in the assistance of slum-clearance projects and the preparation of home-building sites. As far as you know, would the Federal Home Loan Bank Board still be agreeable to that amendment?

Mr. ROBERTSON. I will have to ask Mr. Dixon to answer that.

Mr. DIXON. Yes. The Federal Home Loan Bank Board would be, depending upon the limitations.

Mr. BUBB. Senator Douglas, that is all I have right now. I might like to ask 1 or 2 later, if that is agreeable.

Senator DOUGLAS. Mr. Cravens.

Mr. CRAVENS. Mr. Robertson, subsection (a) of section 4 of the Federal Home Loan Bank Act, I notice, includes insurance companies, and you stated it did have two such members. Should they be members?

Mr. ROBERTSON. That I can't answer. How long have they been members, Mr. Dixon?

Mr. Dixon. It is my understanding, Mr. Cravens, they have been members since the early days. I can see no particular reason or advantage to them, but they still retain membership. They have a line of credit, of course.

Mr. CRAVENS. That is what I was thinking. Have they ever used their right to borrow, or

Mr. DIXON. I suppose at one time they did. I don't think they have in recent years.

Mr. CRAVENS. Do you think it is a sound provision?

Mr. DIXON. I can't answer that question. I had better say, I don't know.

Mr. CRAVENS. Is there a logical reason why they should be permitted to be members?

Mr. DIXON. Only to the extent that Congress thought that there was an advantage in permitting them to have membership in the system. Mr. REESE. Mr. Cravens, wouldn't this be a good time to clarify the field of the Home Loan Bank Board and recommend that any extraneous institutions be taken out? They might be a source of terrific difficulty in case of troubled times where you would be called upon for additional memberships and help. Wouldn't this be the opportunity to make the Federal Home Loan Bank System just for savings and loan associations?

Mr. ROBERTSON. It might be. I don't know the history, nor reason for those two insurance companies being members.

Mr. REESE. It isn't the two. It is the field, having the field wide open in case they want membership in the Home Loan Bank System. Mr. ROBERTSON. Well, there are, of course, also savings banks in the system. They would be in a different category and different position from the insurance companies.

I, like Mr. Dixon, don't see why the insurance companies were in, but they are.

Mr. CRAVENS. It hasn't had very much appeal, so we will proceed with only two being members.

A technical question: Should the provisions of the Reorganization Plan No. 3 of 1947 be written into the statutory authority or not? They would still be operating in either case.

Mr. ROBERTSON. Will you answer that, Mr. Creighton?

Mr. CREIGHTON. I can see no direct advantage in writing it in.

Mr. CRAVENS. You have a recommendation 146 with respect to conversion of a mutual association into a stock company. Are you concerned about any further language to protect the mutual owners upon conversion?

Mr. ROBERTSON. We have just published a regulation which we hope will completely protect the mutual shareholders.

Mr. CRAVENS. You have ample authority for that regulation, I

assume?

Mr. ROBERTSON. Yes, sir.

Mr. DIXON. With respect to Federal associations, Senator, we do. I say there isn't any question in my mind that we have the authority with respect to Federals. There may be a question with regard to State-insured mutuals.

Senator DOUGLAS. What have you done in your regulation?

Mr. ROBERTSON. I will submit it for the record.

Mr. DIXON. Do you want it read? The Senator would like to have it read?

Senator DOUGLAS. No; I don't necessarily want to have it read. What do you do so far as Federal savings and loan institutions are concerned, and what, if anything, do you do on State savings and loans which are federally insured?

(The regulation referred to follows:)

PROPOSED AMENDMENT RELATING TO CONVERSION, MERGER, OR REORGANIZATION OF FEDERAL SAVINGS AND LOAN ASSOCIATIONS

Resolved, That, pursuant to Part 108 of the General Regulations of the Federal Home Loan Bank Board (24 CFR Part 108) and section 142.1 of the Rules and Regulations for the Federal Savings and Loan System (24 CFFR 142.1), it is hereby proposed that, pursuant to section 5, 48 Stat. 132, as amended (12 U. S. C. 1464), Part 146 of the Rules and Regulations for the Federal Savings and Loan System (24 CFR Part 146) be amended by an amendment the substance of which is as follows:

"Part 146 of the Rules and Regulations for the Federal Savings and Loan System is hereby amended by amending the heading of said Part to read 'MERGER, DISSOLUTION, REORGANIZATION, AND CONVERSION' and by adding to said Part a new section to be numbered 146.5 and to read as follows:

"SECTION 146.5 Conversion from Federal to State charter under last paragraph of subsection (i) of section 5 of the Home Owners' Loan Act of 1933. The following minimum requirements are hereby prescribed for approvals pursuant to the last paragraph of subsection (i) of section 5 of the Home Owners' Loan Act of 1933, as amended:

"1. The conversion shall be effected in accordance with a plan approved by the Board.

