative expenses with the amount
authorized by the Congress follows:
Authorization

$1,641,000

Total expenses (exhibit 2)
Less charges against:
HOLC and FS&LIC
Long Beach conservatorship
Prior years' expenses applied in
current year—not deducted
above..
Total administrative
penses

2,038,004
$314,151
87,6S8
2,106

ex-

403,945
1,634,059

Excess of authorization over expenses

$6,941

For the three years 1945, 1946, and 1947 we reviewed the expenses,
their justification, and the bases upon which they were allocated to
the various subordinate organizations. In our opinion, the Administration was overstaffed, it performed unnecessary and often overlapping functions, and the cost of its activities was assessed against
its constituent entities with little regard for the need of those activities. We found no reasonable basis for the changes in the composition of the assessments and the varying allocations of their components that occurred in the fiscal years 1945, 1946, and 1947. Some
of these deficiencies have been corrected by the present Home Loan
Bank Board, but much remains to be done.
The Legal Department salaries ($103,270 in 1947) were borne by
the corporate constituents, which also had other expenses for legal
services:
HOLC
Assessments by FHLBA (total, $103,270) . „
Legal Department—New York
Salaries paid directly by FS&LIC for
FHLBA Legal Department
Counsels'compensation

$17,107
219,427

FS&L1C
$24,633
31,19S

$236,534

$55,831

Federal
home loan
banks

$61,530
38,125
$99,655

Thus the total cost of legal services for the FHLBA and its constituents
was $392,020.
The present detailed internal budgetary procedures not only require
a separate staff in the Administrative Department but impose on the
91774—49




4

18

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

comptrollers' offices an additional burden of record-keeping and reporting. We believe that the essential functions of budget preparation
and budgetary control can be performed by the comptroller of the
FHLBA more economically than under the existing arrangement.
The Administrator of the National Housing Agency was charged,
among other things, with the supervision and direction of the Federal
Home Loan Bank Administration. We understand that the Administrator has not actively intervened in the operations or policy determinations of the FHLBA or its constituent units. However, the
Agency has provided a public relations service for the FHLBA and has
been required, as a matter of form, to integrate the budgets and other
financial reports of the FHLBA and its constituent organizations into
its own reports. Further, it has been required to act as a channel for
many intragovernmental matters affecting the FHLBA. Assessments paid to NHA for services to, and supervision of, the FHLBA
And its constituent organizations were as follows:
Year ended June SO
1947
federal Home Loan Bank System
Home Owners'Loan Corporation
Federal Savings and Loan Insurance Corporation

$15,231
46,962
6.307
$67,500

19tf
$29,411
85,443
7,925
$122,779

The Office of the Chief Supervisor is concerned primarily with the
supervision of insured institutions. During the course of our audit
for the fiscal years 1945 and 1946, we informed the management that
its poKcy of charging the full cost of this activity to FS&LIC was
improper. In 1947 the charge to FS&LIC was reduced to 75 percent
($74,882) of the total; one-half of the balance ($26,060) was allocated
to the Examining Division of the FHLBA and the rest to the Federal
home loan banks.
Officers of the district banks, as agents for FS&LIC and the FHLBA
(now HLBB), review the reports of examinations of associations and
take such supervisory action as they deem necessary. The bank
officers are elected by the district bank directors, most of whom are
officials of institutions subject to examination and to supervisory
criticism and action. This situation could interfere with the independence of the supervision and so constitute a weakness in the
administration of the law. However, an offset to this contingency
is the existence in the FHLBA of the Office of the Chief Supervisor,
which receives examination reports and independently reviews both
the reports and the actions of the district supervisors and takes such
action as the circumstances warrant.
At present the general manager of FS&LIC does not receive copies
of examination reports for his review, nor does he receive official
notification of important deficiencies, whether disclosed by examinations or otherwise, prior to the time that the imminence of default
requires financial assistance to an insured institution or payment of
insurance claims to shareholders. The general manager should have
under his control all available data bearing on conditions in insured
institutions in order to determine weaknesses in each association and
initiate corrective action for the protection of the insurance fund. At
present the general manager has the operating responsibility but lacks
the means and the authority to take corrective action. (See p. 12
for our recommendation.)



FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

19

COMMENTS ON FINANCIAL POSITION

A comparison of the financial position of the Federal Home Loan
Bank Administration at the close of the fiscal years 1947 and 1946 is:
June SO
Assets
Cash
Accounts receivable:
Insured Institutions for examination fees
Long Beach conservatorship
Other
FS&LIC
HOLC
NHA
Deferred expenses

_

Liabilities
Accounts payable
Trust liabilities
Excessive contributions, to be refunded:
HOLC
FS&LIC
Deferred income
Surplus—excessive assessments against district banks, less examining division deficits

Increase
(-decrease)

1947

1946

$341,656

$380,768

-$39,112

139,395
90,974
23
26,079
*
24

250,256
4,543

— 110,861
86,432
23
-813
-542
-142
—341

159

26,892
566
142
500

$598,310

$663,666

-$65,356

$139,965
63,843

$159,696
59,011

-$19,731
4,832

4,625
960
1,678

12,055
9,203

-7,430
-8,243
1,678

7

387,239

423,701

-36,462

$598,310

$663,666

-$65,356

Cash
The cash balances were derived largely from excessive assessments
made against organizations supervised by the FHLBA and constitute,
in effect, a revolving fund for the Administration.
Accounts receivable
Examination fees
The Examining Division of the FHLBA examines insured institutions (Federal and State) and such other institutions, including applicants for insurance, as the Administration (now HLBB) may require.
According to section 8 of the Federal Home Loan Bank Act, "In
any State where state examination of members or nonmember borrowers is deemed inadequate for the purposes of the Federal home
loan banks the board shall establish such examination, all or part of
the cost of which may be considered as part of the cost of making
advances in such state." Virtually no examinations have been made
under this provision.
Section 403 (b) of the National Housing Act (12 U. S. C. 1726
(b)) provides that applications for insurance shall contain an agreement "(1) to pay the reasonable cost of such examinations as the
Corporation [FS&LIC] shall deem necessary in connection with such
insurance, and (2) if the insurance is granted, to permit and pay the
cost of such examinations as in the judgment of the Corporation may
from time to time be necessary for its protection and the protection of
other insured institutions." The FS&LIC regulations require that
all insured institutions permit and pay for at least annual examinations by the Corporation. These examinations are made by the
Examining Division, under control of the FHLBA.
I t is our opinion that the responsibility for the examinations of
insured institutions and the determination that such institutions
have complied with the insurance regulations should be vested in the




20

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

general manager of FS&LIC. The general manager at all times
should be cognizant of conditions existing in each and every insured
association in order that he may discharge his duty of safeguarding
the insurance fund. . (See p. 10.) Further, we believe that the present
delegation of responsibilities from an insurance standpoint does not
provide adequate management control. In addition, there is a
serious question as to the desirability of permitting a regulatory body
(FHLBA) having authority to promote and charter Federal associations, which are required by law to be insured, also to supervise
insurance underwriting.
At June 30, 1947, the examination fees of $139,395 ($110,861 less
than at. the.preceding year-end) shown in the balance sheet comprised:
Fees billed
Fees unbilled

$48.495
90,000
$139,395

The unbilled portion represents largely the charges, at per diem rates,
ior work performed on examinations which had not been completed
at June 30. All of these accounts were collected during the ensuing
fiscal year.
Although progressive increases in rates have been made, the
Examining Division has operated at a deficit for several years. The
financial results of its operations during the last three years were:
Fiscal year
1945
1946
1947

Expenses

Examination
fees

$991,699
977,924
1,115,225

$971,942
958,707
1,065,500

$3,084,848

$2,996,149

Deficit
$19,757.
^ 19,217
49,725
° " $88,699

The deficits ultimately are absorbed by the assessments made
against the district banks. I t is our opinion that the deficits shouldbe charged to FS&L1C, because the examinations were made primarily
for the protection of the insurance1 fund. The rates should be increased to avoid additional deficits.
Long Beach Federal Sawngs and Loan
Association—conservatorship costs
The balance sheet at June 30, 1947, reflects the unpaid balance,
$90,974, of expenses incurred in the conduct of the association's affairs
while the association was in possession of a conservator, appointed by,
the Federal Home" Loan Bank Administration^ on May 20; 1946.After the balance sheet date, a payment of $63,749 was received.;
Litigation is now pending in the United States District Court for the;
Southern District of California, Central Division/involving the Long,
Beach Federal Savings and Loan Association and the validity of the
conservatorship,
Surplus
' : The surplus, $387,239, shown in the accompanying balance sheet is
$5,526 greater than that shown on the Administration's (FHLBA)
books. . The difference represents our adjustments for an additional
} In August 1948 the per diem rates were changed by the HLBB from $31 (or senior examiners and $26
for^
assistants to a single rate of $30.
•'
<
* - - * ' - > .\
,. ,
*T




FEDERAL HOME LOAN. ;BA2STK ADMINISTRATION; AND* BANKS

21

$8,099 due from the Long Beach conservatorship, and an overassessment of $2,573 against FS&LIO, both of which were recorded subsequently by the Administration. This, surplus arose-from* excessive
assessments against the district banks and has been reduced by the
absorption of underassessments in several.years and by the deficits
sustained by the Examining Division through insufficient charges for
examinations of savings and loan associations., (See p. 11.) The
'bank assessments are authorized by section 18 (b) of the Federal Home
•Loan Bank Act (12 U. S. C. 1438) for the purpose of defraying the
expenses of the Federal Home Loan Bank Board.";, The general counsel of the Federal Home Loan Bank Administration hasruled that the
examinations of insured savings and loan associations are made for the
primary benefit of Federal Savings and Loan Insurance Corporation.
In our opinion, the surplus has been unjustifiably accumulated, and the
Examining Division deficits are a proper charge against FS&LIC.
A For a number of years the distribution of expenses was such that the
costs of the Examining Division were substantially understated, and,
-consequently, the records reflected a profit ifrom operations. i> I n 1941
an effort was made to redistribute the prior years' expenses so as to
reflect the proper operating results.\ OOur review of the entries made
at that time leads us to conclude that the achievement was far short
pi its §oal. : Believing that the ownership of these funds should be
determined with sufficient accuracy to permit an equitable settlement
with their contributors, we undertook their identification. ? After '&
brief survey it became apparent that this task could be accomplished
more expeditiously and economically by the staff o f ' t h e H L B B ^ a n d
at our request the-Board's comptroller and its auditor agreed to make
the necessary 'analyses; Upon completion of the work, the Board
should be able, to m a t e a reasonably satisfactory disposition of the
funds.
In order to eliminate any further accumulation of surplus funds we
suggest that the FHLBA (HLBB) establish policies and procedures
for the final settlement of advances made by constituent units for each
ear, based upon the closing of the accounting records as of June 30.
'urther, a uniform closing date for the accounting records of all constituent units should be adopted and the interunit accounts should be
in agreement at the end of the fiscal year.

J

EXCEPTIONS

Insofar as we were able to observe during the course of our audit,
no program, expenditure, or other financial transaction had been
carried on, incurred, or entered into by the Federal Home Loan Bank
Administration without authority of law. However, we question
the propriety of the accumulation by the Federal Home Loan Bank
System (a division of the Federal Home Loan Bank Administration)
of funds derived from excessive assessments against the Federal home
loan banks and the use of these funds to absorb deficits incurred by
the Examining Division of the Administration in its examinations of
insured savings and loan associations which are made primarily for
the benefit of Federal Savings and Loan Insurance Corporation.




22

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS
SCOPE OP AUDIT

We have examined the balance sheet of the Federal Home Loan
Bank Administration as of June 30, 1947, and the related statements
of expenses and their allocation and surplus for the year then ended.
We have reviewed the system of internal control and the accounting
procedures of the Board and, without making a detailed audit of the
transactions, have examined or tested accounting records and other
supporting evidence by methods and to the extent deemed appropriate. Our examination was made in accordance with generally
accepted auditing standards and, accordingly, included all auditing
procedures which we considered necessary m the circumstances.
All disbursements were subject to audit by the General Accounting
Office under the provisions of the Budget and Accounting Act of 1921
(31 U. S. C. 41-58, 71 et seq.). We were advised by the Audit
Division of the General Accounting Office that the accounts had been
audited through July 1947 (transportation vouchers, through April
1947) and that no material amount of exceptions was outstanding.
OPINION

I n our opinion, the accompanying balance sheet and related statement of expenses and surplus present fairly the financial position of
the Federal Home Loan Bank Administration at June 30, 1947, and
the results of its operations for the fiscal year ended at that date, in
conformity with generally accepted accounting principles applied on
a basis consistent with that of the preceding year.




STEPHEN B. IVES,

Director oj Corporation Audits*




FINANCIAL STATEMENTS

23




EXHIBIT 1

F E D E R A L HOME LOAN BANK A D M I N I S T R A T I O N
BALANCE S H E E T - J U N E 30, 1947
Federal
Home Loan
Bank
Adminiitration

ASSETS
CASH
-.
ACCOUNTS RECEIVABLE:

„

Administratice
Department

$341,656

i Insured institutions for examination fees
.".
Long Beach Federal Savings and Loan Association—
conservatorship costs. _".
_
Other
„
—

ADMINISTRATIVE DEPARTMENT
1.
FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION—
HOME OWNERS* LOAN CORPORATION.
r
DETERRED EXPENSES
„
„

$38,873

Federal
Home
Loan
Bank
System
$302,783

139,305 ...

139,395

90,974 ,__

90,074

23
544

5,566
25.535
• 24

$598.310"

$39,599

$564,277

$139,965
63,843

$12,336
16,112

$127^629
47,731

26,079
24
159

LIABILITIES
ACCOUNTS PAYABLE
_
.
..—-—
TRUST LIABILITIES.
._
-----—----EXCESSIVE CONTRIBUTIONS, T O B E REFUNDED:

Federal Home Loan Bank System
Home Owners' l o a n Corporation.—".
Federal Savings and Loan Insurance Corporation——
DETERRED INCOME

—

SURPLUS—excessive assessments made against district
banks, less deficits incurred by the examining division
(exhibit 2)
.I-




4,625
960
1,678 ...

1,678

387,239

387,239 -.;
$598,310

$39,599

$564,277

25

26

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

EXHIBIT 2

FEDERAL HOME LOAN BANK ADMINISTRATION
STATEMENT OF EXPENSES, THEIR ALLOCATION, AND SURPLUS
FOR THE FISCAL YEAR ENDED JUNE 30, 1947
Federal Home
AdministraLoan Bank
tis DepartAdministrament
tion
Operating expenses:
Salaries
,
Travel
Transportation of things
Communications
Rents and utilities
Printing and binding
Other contractual services...
Supplies and materials
Newspapers and periodicals..
Equipment.
Miscellaneous expenses, prior years (—reduction).
Total operating expenses
Other expenses:
Office of Administrator, NHA.
Administrative Department...
Total expenses
Less miscellaneous income..
Net expensesAllocation of expenses:
Insured institutions for examining fees
FHLB
Federal Home Loan Bank System
Federal Savings and Loan Insurance Corporation..
Home Owners' Loan Corporation
Long Beach conservatorship^.
Total expenses allocated...
Balance of expenses transferred to surplus..
Surplus at June 30,1946
Surplus at June 30,1947 (exhibit 1).




$1,607,655
184,475

$359,705

1,322

25,971
82,591
1,647
93,134
11,138

62

6,953
2,003

15,246

2,022,773

368,661

Federal Home
Loan Bank
System
$1,247,950
184,475
1,32?
25,971
82,591
1,647
86,181
9,135
62
15,245
-468
1,654,11?
15,231
136,347

15,231
2,038,004
455

368,661

1,805*690
455

2,037,549

368,661

1,805,235
1,065,500
530,000

1,065,500
530,000
178,085
144,332
83,170
2,001,087

136,347
88,185
144,129
363,661

89,900
203
83,170
1,768,773

36,462
423,701

36,462
423,701

$387,239

$387,239

EXHIBIT 3

F E D E R A L HOME LOAN

BANK

ADMINISTRATION

SUMMARY OF EXPENSES, THEIR ALLOCATION, AND SURPLUS
For the Fiscal Years J93S to 19$% Inclusive
Allocations

Fisca I year

Insured in*
solutions

HOLC

FS&LIC

Federal
savings
and loan
promotion
fund
(note 1)

Total
expenses

Balance
charged
against
assessments
on district
banks

Surpi tus
Assessments
on district
banks

Annual
addition

Balance
at
June SO

Other

Total

$223,407(2)
465
287

$223,407
189,385
358,024
633,244
908,893

$223,407
403,457
644,513
822,887
1,074,872

$214,072
186,489
189,643
165,979

$266,373
231,358
298,994
232,003

$52,301
44,869
107,351
66,024

$62,301
97,170
204,521
270,645

1933
1934.
1935
1936.
1937

$151,757
336,803
563,000

$188,862
112,211
206,808
230,716

$52,212
47,466
88,870

1938.
1939.
1910
1941.
1942

740,776
668,426
735,028
917,955
1,007,954

268,377
145,876
148,720
129,522
36,210

65,232
69,586
120,099
138,174
151,322

677
1,519
8,402

1,064,385
883,883
1,004,624
1,187,170
1,203,888

1,120,894
1,124,062
1,286,706
1,345,447
1,462,434

56,609
240,174
282,182
158,277
258,646

150,000
225,000
300,000
300,000
300,000

93,491
-15,174
17,818
141,723
41,454

364,036
348,862
366,680
608,403
649,867

1943
1944
1945 (r notc3)
1946 1'note 3)
1947 <[note 3)

9*11,566
958,657
971,942
958,707
1,065,500

37,599
2,854
149,013
140,572
144,332

99,791
98,390
221,317
235,137
178,085

2,893
453
2,874
9,357
83,625

1,051,849
1,060,354
1,345,146
1,343,773
1,471,642

1,311,597
1,535,383
1,810,112
1,820,181
2,038,004

259,748
475,034
464,966
476,408
566,462

300,000
350,000
450,000
450,000
530,000

40,252
-125,034
-14,966
-26,408
-36,462

690,109
465,075
450,109
423,701
387,239

$9,988,071

$1,941,672

$1,555,681

$333,959

$13,929,472

$17,923,961

$3,994,489

$4,381,728

$387,239

Total

$58
41,557
42,167
26,307

$110,089

NOTES:
1. The Federal savings and loan promotion fund was appropriated from the general
funds of the U. S. Treasury pursuant to section 6 of the Home Owners' Loan Act of
1933, for use of the Federal Home Loan Bank Board to encourage local thrift and
home financing.
2. Pursuant to section 18 of the Federal Home Loan Bank Act of 1932, $250,000 was appro-




priated from the general funds of the U. S. Treasury to organize and establish the Federal Home Loan Bank System, of which $223,407 was expended and the balance
returned to the Treasury.
3. The accounts as stated reflect adjustments which were recorded by the FHLBS in
different fiscal years. During 1945, 1946, and 1947 the FHLBA expenses were recorded on the books of the Administrative Department and of the FHLBS.

28

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

SCHEDULE

1

FEDERAL

HOME LOAN B A N K A D M I N I S T R A T I O N
ADMINISTRATIVE DEPARTMENT

STATEMENT OF EXPENSES AND T H E I R ALLOCATION
For the Final Year Ended June 30,1947
Allocated to and reimbursed by
Federal Home Loan
Jpanfc System

Office of Commissioner
.-.,_
Office of Executive Assistant to Commissioner
'
_
Office of Assistant to Commissioner—
Legal Department
Personnel Department
Budget Office
Office of the Secretary
Total salaries
,
Other expenses:
Other contractual services.
Supplies and materials
Total.




Federal
•, Savings
and Loan
Insurance
Corporation

Home
Owners'
Loan
Corporation

,$26,835

$7,969

$8,856

$9,124

29,619
24,294
68,426
70,432
17,490
1
122,609

7,995
414
1,831

13.181
3,742
26,686
10,599
4,395
55,337

10,959
. 2,429
24,633
5,635
2,414
31,117

6,479
18,123
17,107
46,203
10,267
34,324

359,705

11,126

121,909

86,043

140,627

2,671
741

1,663
479

2,719
783

$125,221

$88,185

$144,129

6,953
2,003
$368,661

$11,126

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

29

SCHEDULE 2

FEDERAL

HOME

LOAN

BANK

ADMINISTRATION

FEDERAL HOME LOAN BANK SYSTEM
STATEMENT OF EXPENSES AND THEIR ALLOCATION
For the Fiscal Year Ended June SO, 194?
Federal Home Loan
Bank System
Other
Examining
Total
expenses Division activities

Federal
Savings
Home
and Loan
Owners'
Insurance
Loan
Corporation Corporation

OPEBATING EXPENSES:

Salaries:
Office of the Governor
Office of the Chief Supervisor
Office of the Comptroller
Review and Analysis Section
Examining Division
Legal Department personnel assigned in the Administrative
Department, carried on the payroll of the Bank System
Nonadministrative—Long Beach
conservatorship
Total salaries

$56,695
100,942
117,650
14,432
864,460

$6,187
13,030
23,546
864,064

$40,251
13,030
94,004
14,432

34,844

34,844

59,027

69,027

$10,257
74,882
396

1,247,950

906,827

255,588

85,535

177,403
1,677

138,494
141

40,960
1,636

-2,124

MISCELLANEOUS OPERATING EXPENSES:

Travel:
FHLBS, regular
FHLBS, conventions
Savings and Loan Advisory Council
Administrative D e p a r t m e n t ,
FHLBA, regular
Administrative D e p a r t m e n t ,
FHLBA, convention
Transportation of things
Communications
Rents and utilities
Printing and binding
Other contractual services
Supplies and materials
Newspapers and periodicals
Equipment
Miscellaneous expenses, prior years
(-reduction)
.„:.
Total miscellaneous expenses

OTHER EXPENSES:

Office of Administrator, NHA
Administrative Department, FHLBA,
FS&LIC (Operating Analysis Division)
Total other expenses
Total expenses

3,935

3,935

1,167

1,167

$73

1,640

293
317
13,660
48,555
1,641
12,854
4,334
62
13,706
2,105

-2,573

338,599

197,272

145,026

-3,879

181

15,231
136,347

11,126

15,231
125,221

219,141

11,126

208,015

1,805,690

1,115,225

603,628

81,656

181

1,065,500
530,000
90,103

1,065,500

89,900

203

293
1,322
25,971
82,591
1,647
18,618
9,135
62
15,246

1,005
12,410
34,036
6
5,764
3,876

-468

1
818

107

67,563

67,663

ALLOCATION OP EXPENSES:

Insured institutions for examination
fees
Assessments against district banks
. Charged to FS&LIC, and HOLC
Nonadministrative—Long Beach conservatorship
Miscellaneous
Total expenses allocated




83,170
455

83,170
455
1,769,228

1,065,500

613,625

89,900

203

-$36,462

-$49,725

$4,907

$8,244

$22

N E T INCREASE (— DECREASE) IN SUBPLUS

FOB THE PEBIOD.i

530,000




PART I I
FEDERAL HOME LOAN BANKS
COMMENTS ON OPERATIONS

The results of operations in the fiscal year 1947 are shown for each
of the 11 banks in the consolidated income statement (exhibit 2, part
I I ) . A summary of the consolidated operations, in comparison with
like data for the preceding fiscal year, is:
Combined {after
interbank
elimination*)
June SO.
19tf
Income:
Interest on advances
Interest on securities
Miscellaneous-