""2. The plan shall be submitted to the Board prior to the giving of notice as hereinafter provided.

3. The association shall give formal notice of a special meeting called to vote on the plan, which notice shall set forth the terms of the plan, the rights of the members, and such other matters as the Board may require.

"4. The plan shall be approved by a vote of not less than two-thirds in withdrawal value of the outstanding shares of the association and not less than twothirds in number of the vote cast at the meeting aforesaid, and by the Federal Home Loan Bank Board.

5. The entire amount of guaranty or permanent stock or other similar stock, if any, shall be issued, without payment, pro rata to all shareholders of record at such date as the Board shall fix: Provided, That scrip for fractional shares shall be issued to such extent and in such manner as the Board may require, with such provision for redemption, liquidation, or other disposition of such scrip as the Board may require: Provided further, That if the Board determines that it is not feasible to issue the entire amount of such stock as hereinbefore provided, all or such part thereof as may be specified in the plan may be is

sued otherwise than as hereinbefore required, provided the issuance thereof is in accordance with provisions of the plan. The amount of such stock shall be as required by the Board and shall be at least equal to the minimum amount required by the laws of the State. In the event that guaranty or permanent stock or other similar stock is provided for in the plan, the plan shall contain provisions which, in the judgment of the Board, are adequate to assure that each shareholder of record at said date will be entitled to receive, in the form of (a) a withdrawable account or accounts of the converted association, (b) such stock or scrip, or (c) cash, or such combination of all or any thereof as may be provided for in the plan, the full equivalent of his interest in the converting association.

"6. The plan shall include appropriate provisions to prevent reduction of the Federal insurance reserve as a result of action under the plan.'"

Resolved further, That all interested persons are hereby given the opportunity to submit written data, views, or arguments on the following subjects and issues: (1) Whether said proposed amendment should be adopted as proposed; (2) whether said proposed amendment should be modified and adopted as modified; (3) whether said proposed amendment should be rejected. All such written data, views, or arguments must be received through the mail or otherwise at the office of the Secretary, Federal Home Loan Bank Board, Federal Home Loan Bank Board Building, 101 Indiana Avenue NW., Washington 25, D. C., not later than December 11, 1956, to be entitled to be considered, but any received later may be considered in the discretion of the Federal Home Loan Bank Board.

Mr. DIXON. One of the legislative proposals is that through the Insurance Corporation we be given clearer authority to control conversions of State-chartered insurance associations.

Senator DOUGLAS. But you don't feel that you have authority to do it by regulation?

Mr. DIXON. There is a question about it, Senator.

Senator DOUGLAS. But you have not exercised that authority?

Mr. DIXON. We have tried to exercise it. We have exercised it, and I think have had a salutary effect, but we would like it clarified by the Congress. We would like our authority

Senator DOUGLAS. Could you tell us in brief what you have done so far as you have done this at all?

Mr. DIXON. We just simply refused to approve applications. However, the statute says that the Insurance Corporation shall approve security forms. On that basis, we have refused to approve, pending working out of an equitable formula.

Senator DOUGLAS. So that so far as you are concerned and to the degree which you think you have powers, you are now checking the conversion of mutual savings and loan institutions into stock institutions; is that correct?

Mr. DIXON. We are.

Senator DOUGLAS. Excuse me.

Mr. CRAVENS. Certainly.

We have asked almost everyone, we will ask you the same question: Should an officer or a director of a Federal savings and loan association be permitted to serve on the board of a bank or vice versa ? Mr. ROBERTSON. I shouldn't think it would make any difference. Mr. CRAVENS. You don't see any area of conflict?

Mr. ROBERTSON. No.

Mr. CRAVENS. You mentioned 744 members of your system that are noninsured. Is there any logical reason why a member should have the privileges of the Federal home loan bank and not be insured? Mr. ROBERTSON. Except that they are different functions. membership gives a credit facility, while the insurance is

The

Mr. CRAVENS. I understand. Maybe I should make my question a little bit different: Shouldn't it be a condition of membership? Mr. ROBERTSON. I am not sufficiently experiencd to know.

Mr. DIXON. If the Congress should so determine. As you know, Mr. Cravens, there are many of the States that feel that that is a question that should be determined by the boards of directors and the officers of the association, that we should not deny credit simply because the association is in an area where we feel that there are already as many insured institutions as there should be. We would be reluctant to grant insurance to additional institutions in those areas.

Mr. CRAVENS. It would still be optional whether they wanted to be a member of the Federal home loan bank.

Mr. DIXON. Not necessarily optional. In other words, we also could control that and do.

Mr. CRAVENS. Is the situation similar to that of the Federal Reserve? You don't have to belong to the Federal Reserve, but when you do you have to be insured.

Mr. DIXON. We have just the opposite.

Mr. CRAVENS. Is the situation similar? Does the same logic apply? That is what I am asking.