_

Total income
Expenses:
Operating:
Compensation, travel, and other expenses (schedule 1)
1
:*.
.'
'
Assessment by Federal Home Loan Bank Administration
_
Furniture and equipment purchased
„ —Financing:
•
Interest on consolidated obligations
Consolidated obligations expense—concessions
(discounts)
Consolidated obligations expense—office of fiscal
agent
!-Z-l
Interest on members'deposits

June S0t
me

Increase
(-decrease)

$4,614,300
2,755,079
1,973

$2,500,630
2,817,259
1,713

$2,113,670
' -62,180
260

7,371,352

5,319,602

2,051,750

990,569

890,657

99,912

530,000
15,867

450,000
17,117

80,000
—1,250

l,536,436i

1,357,774

178,662

1,656,975

513,430

1,143,545

102,181

50,418

51,763

34,497
389,380

23,018
269,831

11,479
119,549

2,183,033

856,697

1,326,336

Total expenses

3,719,469

2,214,471

1,504,998

Net operating Income

3,651,883

3,105,131

546,752

358,703
1,068

1,559,012
1,999

-1,200,309
-931

359,771

1,561,011

-1,201,240

$4,011,654

$4,666,142

-$654,488

Other income:
Profit on sale of securities (net)
Miscellaneous
Total other income
Net income

1

The income of the Federal home loan banks is not subject to
Federal income taxes.
The average rate of interest earned during the year on advances
was 1.89 percent and on Government securities it was 1.69 percent;
for 1946 the rates were 1.73 percent and 1.76 percent, respectively.
During the year under review, the 11 banks earned $4,614,300 interest
on advances, $2,113,670 (85 percent) more than during the preceding
year. Further comment on this point is included in the discussion
of advances on page 36.




31

32

FEDEKAL HOME LOAN BANK ADMINISTRATION AND BANKS

A substantial offset to these higher earnings was the marked increase
in the cost of financing. The cost of borrowed funds rose $1,206,787
(206 percent) over the preceding year (see p. 39) and interest on
members' deposits was $119,549 (44 percent) higher than in 1946.
Changing business conditions are reflected in the composition and
disposition of the banks' operating income. In 1947, 63 cents of each
dollar of operating income was earned on advances and 37 cents on
Government obligations; in 1946 the ratios were 47 cents and 53 cents,
respectively. Despite higher costs in 1947, expanded volume reduced
the operating expense requirements to 21 cents per income dollar
from 26 cents needed in the preceding year. The rise in the cost of
money borrowed was only partly offset by the effect of ,the trend
from low-rate short-term paper to high-rate long-term paper incident
to the increased loan activity of member associations; consequently,
the direct expense of open market financing required 24 cents of the
income dollar in 1947, 13 cents more than in 1946. As a result of
these conflicting influences the residue of the operating income dollar
available for reserves and dividends was 50 cents in 1947, a decline
of 8 cents from 1946 (interest on members' deposits took about 5 cents
in both years). In the opinion of the management there is no reason
to anticipate any reduction in the cost of open market financing in
the near future.
COMMENTS ON FINANCIAL POSITION

The financial position of each of the 11 banks as of June 30, 1947,
is presented in the consolidated balance sheet, exhibit 1, part I I .
The consolidated financial position of the banks at the close of the
last two fiscal years is compared:
AneU
Cash
U. S. Government securities at amortized cost..•_
Advances to members
_
Accrued interest on securities and advances
Otnerassets

Increase
June SO, 1947 June 30,1946 (—decrease)
$20,688,650
157,846,102
289,088,899
952,419
279,316

$21,380,273
122,510,618
203,295,671
713,705
161,925

-$691,623
35,335,484
85,793,328
238,714
117,391

$468,855,386

$348,062,092

$120,793,204

Liabilities
Deposits".
Consolidated bonds outstanding
Dividends payable
-.
Accrued interest on deposits and consolidated bonds
Accounts payable
Capital stock:
Owned by members
__
Owned by U. S. Government (held by RFC)
Surplus:
Legalreserve
u
Reserve for contingencies
_
L
Undivided profits




$85,885,527
140,000,000
943,627
413,221
13,622

$54,845,326
67,000,000
858,771
162,267
30,609,

$31,040,201
73,000,000
84,856
250,954
—16,987

05,599,800
122,672,200

79,559,450
123,651,200

16,040,350
-979,000

10,751,230
4,249.673
8,326,486

- 9,923,899
3,620,594
8,409,976

$468,855,386

$348,062,092

r

827,331
629,079
-83,490
$120,793,' 294

FEDERAL HOME LOAN BANK. ADMINISTRATION" AND BANKS

33

A further analysis of the changes in financial position resulting from
the operations for the year under review is presented in the following
statement of sources and applications of funds:
Resources provided by:
Net income for the fiscal year ended Jane 30,1947
Add charjres not represented by expenditure of funds:
Amortization of premium or discount on U. S. securities (net)...

$4,011,654
248,347
4.260,001
2,681,359

Deduct dividends (U. S. Government $1,500,000)
Net realization from sale of bonds and debentures:
Sale of bonds and debentures *
Less redemption of bonds and debentures»

$1,678,642

239,000,000
166,000,000

Sale of capital stock (net):
To members fless retirements $1,533,000)
Less retirement of Government's investment

73,000,000*

16,040,350
979,000

15,061,350
31,040,201
691,623

Increase in deposits of members (net)
Decrease in cash
Total

121,471,816

Resources applied to:
Advances to members
Less repayment of advances by members

:

302,543,107
216,749,779

*

Purchases of U. S. securities
Less sale or redemption of securities (exclusive of profit from sales,
$358,703, which is included in income above)

,

—^__

jgg 793 soft

281,816,680

246,232,849

35,583,831
94,657

Net changes in other assets and liabilities
Total
»Includes $137,000,000 for refunding.

$121,471,816
.

Statutory and unrestricted reserves
Cash and investments at June 30, 1947, amounted to $176,100,000.
The statutory reserves (see p. 34) and the unrestricted balances which
were available for current operations were:
Total
Cash
Investments (par)

$20,700,000
165,400,000
$176,100,000

Statutory
reserve

, Unrestricted

$11,000,000
55,100,000
$66,100,000

$9,700,000
100,300,000
$110,000,000

Investments in United States Government securities
A comparative summary of the securities (at par value) held by
the banks is:
Par values June SO
1947

1946

Increase
(-decrease)

Treasury bonds;
2%
2H%
2H%
2H%

$37,099,500
55,445,000
29,023,500
913,000

$33,899,500 47,540,000
22,113,600
1,123,000

$3,200,000
7,905,000
6,910,000
-210,000

Savings bonds, 2H%
Treasury notes, 1W%
Certificates of indebtedness, Ji%
Treasury bills, discount

122,481,000
6,517,500
.6,500,000
9,365,000
10,600,000

104,676,000
5,717,500
5,500,000
2,500,000
2,450,000

17,805,000
800,000
1,000,000
6,865,000 *
8,150,000

$155,463,500

$120,843,500




$34,620,000

34

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

The distribution of maturities (at par values) was:
Increase during
the year
June SO, 1947
Less than 1 year
1 to 5 years
5 to 10 years
OverlOyears
Total

_

Amount

Percent

$20,065,000
10,699,000
47,858,000
76,841,500

$15,115,000
5,199,000
981,000
13,325,000

$155,463,500

$34,620,000

305
95
2
21

• While the aggregate market value was in excess of amortized cost at
both dates, the margin at the close of 1947 was $1,300,000 (approximately one-third) less than at the preceding year-end:
June 50
1H7
Book value (amortized cost)
Market value
Excess of market value over book value

$157,846,102
160,366,904
$2,520,802

1H6
$122,510,618
126,341,773
$3,831,155

Increase
{—decrease)
$35,335,484
34,025,131
—$1,310,353

Securities purchased during the year totaled $281,816,680 (par value,
$280,587,000), including premiums of $1,229,680. Securities having
an amortized cost of $246,232,849 (par value, $245,967,000) were sold
at a net profit of $358,703.
Of the securities held at June 30, 1947, approximately $15,000,000
was necessary to meet the "legal" and contingent reserve requirements. An additional $40,000,000 was needed to comply with
statutory requirements as to the investment of members' capital
subscriptions (see p. 39) and their current deposits (see pp. 36 and 37).
Thus approximately $100,300,000 was left as an unrestricted secondary reserve.
During the fiscal year 1947 the banks earned $2,755,079 on their
securities investments; in 1946 the earnings were $2,817,259. The
yield on the average investment was 1.69 percent in 1947 and 1.76
percent in 1946. The smaller return is attributable, chiefly, to the
emphasis on liquidity reflected in the tabulation above.
Advances
Advances are evidenced by notes of member or nonmember borrowers, and if their term exceeds one year the loans must be secured.
Interest rates in the past three years have ranged from a minimum of
1% percent on short-term to 2% percent on long-term paper (the permissible maximum has been 3 percent).
At June 30, 1947, the outstanding advances totaled $289,089,000,
an increase of about $85,800,000 (42 percent) over the preceding yearend. The advances made during 1947, $302,543,000, were $12,335,000
less than the peak reached in 1946. The banks, from inception, have
loaned $2,098,000,000, of which nearly 30 percent was advanced during the last two fiscal years. The average advance per borrowing
member rose from $71,000 at June 30, 1939, to $181,000 at June 30,
1946, and to $199,000 at June 30, 1947—a general indication of the
growth in the average size of savings and loan institutions and, in
turn, their importance in the home mortgage field. Federal Savings
and Loan Insurance Corporation has estimated that during 1947 about
32 percent of all nonfarm mortgages of $20,000 or less were placed by



FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

35

institutions of this type. The use of the banks' credit facilities has
varied widely over tne years:

1933
1934
1935
193G
1937
1938
1939
1940
1941
1942
1943
1944
1W5
1946
1947

Balance
outstanding
at Jvne SO

Repayments

Advances

Fiscal year

$48,895,000
62,872,000
36,683,000
78,195,000
114,287,000
• 105,432,000
76,659,000
108,010,000
142,875,000
155,025,000
96,346,000
222,601,000
232,945,000
314,878,000
302,543,000

$1,231,000
25,387,000
42,599,000
38,841,000
65,817,000
76,264,000
103,923,000
119,574,000
130,375,000
132,277,000
198,800,000
184,415,000
229,559.000
243,249,000
216,750,000

$2,098,149,000

$1,809,060,000

$47,664,000
85,149,000
79,233,000
118,587,000
167,057,000
196,225,000
168,961,000
157,397,000
169,897,000
192,645,000
90,191,000
128,277,000
131,666,000
203,296,000
289,089,000

For the second consecutive year, the number of borrowing associations increased substantially; in each of the preceding six years the
number had declined. At June 30, 1947, 39 percent of the members
were borrowers; in 1946, 30 percent; in 1945, 19 percent; and in 1939,
60 percent. Additional details are:
Borrowing members
June SO
1939
1940
1941
1942
1943
1944
1945
1946
1947

Total
membership

Number

3,946
3,914
3,839
3,815
3,774
3,714
3,696
3,699
3,700

2,385
2,090
2,010
1,826
981
856
717
1,121
1,455

Percent of
total
60
53
52
48
• 26
23
„ 19
30
39

In contrast with June 30, 1946, which showed substantial increases
in outstanding advances for all districts except San Francisco, June
30, 1947, showed two decreases (Boston 25 percent and Cincinnati
4 percent); the increases in 1947 varied from 1 percent at Chicago to
138 percent at Winston-Salem. A comparison of the advances outstanding, by districts, at the close of the fiscal year 1947 is:
Federal home loan bank
Boston
Now York
Pittsburgh
Winston-Salem
Cincinnati
Indianapolis
Chicago
Des Moines
Little Rock
Topeka
San Francisco