Mr. DIXON. As far as I am concerned, I would think it could well be said that the same logic should be applied.

Mr. CRAVENS. Should the authority be continued to make advances to nonmember borrowers of the Federal home loan bank? I assume you are not using it now, are you?

Mr. ROBERTSON. They say not to any great extent.
Mr. CRAVENS. Should it be continued or discontinued?

Mr. DIXON. I would beg to have a little time to consider that. I wouldn't want to answer that off the cuff, because there are a number of elements involved. I think that ought to be given study.

Mr. CRAVENS. Do you require annual audits from Federal savings and loan associations?

Mr. DIXON. Pardon?

Mr. CRAVENS. Does the Board require annual audits of the savings and loan associations?

Mr. DIXON. Yes, sir.

Mr. CRAVENS. Is that in lieu of an examination?

Mr. DIXON. It is in addition to.

Mr. CRAVENS. In addition to.

Mr. ROGERS. Mr. Dixon, do you have a copy of that regulation providing for annual audits?

Mr. DIXON. Yes: we have it here.

Mr. ROGERS. I wonder if we could have it for the record.

(The regulation referred to follows:)

Resolved, That, pursuant to part 108 of the General Regulations of the Federal Home Loan Bank Board (24 CFR, pt. 108) and section 167.1 of the Rules and Regulations for Insurance of Accounts (24 CFR 167.1), section 163.17 of the Rules and Regulations for Insurance of Accounts (24 CFR 163.17) is hereby amended to read as follows:

For the pro

"163.17 Examinations; examination and audit; cost of same. tection of its insured members and other insured institutions each insured institution shall maintain safe and sound management, pursue financial policies that are safe and consistent with economical home financing and the purposes of insurance of accounts, and shall be examined periodically by the Corporation, with appraisals when deemed advisable, in accordance with general policies from time

to time established by resolution of the Board. Each insured institution shall be audited periodically by auditors and in a manner satisfactory to the Corporation, and may be audited at any time by the Corporation. The insured institution shall promptly file with the Corporation, through the Chief Examiner of the Federal home loan bank district in which it is located, a copy of every report of its independent audit, which reports must be certified by the independent auditors. If the association has neither been audited by independent auditors within the 12-month period immediately preceding the date of such examination or within the period that has elapsed since such last preceding examination, whichever is greater, nor adopted and maintained an internal audit program acceptable to the Corporation, the examination by the Corporation shall include an audit. The cost, as computed by the Corporation, of any such audit or examination, or both, including office analysis thereof, and appraisals made in connection therewith, overhead, per diem, and travel expenses, shall be paid by the institution examined or audited. The Corporation may obtain at any time, at its expense, such appraisals of any of the assets of an insured institution as it deems appropriate." Resolved further, That, since this amendment relates to procedure and practice, it is found that it is not necessary to issue such amended regulation with notice and public procedure thereon under the provisions of section 4 of the Administrative Procedure Act.

(Sec. 402, 48 Stat. 1256, as amended, 12 U. S. C. 1725; sec. 17, 47 Stat. 736, as amended, 12 U. S. C. 1437.)

This amendment shall be effective 30 days after the date of its publication in the Federal Register.

Mr. CRAVENS. What is the reasonable comparison between your assessment rate and that of the FDIC? I am speaking now of the savings and loan corporations?

Mr. ROBERTSON. I would like to ask Mr. Husband to answer that. Mr. HUSBAND. Our rate is one-twelfth of the withdrawable shares plus the creditor obligations, as compared with the FDIC, which is, as you know, one-twelfth less the credit of 60 percent, and I understand that further reduction is being requested.

Mr. CRAVENS. What does that come out? To what would it be comparable?

Mr. HUSBAND. Our present rate is more than twice as great as the net charge made by the FDIC. We were charging one-twelfth straight, and they are charging one-twelfth minus that credit.

Mr. CRAVENS. Yes, but they are paying it on total deposits and your individual deposits would more nearly come within the $10,000 insured.

Mr. HUSBAND. Our charge is on the total, but our insured accounts amount to about 98 percent of the total.

Mr. CRAVENS. That is what I meant.

Mr. HUSBAND. Plus the credit obligations, as I mentioned before. Mr. CRAVENS. Should legislation be enacted to regulate the establishment of branch offices of Federal savings and loan associations? That is, I am asking they be put, for example, on a par with national banks to be permitted branches only if the States permit them?

Mr. ROBERTSON. That is substantially what the savings and loan associations are doing. The variation would be in some States such as Florida where they have group banking in some other States. The savings and loan associations are not authorized to have branches where there isn't some State precedent.

Mr. CRAVENS. They do in Missouri.

MR. ROBERTSON. Is there any special reason that is so in Missouri? Mr. ROGERS. Mr. Cravens, I wonder if I could help the Chairman clarify the record on that.