:

Balance at
June $0,1947
$10,221,000
18,866,000
30,903,000
46,904,000
18,744,000
24,273.000
41,210,000
23,620.000
17,179,000
15,225,000
41,944,000
$289,089,000

Increase (—decrease)
Amount
-$3,381,000 •
6,284,000
10,283,000
27,197,000
-778,000
11,210,000
506,000
6,900,000
6,685,000
8,123,000
12,764,000

Percent
-24.9
49.9
49.9
138.0
-4.0
85.8
1.2
41.3
63.7
114.4
43.7

$85,793,000

The movement from short- to long-term advances observed in 1946
became more pronounced ID 1947; long-term paper represented 11
percent of the total advances outstanding at the close of the fiscal
year 1945, 20 percent at the 1946 year-end, and 50 percent at the
1947 closing date. This transition reflected the increasing mortgage



36

FEDEBAL HOME LOAN BANK. ADMINISTRATION AND BANKS

lending activities which prudent management would seek to finance
through long-term paper.
:
,
Accompanying this trend was an increase of 126 percent in mortgage collateral and a decline of 32 percent in Government securities
pledged during the year. The proportion of pledged mortgages to
the total collateral at the close of the last three fiscal years was:
1945, 42 percent; 1946, 52 percent; and 1947, 78 percent.
Further details of the classes of loans and the types of underlying
collateral as of June 30, 1947 and 1946 are:
June SO, 1947
Number
Secured advances to members: i
Long-term—under section 10
(a)oftheact
Short-term—under section 10
(a) of the act
_
Short-term—under section 11
(g) (3) of the act
Secured advances to mem'
bers.
Unsecured advances to members:
Short-term—under section 11
(g) (3) of the act
Short-term—under section 11
(g) (4) of the act
Unsecured advances to
members
Total
Collateral:
Home mortgages
_
Unpaid balances of home mort*
gages.
U. 8. securities direct or guaranteed (par)
M o r t g a g e s guaranteed by
FHAorVA

Amount

June SO, 194$
Number

Amount

Increase (— decrease)
Number

Amount

573 $145,101,488

267

$41,685,687

306 $103,415,801

613

88,518,445

596

117,382,309

17 -28,863,864

13

2,660,000

6

582,500

7

2,077,500

1,038

236,279,933

770

159,650,496

268

76,629,437

6

360,000

10

610,000

-4

-250,000

556

52,448,966

480

43,035,075

76

9,413,891

562

52,808,966

490

43,645,075

72

9,163,891

1,121 $203,295,571

334

$85,793,323

1,455 $289,088,899
91,763

49,240

42,523

$363,428,132

$161,663,658

$201,764,474

101,167,200

149,248,800

-48,081,600

4,353,080

905,337

3,447,743

Total face value of collateral.

$468,948,412

$311,817,795

$157,130,617

Collaterial value assigned
by banks

$341,774,490

$251,195,217

$90,579,273

i A. member having more than one class of advance is listed in each category; however, the totals are tho
actual number of borrowers.

No borrowers were reported to be more than 30 days delinquent on
their indebtedness at June 30,1947.
Interest earned on advances was $4,614,300 in 1947, an increase of
$2,113,670 (85 percent) over the 1946 earnings. Underlying this
enhancement were two factors: (1) an increase of $100,900,000 (70
percent) in the average outstanding advances, all in long-term borrowings, and (2) the trend, noted above, toward the conversion of shortterm advances to long-term paper. The overall average interest rate
earned on advances in 1947 was 1.89 percent; in 1946 it was 1.73
percent and in 1945, 1.82 percent.
Members7 deposits
Deposits are accepted from members under terms and conditions
prescribed by the FHLBA. The banks are permitted to reserve the
right to require at least 30 days notice of intention to withdraw time
deposits. Interest was paid on time deposits at varying rates, the
maximum rate approved by the FHLBA being 1 percent.




FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

37

Members' deposits have been a highly variable source of funds as
shown by the following tabulation (deposits of applicants for membership, a relatively unimportant item, are not included):

Year ended June SO
1930
1937
1938
1939..
1040
1941
1942
1943
1944
1945.
1946
1947

_

Time
$8,205,000
12,330,000
16,669,000
27,730,000
2S,102,000
25,417,000
21,354,000
26,324,000
18,933,000
35,445,000
37,776,000
66,010,000

Demand
$l t 152,000
2,418,000
3,205,000
4,462,000
5,013,000
5,890,000
6,343,000
2,892,000
2,427,000
9,883,000
17,019,000
19,542,000

Total
$9,358,000
14,748,000
19,874,000
32,192,000
33,115,000
31,307,000
27,697,000
29,216,000
21,360,000
45,328,000
54,795,000
85,552,000

Increase
(—decrease)
over
preceding
year
$5,747,000
5,390.000
5,126.000
12,318,000
923,000
-1,808,000
-3,610,000
1.519,000
-7,856,000
23,968,000
9,467,000
30,757.000

The regulations of the FHLBA, in accordance with authority
granted it in section 11(g) of the Federal Home Loan Bank Act
(12 U. S. C. 1431 (g)), require that 25 percent of these deposits be
maintained in cash and Treasury bills. The remaining 75 percent
were required to be kept in cash, Treasury bills, certificates of indebtedness, Treasury notes, Treasury bonds eligible for purchase by commercial banks, or short-term advances to members. At June 30,
1947, each bank held investments of the prescribed types which were
substantially in excess of the requirements for the total of its members'
deposits. (See schedule 2, pt. II.) However, the Chicago bank did
not comply with the requirement that 25 percent of its members'
deposits be maintained in cash and Treasury bills; the deficiency was
slightly more than $1,000,000 or about 51 percent. At the request
of the FHLBA, the situation was corrected in the following month.
Interest paid on members' deposits by the 11 banks aggregated
$389,380 during the fiscal year 1947, an increase of $119,549 over the
preceding period.
Interbank deposits
An important attribute of such a credit reservoir as the Federal
home loan banks is the ability to supply temporarily the needs of any
bank from the surplus funds of other banks in the system. For this
purpose, the statute authorizes the use of interbank deposits. These
deposits were made largely from funds derived from the sale of shortterm Treasury securities and the proceeds, not immediately needed,
of consolidated obligations. The interest paid on such deposits varied
from 1 percent to 1.67 percent; the latter rate reflects a recently
adopted FHLBA policy under which the interest is fixed at the cost
of financing consolidated obligations plus one-fourth of 1 percent.
Interest paid on interbank deposits aggregated $39,208 in 1947.
Consolidated obligations
Consolidated obligations are the joint and several liability of the
Federal home loan banks; they are not guaranteed by the United
States Government as to either principal or interest. Prior to the
reporting period, the open market financing had been limited to consolidated debentures; during the period, the banks also issued consolidated bonds and consolidated notes. Consolidated bonds, under existing regulations, have maturities in excess of one year whereas
consolidated notes mature in one year or less.




38

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

Pursuant to the requirements of the Government Corporation
Control Act, all bonds, notes, debentures, and similar obligations to
be issued by the banks after December 6, 1945, are subject to approval by the Secretary of the Treasury. The maximum amount of
consolidated debentures which may be outstanding at any one time is
fixed by section 11(b) of the Federal Home Loan Bank Act at five
times the total paid-in capital of all the banks as of the time of issuance, but the authority to issue consolidated bonds is subject to
(1) retirement of all outstanding.debentures and (2) such terms and
conditions as the FHLBA may prescribe. The FHLBA regulations
provide that consolidated bonds shall not be issued in an amount in
excess of 12 times the total paid-in capital stock and reserves under
section 16 of the Federal Home Loan Bank Act. (This latter borrowing limitation is substantially more generous than the statutory
lending provision, section 10 (c), that advances to any member shall
not exceed 12 times the amounts paid in by such member for outstanding capital stock held by it. Paid-in capital stock under the
regulation includes the Government's investment as well as the members' stock; at June 30, 1947, these amounts were S122,672,200 and
$95,599,800, respectively.) The maximum amount of bonds that
could be outstanding was $2,748,279,000 at the close of the fiscal year
1947; the outstanding bonds totaled $140,000,000.
The regulations (section 4.3) also require that the banks shall at all
times maintain assets of specified types, free from any lien or pledge,
in a total amount at least equal to the amount of consolidated bonds
outstanding. At June 30, 1947, the total of the assets so held was
$412,400,000; the bonds outstanding at that date aggregated
$140,000,000. I t is to be noted, however, that this provision is intended
as an assurance of ability to pay the bonds rather than as a limitation
on the issuing power. Further, the sale of new bonds would provide
the unpledged assets (cash) necessary to comply with the regulation.
In effect, then, the borrowing power is limited only by the requirement
for approval by the Secretary of the Treasury.
During the year under review, the banks borrowed $102,000,000
and repaid $29,000,000, thus increasing their liability for consolidated
obligations by $73,000,000; refunding operations totaled $137,000,000.
The details of the transactions in consolidated obligations are:
Face values of consolidated obligations
Outstanding
June 80,
194G
Debentures:
Series " B " 1946, .90%,
dated April 15,1946,
due October 15,1946
Debentures:
Series " C " 1946,1%,
dated July 1,1946,
due August 15,1946
Debentures:
Series " D " 1946,1%,
dated August 15,1946,
due October 15,1946
Bonds:
Series "A" 1948,1H%,
dated October 15,1946,
due April 15,1948
Notes:
Series "A" 1947,1.10%,
dated December 16,1946,
due February 17,1947..




Issued

$67,000,000

Redeemed

Outstanding
June SO,
1947

$67,000,000
$35,000,000

35,000,000

35,000,000

35,000,000

140,000,000
29,000,000

$140,000,000
29,000,000

$67,000,000 $239,000,000 $166,000,000 $140,000,000

FEDERAL HOME LOAN BA]NTK ADMINISTRATION AND BANKS

39

The cost (interest paid, discount on bonds sold, and expenses of the
office of the fiscal agent) of borrowed money was $1,793,653 in 1947 as
contrasted with $586,866 in 1946. Of the $1,206,787 (206 percent)
increase, approximately $731,000 resulted from a rise of $72,600,000
(125 percent) in the. average outstanding obligations, and $476,000
reflected the increase in average cost from 1.007 percent in 1946 to
1.370 percent in 1947.
Capital stock, surplus, and reserves
The Government owned l $122,672,200 of the banks' capital stock
or 56 percent at June 30, 1947, a decrease of $979,000 during the year.
This reduction reflected repayments of $397,900 and $581,100 by the
Indianapolis and Cincinnati banks, respectively, in accordance with
section 6 (g) of the Federal Home Loan Bank Act, which provides
that after the members' capital stock equals the Government's investment in a bank, such bank will annually retire an amount of the
Government's investment equal to 50 percent of all sums subsequently paid in by members for capital stock.
The members' investment in the capital stock rose to $95,599,800
at the year-end as the result of the following changes during the year:
Capital paid in
Capital repaid (section 6(c) of the act)
Increase in members' participation

_

$17,373,350
1,333,000
$16,040,350

*

The banks have complied with section 11 (g) of the Federal Home Loan
Bank Act, which provides that the amount of the members' capital
stock will be invested in Government securities, deposits in banks,
and advances with maturities not more than one year made in accordance with regulations of the FHLBA.
Surplus increased $1,372,920 during the fiscal year and amounted to
$23,327,389 at the year-end. According to established practice of
the banks, surplus has been divided into a legal reserve, $10,751,230,
contingency reserve, $4,249,673, and undivided profits, $8,326,486.
The increase in surplus was attributable to:
Net income for the year
Less:
Dividends declared
Contribution to pension fund for prior
service
Increase in surplus
Distributed to:
Legal reserve
Contingency reserve
Undivided profits
Total, as above

-"-

$4,011,654
$2,681,359
57,375

2,638,734
$1,372,920
$527,331
629,079
-83,490
$1,372,920

Each bank is required by section 16 of the Federal Home Loan
Bank Act (12 U. S. C. 1436) to transfer to a reserve account (legal
reserve) semiannually 20 percent of its net earnings until the reserve
shall show a credit balance equal to 100 percent of the paid-in capital
of such bank. In addition, the act provides that the amount of this
reserve shall be invested in United States securities and in such
securities as fiduciary and trust funds may be invested in under the
laws of the State in which the bank is located. This requirement was
i Public Law 132, approved June 30,1947 (15 U. S. C. 606 note), authorized and directed Reconstruction
Finance Corporation to transfer to the Secretary of the Treasury all of the stock of the Federal home
loan banks held by RFC. The transfer was made as of July 1,1947.




40

FEDEKAL HOME LOAtf BANK ADMINISTRATION AND BANKS

met by all of the banks; the Pittsburgh bank transferred to this
reserve an additional sum from its undivided profits. However, the
Chicago bank failed to earn its current dividends and, consequently,
used $32,000 of its undivided profits for the payment of dividends.
The Federal Home Loan Bank Administration approved the payment
of dividends out of prior years' earnings at the request of the Chicago
bank. The Chicago bank's earnings in fiscal year 1948, after provision for legal reserve, were approximately S89,000 more than the
dividends for that year.
Seven of the banks have voluntarily established reserves for contingencies. These reserves represent neither provisions for known
contingencies nor statutory requirements and, therefore, should be
considered as a part of the surplus of the respective banks. The
regulations require that the amount of the contingency reserves be
invested in the same manner as the legal reserve.
All surplus reserves, both statutory and voluntary, were invested in
obligations of the United States Government in accordance with the
provisions of section 16 of the act.
Dividends declared by the 11 banks aggregated $2,581,359 during
the year under review; the total for 1946 was $2,385,147. The share
received by RFC was $1,505,992 in 1947 and $1,482,287 in 1946.
The member associations received dividends aggregating $1,075,367
in 1947 and $902,860 in 1946. The increases reflected, principally,
a rise of one-fourth of 1 percent in the dividend rate of the Cincinnati
bank and an increase in capital investment by members. These
dividends represented a return of approximately 1.22 percent on the
Government's average investment in 1947 and 1.19 percent in 1946.
The average rate of interest paid by the Treasury on marketable
issues of the public debt was 1.83 percent in 1947. Thus in 1947 the
Government's investment in the 11 banks cost about $748,000 more
than it yielded; in 1946 this indirect subsidy cost the Treasury
$718,000.
EXCEPTIONS

Our survey and review of the activities of the Federal home loan
banks disclosed no evidence of any program, expenditure, or other
financial transaction that had been carried on, incurred, or entered
into without authority of law.
SCOPE OF SURVEY

Representatives of this office visited the 11 district banks and
surveyed the organization and management, the system of internal
control, and the financial and operating policies and procedures of
each. Our survey of the New York bank was arranged to coincide
with a periodic examination by the comptroller's office in order that
we might also observe the performance of the prescribed procedures
and the quality of the work of the examiners. During our survey
we checked the June 30, 1947, financial statements to the respective
banks' records and made other tests which we deemed appropriate
under the circumstances. In addition, we reviewed the scope, working papers, and reports of the semiannual examinations made under
the direction of the comptroller of the Federal Home Loan Bank
Administration during the fiscal year 1947.




FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

41

In general, the accounting records and system of internal control
of the banks were adequate. We found some deficiencies in the
system of internal control of certain banks and made suggestions for
their improvement which were adopted promptly. We observed in
the course of our survey and review that the banks had complied with
the operating policies and procedures as prescribed by the FHLBA.
As a result of our review of the frequent and comprehensive examinations performed by the comptroller of the FHLBA and the survey
made by our representatives, we concluded that an additional examination of financial transactions contemplated under accepted auditing
standards and procedures would have resulted in an unjustifiable
duplication of effort.
In accepting the audit certificate (see below) of the comptroller of the
FHLBA, we have given full recognition to the requirement of the
Government Corporation Control Act that the General Accounting
Office shall, to the fullest extent deemed practicable, utilize reports of
-examinations of Government corporations made bv a supervisory
agency pursuant to law (title III, sec. 301 (a), 31 XL S. C. 866 (a)).
OPINION

In our opinion, reliance may be placed upon the certification of the
comptroller of the Federal Home Loan Bank Administration that the
accompanying financial statements present fairly the financial position
of the Federal home loan banks at June 30, 1947, and the results of
operations for the year ended that date.
STEPHEN B. IVES,

Director of Corporation Audits.
HOUSING AND HOME FINANCE AGENCY
HOME LOAN BANK BOARD

101 Indiana Avenue NW
Washington 25, D. C.
NOVEMBER 10,
Hon.

1948.

LINDSAY C. WARREN,

Comptroller General, United States,
Washington 25, D. C.
D E A R M R . WARREN: The following report of the condition of the
Federal Home Loan Banks at June 30, 1947, and the results of operations for the fiscal year ended at that date, is based on information
and reports furnished by those banks during that year and the data
disclosed by examinations made under the supervision of the undersigned, as Comptroller of the Federal Home Loan Bank Administration. The scope of these examinations was summarized in the reports
submitted for the fiscal years ended June 30, 1945 and June 30, 1946.
This report is comprised of the following statements:
Exhibit "l"—Balance Sheet, June 30, 1947
«
"2"—Income Statement, Year Ended June 30, 1947
Schedule "1"—Compensation, Travel and Other Expenses, Year
Ended June 30, 1947
Exhibit "3"—Analysis of Surplus, Year Ended June 30,1947
"
"4"—Sources and Applications of Funds, Year Ended
June 30, 1947



42

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

In my opinion, the accompanying balance sheet and related state*
ments of income and surplus present fairly the financial position of the
Federal Home Loan Banks at June 30, 1947, and the results of their
operations for the fiscal year ended at that date, in conformity with
generally accepted accounting principles applied on a basis consistent
with that of the preceding year.
[Respectfully submitted,




(signed)

R. R. BURKLIN,

Comptroller, Home Loan Bank Board.




FINANCIAL STATEMENTS

43

44

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS
NOTES TO CONSOLIDATED BALANCE SHEET

1. Borrowing authority is provided by section 11 of the Federal
Home Loan Bank Act (12 IL S.* C. 1431) as follows:
a. Each bank may borrow upon such terms and conditions as the board
may prescribe. (The maximum amount of such borrowings is not specified.)
b. The board may issue consolidated Federal home loan bank debentures,
the joint and several obligations of all the banks, upon such terms and conditions as the board may prescribe; but the maximum amount of these debentures shall at no time exceed five times the total paid-in capital of all the
banks as of the time of issue of such debentures.
c. If no debentures are outstanding, or to refund all outstanding consolidated debentures, the board may issue- consolidated Federal home loan
bank bonds, the joint and several obligations of all of the banks, upon such
terms and conditions as the board may prescribe; the act does not prescribe
the maximum amount of such bonds which may be outstanding, but the
regulations of the board fix it at twelve times the total paid-in capital stock
and legal reserves of all the banks. The maximum permissible amount of
outstanding consolidated bonds at June 30, 1947, was 82,748,279,000. The
obligations issued under this power are not guaranteed by the United States
. Government as to either principal or interest.

Under the Government Corporation Control Act (31 U. S. C. 868
(a)), the issuance of such obligations, on and after December 6, 1945,
became subject to the approval of the Secretary of the Treasury.
2. Section 6 of the Federal Home Loan Bank Act (12 U. S. C. 1426
(g)) requires that after the members' capital stock equals the Government's investment in a bank, such bank will annually retire an amount
of the Government's investment equal to 50 percent of all sums subsequently paid in by members for capital stock. This equality has
been attained in the Winston-Salem, Cincinnati, and Indianapolis
banks.
*
*
3. A suit is pending in the United States District Court for the
Southern District of California, Central Division, against the Federal
Home Loan Bank of San Francisco and others, and, after June 30,
1947, a claim was made on behalf of the Long Beach Federal Savings
and Loan Association seeking substantial damages. In the opinion
of the bank's counsel and the general counsel of the Home Loan Bank
Board, the action and claim have no validity and the suit is being
defended.




EXHIBIT 1
Page 1

F E D E R A L

HOME

LOAN

BANKS

CONSOLIDATED BALANCE SHEET. BY BANKS
JUNE 3 0 .

A S S E T S

JZASft
On hand and on d e p o s i t with U.S. Treasurer and
commercial banks
On d e p o s i t with other Federal home loan banks

Consolidated
(after
Interbank
eliminations)

$ 20,688,650

New York

Boston

$

697,233
4.500.000

$

992,183
11.500.000

1947

Federal home loan bank

WinstonSalem

Cincinnati

Indianapolis

$ 2,247,871

$ 3,198,373

$ 2,627,110
4.500.000

$ 1,509,879

2.247.871

3.19Q.373

7.127,110

Pittsburgh

Chicago

P e s Moines

1.1 t.t.1 ft ftnrtlr

Topeka

San
Francesco

993,843 $
3.000.000

447,159

$ 1,389,648

$ 1,490,736

$ 5,094,615

1,509,879

3,99,1.843

447.159

1.389.648

1.490.736

5.094.615

15,188.862

12.346.039

12.653.325

7.713.749

8,555,650

12.938.144

$

20.688.650

511971233

12.492.183

UNITED STATES GOVERNMENT SECURITIES AT ^QRyjgm COST
(note 1 ) [

157.846.102

16,969,328

26.931.604

7.W9t301

4.215.256

32.884.844

ADVANCES;
Secured (note 2)
Unsecured

236,279,933
52,808,966

6,841,406
3.380.032

18,218,990
646.750

25,894,656
5.008.500

26,219,637
20.684.000

14,304,659
4.439.500

18,692,910
5.580.000

35,577,881
5.631.784

18,881,956
4.738.400

16,858,854
320.000

14,134,757
1.090.000

40,654,227
1.290.000

289.088.899

10.221.438

18.865.740

30.903.156

46.903.637

18.744,159

24.272.910

41.209.665

23.620.356

17.178.854

15,224,757

41.944.227

952,419

86,200

136,474

96,522

121,119

136,734

74,631

61,021

59,675

67,262

46,071

67,716

279 3 1 6

12.260

5,05*

23.450

24.942

931586

21.989

30:973

20.031

13.985

12.972

20.074

112,31,735

98.460

141,528

119-972

146.061

230.320

96.620

91-994

79.706

81.247

59,0^3

87.790

* 6,363,4?8

$25.330,186

$60.064.776

OTHER ASSETS:
Accrued interest
Miscellaneous receivables, deferred charges, and
other assets (note 3)

Notes:
1. Far value of s e c u r i t i e s
Market value of s e c u r i t i e s
2. C o l l a t e r a l deposited t o secure advances:
Unpaid balance of home mortgages
Face amount of U.S. Government o b l i g a t i o n s
Other c o l l a t e r a l permitted by r e g u l a t i o n s
3 . Original c o s t of furniture and equipment (included
in balance sheet a t a v a l u a t i o n of $1 for each
bank)




2

$468.855.386

$32.486.459

A58.431.055

$40.720.300

$54.463.327

$58.986.433

$41.068.271

$57.641.541

$155,463,500
160,366:904

$16,630,000
17,249:006

$26,757,500
2?;309;739

$ 7,300,000
7,559,969

$ 4,160,000
<331,956

$32,414,000
33,365,954

$14,931,000
15,498,139

$12,140,000
12,482,049

$12,465,000
12,776,346

$ 7,640,000
7,976,819

$ 8,375,000
8,738,344

$12,651,000
13,0 7 8,583

363 428 132

6 220 380

43,696,868

44,399,985

48,192,518

11,735,126

24,241,657

44,693,268

26,206,758

23,024,218

21,572,264

69,445,090

?||:i| !:%&> Mp*
172,430

9,570

25,211

,:8:i£
15,676

-g^. u.*?.«. e.?e,ig ».%,% *Q$»
8,755

15,056

The notes on page i|.if are an i n t e g r a l part of t h i s statement.

11,934

11,160

10,468

«.£..«. *$»%> «.g. ;S
17,494

11,213

35,893

91774 0 - 4 9 (Face p. 44) No. 1

EXHIBIT 1
Page 2

F E D E R A L

HOME

LOAN

B A N K S

CONSOLIDATED BALANCE SHEET. BY BANKS
JUNE 3 0 . 1 9 4 7

L I A B I L I T I E S

DEPOSITS;
Members — time
Members —demand
Receivership funds--Federal Savings and Loan
Insurance Corporation
Other Federal home loan banks

CONSOLIDATED BONDS
OTHER LIABILITIESDividends payable;
Reconstruction Finance Corporation
Members
Total dividends payable

Cons
(after
interbank
eliminations
$ 66,010,141
19,708,034

F e d e r a l home l o a n b a n k

Boston
$ 1,400,458

New York
$18,594,989
8,794,729

Pittsburgh

WinstonSalem

Cincinnati

Indianapolis

Chicago

Pes Moines

$ 1,011,265
348,359

$ 4,418,100
1,831,875

$10,308,124
6,422,338

$ 7,008,429
1,721,848

$ 7,954,362
12,500

$ 5,139,947
7,150

1.500.000

11.000.000

63,615

167,352

Toneka

San
Franci3co

913,700
500

$ 1,505,000
539,000

$ 7,755,767
29,735

1.500.000

103,737
500.000

9.000.000

L i t t l e Rock
$

85.885.527

1.400.458

27.389.718

2.859.624

17.249.975

16.730.462

8.730.277

7.966.862

5.210.712

2.414.200

2.647.737

16.785.502

140.000.000

9.000.000

-

17.000.000

15.000.000

12.000.000

16.000.000

22.500.000

15.000.000

10.000.000

9.500.000

14.000.000

513,905
429.722

62,337
38.823
101,160

88,988
112.281

40,645
67,944

106,304
74,329

55,462
53tQ17

43,862
17.060

36,668
19,2,33

JL OiS

201,269

108,589

180,633

108,479

60,922

55,901

126,674

943,627

9,639

46,008

53,795

41,049
8.445

49,253
482

61,726

39,227
493

28,110
609

25,131
479

43,532
287

2.827

46.008

53,795

250.763

158.324

242.359

148.199

89.641

81.511

170.493

7,924,400
12.467.500

9,229,500
18.963.200

7,575,800
11.146.300

10,357,300
9.208.200

15,371,100
11.865.000

9,228,600
5,419,300

10,346,600
14.173.900

7,350,100
7,394,900

3,660,900
8.772.400

4,432,200
7,333,600

10,123,300
15.927.900

218.272.000

20.391.900

28.192.700

18.722.100

19.565.500

27.236.100

14.647.900

24.520.500

14.745.000

12.433.300

11,765,80°

26,051,200

Surplus (exhibit 3 ) :
Legal reserve
Reserve for contingencies
Undivided profits

10,751,230
4,249,673
8.326.486

791,275

1,009,030

1,471,608
500,000
797.500

1,341,649

774,596

1.070.171

752,170
800,000
144.465

636,688
73,749
715,920

510,493
500,000
324.645

1,187,291
1,400,000
470.290

Total surplus

23.327.389

1.566.545

2.845.810

2.092.568

943,991
400,000
1.250.066
2.594.057

757,174

775t27Q

1,349,861
575,924
920.025

2.769.108

1.531.770

2.411.820

1.696.635

1.426.357

1,335,138

3,057,581

241,599-382

21.958.445

31.038.510

20.814.668

22.159.557

30.005.208

16.179.670

26.932.320
26,932,320

16.441.635

13,859,657

13,100,938

29,108,781

$32,486.459

$58.431.055

$40.720.300

$54.463.327

$58.986,433

$41.068.271

$57.641,541

$36.800,546

$26.363.498

$25,330,186

$6o T 064,776

Accrued interest on deposits and consolidated bonds
Accounts payable

CAPITAL STOCK AND SURPLUS;
Capital stock owned by members
Capital stock owned by U.S. Government (held by RFC)
Total capital stock

Total capital stock and surplus




413,221
13 .622

26,396

1.370.470

127.556

95,599,800
122.672.200

2.827

1,083,538

The n o t e s on page ifU- a r e an i n t e g r a l p a r t of t h i s s t a t e m e n t .

91774 0 - 4 9 (Face p. 44) No. 2

EXHIBIT 2

F E D E R A L

HOME

LOAN

BANKS

CONSOLIDATED STATEMENT OF INCOME. BY BANKS
FOR THE FISCAL YEAR ENDED JUNE 30. 1947

Consolidated
(after
Interbank
eliminations)
INCOME:
Interest on advances
Interest on securities
Interest on deposits with other Federal home loan banks
Miscellaneous
Total Income

$4,6l4,300
2,755,079

Total operating
Financing:
Interest on consolidated obligations
Consolidated obligations expense—concessions (discounts)
Consolidated obligations
expense—Office of Fiscal Agent
Interest on members1 deposits
Interest on other Federal home loan banks* deposits

Boston

New York

Pittsburgh

$196,466
263,817
4,415

$345,567
437,863
16,773
368

$552,455
162,655

$622,001
92,681

lo

218

800.591

715.126

1*973
7,371,352

EXPENSES:
Operating:
Compensation, travel and other expenses (schedule 1)
Assessment of Federal Home L o a n Bank Administration
Furniture and equipment purchased

Federal home loan bank

990,569
530,000
15 1867
1.536.436

WinstonSalem

464,698

?7,9J8
37,5^3

251
108.052

52,085
1.250
191.253
6,738

1,656,975
102,181
34,497
389,380

90,250
5,896
3,036
5,314
2.219

2,806
138,282

2,183,033

106,715

147.826

3,7191»69

214,767

339,079

3,651,883

24gt93l

461,512

358,703
1.068

35,825

171,415
161

359,771

35,825

788

Total expenses
NET OPERATING INCOME

*

OTHER INCOME;
Profit on sales of securities (net)
Miscellaneous
Total other Income
NET INCOME, year ended June 30, 1947 (exhibit 3)




$4. oil. 654

X:•3,958
3 003

355

$364,150
273,653
1,548
20
639.381

1,735

Chicago

Pes Moines

Little
Rock

Topeka

$727,471
173,285
3,150

$417,839
178,826

$272,662
182,606

$231,401
171,147

$534,769
305,835
8,177
21

200

512

San
Francisco

904.476

596.665

455.468

402.548

848,802

36,882
32^999
1.073

as_22S

59,286
33l020
993
93.304

61,256
28;i?6
246
89.678

iWfl56
b£;851
7.578
220.585
183,382
11,618
3,336
53,640
8,351

170.302

123.109

172.339

103,700

160,954

103,160

206,283
12,952
3,202
5,969

169,903
9,5§3
3,183
19,976
18.968

126,458
8,542
3,172
59,731

179,811
11,778
3,196
41,660
1,192

289,194
16,927
3,243
30,307
274

176,150
11,333
3,227
21,703

120,706
3,068
3,073
I.180

108,100
6,191
3,028
4,725
*,192

237.637

339,9*5

212.413

135,388

126.236

265,327

3*1,337

500.899

315,573

228.692

215.914

485.912

298.044

403.577

281,092

226.776

186.634

362,890
98,996
25

1.616
221.613

229.622

199.519

344,722
371,858

399.924

*285.756

$349,519
512,711
5,145
370
867.745

1,216
Total financing

Cincinnati Indianapolis

370,338
*95,887

315.202
13,308
28

324
461

10,304

28,345

131

51

5Z

-468
5

463
ill

60

152

13,3*6

385.

10.463

28.396

188

-463

51*

60

99,021

$186.69*

$461,911

$328.548

$371,123

$506.350

$326.440

$403.765

91774 0-49 (Face p. 44) No. 3

EXHIBIT 3

FEDERAL

HOME

LOAN

BANKS

CONSOLIDATED SURPLUS. BY BANKS
FOR THE FISCAL YEAR ENDED JUNE 3 0 . 1947

Federal home loan bank
Consolidated
UNDIVIDED PROFITS;
B a l a n c e , June 3 0 , 1946
Add net Income, year ended June 3 0 , 1947 ( e x h i b i t 2)
Deduct:
Dividends declared:
Reconstruction Finance Corporation
Members

$ 8,409,976
4.011.654

Boston
$

745,308
385.756

Pittsburgh

WinstonSalem

824,641
633,088

$1,090,109
328.548

$1,184,294
371.123

Nev York
$

Cincinnati
$

792,337
506,350

Indianapolis
$

Chicago

730,518
326.440

$1,102,178
403.765

Little
Rock

Pes Moines
$

130,601
280.629

$

Topeka

676,088
227.350

782,201
186.694

San
Francisco
$

351,701
461.911

12.421.630

1.031.064

1.457.729

1.418.657

1.555.417

1.298.687

1,056,958

1,505,943

411.230

903.438

968.895

813.612

1,505,992
1,075,367

124,675
73.968

189,632
84t537

167,195

92,082
82.768

182,333
217.584

84,273
132.801

212,608
142.411

110,924

109,655
40.305

73,336

99,715

33,575

159,279
90.489

2,581,359

198,643

274,169

174,850

399,917

217,074

355,019

210,639

149,960

106,911

249,768

77.214
244,409

Retirement fund—prior service contribution
(—refund)(net)
Transfer to (—from) reserve for contingencies
(net)
Transfer to legal reserve

629,079
827,331

57.151

4,095,144
Balance, June 30, 1947 (exhibit 1)
LEGAL RESERVE:
Balance, June 30, 1946
Add transfer from undivided profits
Balance, June 30, 1947 (exhibit 1)
RESERVE FOR CONTINGENCIES:
Balance, June 30, 1946
Transfer from (—to) undivided profits (net)
Balance, June 30, 1947 (exhibit 1)




Total surplus (exhibit 1)

1,172

-74

56,277

57,375
90.710

74.224

101.270

65.288

80.753

56.126

-7,838
45 .470

500,000

126.618

37,339

92.382

537,70^

335,H9

305,351

501.187

282.362

435,772

266.765

187.518

644.250

343,322

8.326.486

775.270

920.025

1.083.538

1.250.066

797,500

774.596

1.070.171

144.465

715.920

324.645

470.290

9,923,899
827.331

734,124
57.151

1,223,243
126.618

918,320
90.710

869,767
74.224

1,370,338
101.270

691,886
65.288

1,260,896
80.753

696,044
56,126

591,218
45.470

473,154

1,094,909
92,382

10.751.230

791.275

1.349.861

1.009.030

943.991

757.174

1.341.649

636.688

510-493

1.471.608

3,620,594
629.079
*-249.673
$23.327.389

_
*l.«s66.s»S

439,007
136,917

400,000

575,924

400.000

$2.845.810

$2.0?2.568

$2.594.057

500,000
500.000
$2.769.108

$1.531.770

$2.411.820

37,339

752.170
81,587

1.187.291
1,400,000

800,000

-7,838

500.000

800.000

73.749

500.000

1.400.000

$1.696.635

$1.426.357

$1^335,138

$3,057,581

91774 O - 49 (Face p. 44) No. 4

EXHIBIT 4

F E D E R A L

H 0 M E

LOAN

B A N K S

CONSOLIDATED STATEMENT OP SOURCES AND APPLICATION OP FUNDS. -BY BANKS
FOR THE FISCAL YEAR ENDED JUNE 30. 1947

Federal home loan bank
Consolidated
SOURCES OF FUNDS:
Net Income, year ended June 30, 1947 (exhibit 2)
Add amortization of premiums or discounts on
U.S. securities (net)

Repayment of advances by members
1
U.S. securities redeemed or sold (cost)
Sale of bonds and debentures
Sale of capital stock to members
Increase in deposits of members (net)
Increase in deposits from other Federal home loan
banks
Decrease in deposits with other Federal home loan
banks
Decrease in cash (net)

APPLICATION OF FUNDS;
Advances to members
Purchase of U.S. securities
Redemption of bonds and debentures
Retirement of capital stock:
Reconstruction Finance Corporation
Members
Decrease in deposits from other Federal
banks
Increase in deposits with other Federal
banks
Dividends paid
Contributions to retirement fund (prior
Net increase in sundry assets, less net
in sundry liabilities

Nev York

Boston

WinstonSalem

Pittsburgh

Cincinnati

Indianapolis

8.641

17.052

33,696

299,666

235,991

203,746

495,607

15,780,161
16,750,037
22,500,000
1,374,800
3,450,917

9,564,827
14,520,810
18,000,000
682,600
735,700

7,927,386
1,820,000
17,500,000
2,006,400
1,319,892

34,621,765
47,125,715
29,000,000
1,612,000
-211,980
9,000,000

26,049

10.694

19.037

377,102

557,^25

352,489

414,459

14,776,856
11,396,883
29,000,000
2,592,300
-182,732

25,445,637
4,503,631
28,500,000
2,473,000
6,072,749

20,757,011
36,404,163
12,000,000
1,607,400
1,974,543

10,160,781
19,731,645
20,000,000
876,000
2,054,884

37,916,240
23,250,165
50,000,000
1,482,400
3,299,263

1,500,000

9,000,000

491.854

^675.686

-2,372.276

$43.668.843

$Q7.006,l45

$58.750.374

$302,543,107 $16,465,671
281,816,680
20,483,986
166,000,000
2,000,000

$26,236,503
58,934,574
3,500,000

248.347

28.218

33,701

14.205

5.979

4,260,001

313,974

666,789

342,753

216,749,779
246,232,849
239,000,000
17,373,350
31,040,201

19,846,263
11,970,015
9,000,000
1,129,650
428,900

19,952,852
58,759,785
3,500,000
1,536,800
12,098,065

fol|623

980.041

$755.347.803

979,000
1,333,000

1,400

fi

633,088

71,700

$

328,548 $

371,123

f

506,350

$

280,629

f

227,350 $

500,000
-202.025

-523.451

2,000,000
1.180,923

$60.379,527 $44.037,903

$30.253.973

$124.824,030

$25,060,435 $52,642,225 $19,979,250 $21,370,774 $ 38,422,204 $22,680,360 $16,249,330 $16,050,500
31,213,905
21,470,639
14,621,614
2,347,045
21,527,674
4,603,616
44,690,574
11,411,204
40,000,000
16,000,000
13,000,000
10,000,000
12,000,000
16,000,000
5,000,000
22,000,000

$ 47,385,855
50,511,849
26,500,000

9,200

-865,127

$73.999.843 $72.43

504,400

581,100
258,000

1,500,000
830,205

1.623.219

$55.506.004

$117.985,746

397,900
6,500

home loan

24,000

223.946

19,800

27,800

4,500,000
198,643

8,000,000
274,169

244,408

174,849
56,277

37.282

19.143

-10.801

25.127

18.476

$755.347.803

$43.668.843

$Q7.006.l45

$58.750.374

2,581,359
57,375

3,000,000
355,019

1,500,000
399,917

217,075

26.574

,-!3t9i9

-29 .382

$72.435.415

$55.506.004

$117.985.746

260,400

149,800

1,500,000

5,000,000

home loan
service)
increase

461,911

51.075

fr 285,756

San
Francisco

186,694

403,765

4,011,654

Topeka

Pes Moines Little Rock

326,440

$

£

Chicago

210,639

149,961
-74

106,911

249,768
1,172

-1,911

-10.728

-10 .883

25,586

$60.379.527 $44.037.903

$30.253.973

$124,824.030

Excluding profits on sales of securities which are included in net income.



91774 0 - 4 9 (Face p. 44) No. 5

SCHEDULE 1

F E D E R A L

HOME

LOAN

BANKS

CONSOLIDATED STATEMENT OF COMPENSATION. TRAVEL. AND OTHER EXPENSES. BY BANKS
FOR THE FISCAL YEAR ENDED JUNE 30. 1947

Federal home loan bank
COMPENSATION:
Officers1 salaries
Other salaries
1
Directors
fees
Counsels1 compensation

TRAVEL EXPENSE;
Directors
Officers
Counsel and others
Maintenance and operation costs of automobile

OTHER EXPENSES;
Rent of banking quarters, less amount charged Federal
Home Loan Bank Administration for district examiners'
quarters
Retirement fund contributions
Stationery, printing and other office supplies
Telephone and telegraph
Postage and expressage
Insurance and surety bond premiums
Stockholders1 annual meeting
Maintenance of banking quarters and equipment
Public relations
Dues and subscriptions
Reports and other publications
Services of Federal Home Loan Bank Administration Examining
Division
Safekeeping and protection services
Miscellaneous

Total (exhibit 2)




San
Francisco

$24,525
11,692
2,700
50

$21,750
14,847
3,235
3,250

$ 37,805
36,285
6,813
4.325

38 t 967

43.082

85.228

3,471
1,026
413
277

9,346
3,786
1,053
852

4.769

5.187

15,037

3,000
2,445
1,562
2,137
1,380

4,200
3,013
908
781
738

17,093
4,414
7,047
6,015
3,680

971
347
2,905
209
154

808
543
193
165
273

1,880

640

249

275

312

442
112

173
18

1,008
67

936
1,720
744

Cincinnati

Indianapolis

Chicago

Des Moines

$ 37,550
29,001
3,825
4,000
74,376

$27,950
9,289
2,225
31000

$30,100
7,889
2,280
2,100

42.464

$34,950
22,541
2,885
5.000
65.376

42.369

Consolidated

Boston

New York

Pittsburgh

$336,880
248,257
41,920
38.125

$32,525
9,772
2,800

$ 41,000
41,130
6,450
4.250

$ 27,850
42,177
5,000

665.182

48.847

92.830

80.527

$20,875
23,634
3,707
2.900
SI.116

38,841
21,478
6,899
2.809

1,609
1,244
96
185

2,805
2,155
229

4,411
3,204
1,207

3,678
2,613
3,458

3,649
1,923
73
620

1,960
1,765
138

1,810
1,287
140

2,221
1,931
49

70.027

3,134

-5Jfi2

9t396

gi7»9

6.265

3,863

3,237

4.201

77,623
39,445
24,281
21,187
18,491

2,500
3,119
1,144
1,229
513

7,200
6,159
2,109
1,562
1,992

11,323
5,762
2,019
2,675
1,950

2,865
3,150
1,919
1,437
2,006

8,400
4,595
1,957
l,9H
1,548

3,960
2,737
698
,502
,084

11,700
4,051
2,703
1,103
2,380

5,382

13,539
12,484
12,122
9,442
9,366

1,131
2,315
892
1,985
1,239

160
537
578
-137
1,321

1,560
1,004
514
681
1,264

744
954
537
1,316
301

355
162
398
061
136

785
699
373
571

1,294
822
1,789
732
1,132

1,215
835
1,220
851
1,800
506
1,147
672

6,019

887

468

1,724

193

507

157

407

5,894
3,013
2.454

1,106
77

99
52

2,580
52

21

129

22

.226

15
99
26

255,360
$990.569

• •3.755

5.500

514

Little
Rock

Topeka

VlnstonSalem

1,111
636
1,303

272
404

66

• 18J3Z.

29.899

JP.693

18.093

!5tQ2g

46 t 8gl

$70.118

$127,918

$120,616

$78,958

&61.599

$147.156

21

15

91774 O - 49 (Face p. 44) No. 6

SCHEDULE 2

F E D E R A L

HOME

LOAN

B A N K S

STATEMENT OF COMPLIANCE WITH SECTION 1 1 ( g ) OF THE FEDERAL HOME LOAN BANK ACT. BY BANKS
JUNE 3 0 . 1947

Federal home loan bank

AMOUNT TO BE INVESTED;
1. Sums paid in on outstanding capital
subscriptions of members
2, Current deposits received from members

Boston

New York

Pittsburgh

WinstonSalem

$ 7,924,400

$ 9,229,500

$ 7,575,800

$10,357,300

$15,371,100

1.400.458

27.288.117

1,353,57^

6,245,600

36,517,617

8.929.374

T o t a l t o be i n v e s t e d

Chicago

Pes Moines

L i t t l e Rock

Topeka

San
Francisco

$ 9,228,600

$10,346,600

$ 7,350,100

$ 3,660,900

$ 4,432,200

$10,123,300

16.711.937

8.722.777

7.954.362

5.139.947

913.700

2.037.000

7.785.002

16.602.900

32,083.037

17.951.377

18.300.962

12.490.047

4.574.600

6.469.200

17,908.302

Cincinnati

Indianapolis

INVESTMENTS;
1. Obligations of the U.S. Treasury in excess
of requirements for section 16 of the act

15,838,725

24,808,727

6,290,971

2,816,009

30,440,380

14,172,598

10,798,351

10,911,890

6,929,562

7,364,506

10,063,709

2. Deposits in banks, trust companies,
and in
U.S. Treasury, less applicants1 deposits
and requirements for section 16 of the act

5,195,483

12,388,832

2,239,271

3,192,738

7,106,776

1,489,338

3,979,585

438,710

1,387,848

1,482,461

5,092,615

3 . S h o r t - t e r m unsecured advances made under
s e c t i o n 1 1 ( g ) ( 4 ) of t h e a c t

3,380,03.2

646,750

4,748,500

20,584,000

4,439,500

5,580,000

5,631,784

4,738,400

320,000

1,090,000

1,290,000

260,000

225,000

100,000

185,000

300,000

600,000

1,100,000

250,000

4 . S h o r t - t e r m advances made under s e c t i o n
1 1 ( g ) ( 3 ) of t h e a c t
5. Short-term advances made under section 10
of the act
Total investments
INVESTMENTS IN EXCESS OF SECTION 11(g) REQUIREMENTS




3.437.500

6,3^,250

24t966,327

1.655.000

9,332,125

3.819.625

8.831.445

3.501.522

12.850.600

1,483 ,350

12.306.700

27t851,7^0

44.178.559

38.505.069

28 .472 .747

51.318.781

25.161 ,561

29,426,165

19.890.522

22.088.010

12.520 .317

29.003.024

$18,526,882

* 7,660.942

329.575.695

311.869.847

319,235.744

> 7,210 .184

311,125,203

I 7.400.475

317.513.410

3 6.051.117

$11,094,722

91774 0 - 49 (Face p. 44) No. 7




APPENDIX

45




APPENDIX A

HISTORY, ORGANIZATION, AND FUNCTIONS OF THE

FEDERAL HOME LOAN BANK ADMINISTRATION
ORIGIN AND PURPOSE

The Federal Home Loan Bank Administration * was created in
1942 by Executive Order 9070 to assume the responsibilities and
perform the duties which the Congress had assigned earlier to the
Federal Home Loan Bank Board.
The Federal Home Loan Bank Board was created in 1932 by section
17 of the Federal Home Loan Bank Act (12 XL S. C. 1437) to organize,
establish, and supervise district Federal home loan banks. Accordingly, the Board established 12 district banks to provide a credit
reservoir for savings and loan institutions.
Under section -5 (a) of the Home Owners' Loan. Act of 1933 (12
U. S. C. 1464 (a)), the Board was given the responsibility for chartering
Federal savings and loan associations. In addition^ section 4 (a) of
the act (12 U. S. C. 1463 (a)) directed the Board to create Home
Owners' Loan Corporation and, as its board of directors, to operate it.
The preamble of the act stated the purpose of the Corporation to be
" T o provide emergency relief with respect to home-mortgage indebtedness, to refinance home mortgages, to extend relief to the owners
of homes occupied by them and who are unable to amortize their
debt elsewhere * * *." The Corporation's authority to acquire
mortgages was effective for a 3-year period beginning with the date
of the act, June 13, 1933.
Subsequently, section 402 of the National Housing Act of 1934
(12 U. S. C. 1725) created Federal Savings and Loan Insurance
Corporation and made the Federal Home Loan Bank Board its board
of trustees. The new Corporation wa& given, the function of insuring
the accounts of investors in savings and loan associations.
ORGANIZATION

ANI>

MANAGEMENT

Federal Home Loan Bank Administration
The Federal Home Loan Bank Act, in section 17 (12 U. S. C.
1437), provided for a Federal Home Loan Bank Board of five fulltime members to be appointed by the President of the United States
on a bipartisan basis, by and with the advice and consent of the Senate.
Reorganization Plan No. 1, effective July 1,1939 (5 U. S. C. 133t
note) created a Federal Loan Agency to supervise and coordinate the
1

The President's Reorganization Plan No. 3 of 1947, which became effective July 27,.1&4JV providas-for a
Housing and Home Finance Agency with the same constituent agencies as the former National Housing
Agency. H&HFA is headed by an Administrator who has the responsibility for general supervision
and coordination of its constituents. The plan also created a Home Loan Bank Board of three members
who have the functions of the Federal Home Loan Bank Board, the board of directors of HOLC, and
the board of trustees of FS&LIC. Inasmuch as this report covers the fiscal year 1947, the terminology
applicable to that year has been used.




47

48

FEDERAL HOME LOAJST BANK ADMINISTRATION AND BANKS

functions of several Government agencies, including the Federal Home
Loan Bank Board, Federal Savings and Loan Insurance Corporation,
and Home Owners7 Loan Corporation. Executive Order 9070, dated
February 24, 1942, transferred the Federal Home Loan Bank Board
and all of the organizations under its jurisdiction (as well as certain
other agencies) into National Housing Agency.1 This agency, headed
by a National Housing Administrator, had three constituent units,
one of which was the Federal Home Loan Bank Administration. By
the same order, the offices of the members of the Federal Home Loan
Bank Board were vacated, and the chairman became Commissioner
of the Federal Home Loan Bank Administration, with all of the functions, powers, and duties of the former bdard, subject to the supervision and direction of the National Housing Administrator. National
Housing Agency provided a public relations service for the Administration and was the channel through which many intragovernmental
matters affecting the Administration were handled. Further, NHA
was required, as a matter of form, to integrate the budget and other
financial reports of the Administration and its constituent units into
its own (NHA) reports.
Administrative Department, Federal Home Loan Bank Administration
By order of the Federal Home Loan Bank Commissioner, the Administrative Department 2 was established July 1, 1944. I t consisted
of the offices of an executive assistant to the Commissioner and an
assistant to the Commissioner,,and the following consolidated service
units: Legal Department, Personnel Department, Budget Office, and
Office of the Secretary. Prior to July 1, 1944, the service functions
transferred to the Administrative Department were performed largely
by employees of the Federal Home Loan Bank System or Home
Owners7 Loan Corporation; subsequent to that date, some of them
were duplicated in varying degrees within the corporate constituents
of the Administration.
Federal Home Loan Bank System
The Federal Home Loan Bank System, 3 as here considered, was
the organization to which the Commissioner assigned the functions
of supervision of the district Federal home loan banks and the chartering of Federal savings and loan associations. In addition, it exercised
certain other functions which were properly those of Federal Savings
and Loan Insurance Corporation. In a broader sense, it may be
likened to the Federal Reserve System in that the district banks
provide a reservoir of credit for their members, under the direction
of a governing board.
The Federal Home Loan Bank System was headed by a Governor.
During the existence of the Federal Home Loan Bank Board (prior
to February 24, 1942), the Governor administered the policies established by the Board. Subsequent to the creation of the Federal Home
Loan Bank Administration, the Commissioner, under authority contained in Executive Order 9070, delegated his-administrative powers
i See note 1, p . 47.
* Effective July 1,1947, the Administrative Department and the bank system were merged and operated
under a single budget as the Federal Home Loan Bank Administration. On July 27,1947, the Fedeial
Home Loan Bank Administration was replaced, under Reorganization Plan No. 3 of 1947, by a Home
Loan Bank Board. (See note 1, p. 47.)
* See note 2, above.




FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

49

and duties with respect to the Federal Home Loan Bank System to
its Governor. However, the Governor was required to have the concurrence of the general counsel and an executive assistant to the
Commissioner in the adoption, amendment, or repeal of the rules and
regulations pertaining to the Federal home loan banks and Federal
savings and loan associations. Although the Commissioner retained
his policy-making powers, the Governor had a large part in the formulation of policies. The Governor of the bank system participated
also in the policies and management of Federal Savings and Loan
Insurance Corporation through the requirement that the general
manager of the Corporation have his concurrence with respect to the
settlement of insurance claims, and contributions or loans to, or the
purchase of assets of, insured institutions, and through participation
in the supervision of insured institutions and the approval of applications for insurance.
FUNCTIONS

Federal Home Loan Bank Administration
The primary functions of the Administration were the supervision
and direction of the Federal home loan banks, Federal Savings and
Loan Insurance Corporation, and Home Owners' Loan Corporation.
In addition, it performed certain policy-making and service functions
for, or in conjunction with, its constituent units.
Administrative Department
In July 1944 certain service functions of the Administration and
its constituent units were consolidated in an Administrative Department. 1
The Legal Department is under the direction of a general counsel
who is responsible for all legal matters of the Federal Home Loan
Bank System, Federal Savings and Loan Insurance Corporation, and
Home Owners' Loan Corporation.
The Personnel Department handles all personnel matters for the
Administration and Federal Savings and Loan Insurance Corporation
and is responsible for the operation of the Personnel Department of
Home Owners' Loan Corporation.
The budget officer (prior to July 27, 1947, an assistant to the Commissioner) had the usual budgetary functions for the Administrative
Department and the bank system. In addition, he shares a primary
management responsibility with respect to the budget management
and financial reporting of each of the corporate constituents.
The Office of the Secretary recorded and preserved the official orders
of the Commissioner. I t also had the service functions of purchase
and supply, building management, communication facilities, and
maintenance of files and other records.
Federal Home Loan Bank System
With respect to the Federal home loan banks, the system* had the following functions: Supervisionof the electionof directors and the appointment of officers; review and disposition of applications for membership in the district banks; supervision of investment and loan policies;
adoption and supervision of accounting systems and financial report1

See note 2, p. 48.




50

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

ing; determination of compliance with laws, rules, and regulations, and
semiannual examination of the district banks.
Acting for Federal Savings and Loan Insurance Corporation, the
system supervised and examined insured institutions, both Federaland State-chartered. Officers of the district banks acted as agents of
the system and the Corporation in the review of examination reports
and the performance of the supervisory function, The office of chief
supervisor in the bank system reviewed the examination reports and
the action taken by field supervisory agents, and took such action,
itself, as the circumstances warranted. The system also acted for
FS&LIC, with the assistance of the district banks, in reviewing applications for insurance.
In addition, the system considered and processed applications for
Federal savings and loan association charters. It also maintained and
audited its own financial records and those of the Administrative
Department.




APPENDIX

B

HISTORY, ORGANIZATION, AND FUNCTIONS OP

FEDERAL HOME LOAN BANKS
ORIGIN AND PURPOSE

The Federal home loan banks were established by the Federal
Home Loan Bank Board, which was created for that purpose by the
Federal Home Loan Bank Act (12 U. S. C. 1437), approved July 22,
1932.
The purpose of the Federal home loan banks is to provide a credit
reserve system for building and loan associations, savings and loan
associations, cooperative banks, homestead associations, insurance
companies, and savings banks. The creation of these banks was one
of several measures adopted to relieve the financial distress of thrift
and home-financing institutions and their borrowers.
ORGANIZATION AND MANAGEMENT

Each Federal home loan bank is an integral part of the permanent
home loan credit system under the Federal Home Loan Bank Administration, 1 which exercises general regulatory and supervisory authority
over, and conducts examinations of, the banks.
There were originally 12 district banks, each serving an area determined by the Federal Home Loan Bank Board. ~ On March 29, 1946,
the Federal Home Loan Bank Commissioner merge,d the Los Angeles
and Portland banks into a new bank located in San Francisco; thus at
June 30, 1947, there were 11 banks rather than 12. However, the
San Francisco bank continues to operate the Los Angeles and Portland
banks as branches.
The regional banks are owned by the United States Government and
by savings-and-loan-type associations, insurance companies, and savings, banks which have become members under section 4 of the act.
The capital stock has a par value of $100 per share, and the act prescribes that the minimum capital of each bank shall not be less than
$5,000,000. The total of the minimum capital established for the
12 banks on August 24, 1932, was $134,000,000. The act authorized a maximum participation by the United States Government of
$125,000,000; the amount invested was $124,741,000.
Eligible institutions are required to subscribe to stock in the bank
of which they become members in an amount equal to 1 percent of the
a
ggregate unpaid principal of their home mortgage loans, but in no
event for a sum less than $500. Borrowing members are required to
have, at all times, paid-in stock equal to at least one-twelfth of their
outstanding advances from the district bank. The Government's
1

See note l, p. 47.




51

52

FEDERAL HOME LOAN BANK ADMINISTRATION AND BANKS

participation, which is represented by shares held by RFC,1 is subject
to reductionin each bank after the amount of capital paid in by members equals the amount paid in by the Government. Thereafter, the
bank must apply annually to the retirement of the shares held by the
United States, 50 percent of all sums paid in as capital until all such
stock held by the United States is retired at par. The bank may, with
the approval of the Administration, at any time pay off, in whole or in
part, the stock held by the United States; and the Administration may
at any time require such stock to be paid off at par in whole or in part
if, in its opinion, the bank has resources available for that purpose.
The management of each bank is vested in a board of 12 directors,
who must be citizens of the United States and residents of the district
in which the bank is located. Four of the directors are appointed by
the Administration, and the other eight are elocted by the member
associations subject to approval by the Administration. The membership of each bank is divided, on the basis of the aggregate unpaid
principal of home mortgage loans held, into three groups representing
the large, medium-sized, and small institutions. Two directors are
elected from each of these groups, and the remaining two are chosen
by the membership at large. If, at any time Avhen nominations are
required, the members hold less than $1,000,000 of the capital stock
of a regional bank, the Administration shallfillany position for which a
nomination is required. A director ma}' not hold an active political
office for which he receives compensation.
While the management of each bank is vested in its board of directors, the board is subject, in all its acts, to the rules and regulations
prescribed by the Federal Home Loan Bank Administration,
FUNCTIONS

The Federal home loan banks operate as a credit reserve system for
thrift and home-financing institutions of the savings and loan type
savings banks, and insurance companies. Advances are made, principally, to provide funds for home-financing activities and for the
payment of shareholders' withdrawal requests. These loans are
financed through the capital investments of the Government and the
member institutions, the sale of bonds or other obligations, and deposits made by members or by other district banks.
Certain officers of the several banks have been appointed agents of
the Federal Home Loan Bank Administration, Federal Savings and
Loan Insurance Corporation, and Home Owners' Loan Corporatioa
Thus the banks perform various functions relating to the processing
of Federal savings and loan charters and insurance applications, the
supervision of insured institutions, and the repurchase of HOLC investments in savings and loan type institutions.




O