and a declaration that the latter had a lawful right to transact business in the State. The defendants, by their amended answer, substantially admitted the facts alleged, but contended that Section 5 was unconstitutional and beyond the powers of Congress, that the plaintiff association was therefore not legally organized or incorporated, and that it was doing business in Wisconsin without right and in contravention of the laws of the State. The District Court, after hearing the case without testimony, on the association's motion to strike the amended answer, held Section 5 to be constitutional and enjoined the defendants from interfering with the transaction of business in Wisconsin by the association (First Federal Savings and Loan Association v. Finnegan et al., 19 F. Supp. 678 (1937).) This decision was affirmed by the Circuit Court. In the opinion rendered by the majority of the Circuit Court, it was held that the provision of Section 5 that Federal savings and loan associations shall act as fiscal agents of the United States when designated by the Secretary of the Treasury, and may act as agent for any other instrumentality of the United States when designated by such instrumentality, brings such associations within the implied power of Congress to create financial corporations as fiscal agents of the Government. This power, the court stated, has been recognized so oftenbeginning with McCulloch v. Maryland, 4 Wheat. 316, and continuing through Smith v. Kansas City Title and Trust Company, 255 U. S. 180 that it must be regarded as a settled matter. The majority opinion also expressed the view that Section 5 is sustainable under the general welfare clause of the Constitution. After referring to recent cases in which the Supreme Court upheld the validity of certain provisions of the Social Security Act under the authority of Congress to expend money for the general welfare, the majority opinion stated: "To our mind the preservation of home owners and the promotion of a sound system of home mortgage is none the less national in scope than the provisions for the unemployed and the aged. Its scope, as affecting the welfare of the Nation as a whole, is of equal importance. To say that Congress has the authority to make provision for one class but not the other is to make a distinction justified by neither logic nor common sense. The problem presented in one case is no less national in its aspect than that presented in the other." V Federal Savings and Loan Insurance PROGRESS OF INSURANCE PROTECTION DURING the fiscal year 1939, the Federal Savings and Loan Insurance Corporation has made further progress in extending protection to investors in thrift- and home-financing institutions. From July 1, 1938, to June 30, 1939, the number of savings and loan associations insured by the Corporation increased from 2,015 to 2,170. Of the latter number, 1,383 were Federal savings and loan associations,1 and 787 State-chartered savings and loan associations. During the year, new insurance certificates were issued to 176 institutions, with assets of approximately $138,000,000. Of these newly insured associations, 138 were State-chartered institutions, and 38 were institutions operating under Federal charter. In the same period, 21 insured savings and loan associations discontinued operations as independent institutions through merger or liquidation. As a result, there was a net increase of 155 insured institutions for the year. Exhibit 42 presents the number and the approximate assets of insured associations as well as the number of private investors holding repurchasable shares in these institutions, as of June 30, 1939, by Federal Home Loan Bank Districts and by States. The total assets of insured savings and loan associations rose from $1,978,000,000 to $2,339,411,000 during the year-an increase of 18 percent. The number of private investors holding accounts in insured institutions increased from 1,832,764 to 2,236,043 or by 22 percent. Each of these investors is protected by the Corporation against loss of his savings and credited earnings to a maximum of $5,000. The large majority of insured investors are small savers who have accumulated moderate sums in thrift- and home-financing institutions to provide reserves for a "rainy day" or funds for the acquisition of a home. On June 30, 1939, the average account per private investor in insured savings and loan associations was $741. 1 The difference between the 1,383 Federal savings and loan associations reported as insured and the 1,386 Federal savings and loan associations reported as chartered is due to the lapse of time between the issuance or withdrawal of Federal charters and the issuance or withdrawal of insurance certificates. 183130-39-8 105 The extent of insurance protection afforded by the Federal Savings and Loan Insurance Corporation is indicated by the fact that on June 30, 1939, more than 55 percent of the total number of member savings and loan associations of the Federal Home Loan Bank System were insured. These associations held approximately 60 percent of the total assets of savings and loan members of the Bank System. In many parts of the country, the majority of sound, eligible thriftand home-financing institutions now offer their investors insurance protection against loss; in 23 States, more than 75 percent of all savings and loan members of the Federal Home Loan Bank System were insured by the Federal Savings and Loan Insurance Corporation as of June 30, 1939.2 As the insurance program proceeds, a larger percentage of applicant associations are found to be in need of improvement in financial condition or management before they are able to meet the eligibility requirements of the Corporation. In a few areas, particularly, a substantial amount of reorganization work will be necessary before the insurance of share investments by the Corporation can be extended. In these areas, there are still considerable numbers of associations For a comparison of savings and loan members of the Federal Home Loan Bank System with associations insured by the Federal Savings and Loan Insurance Corporation. by Bank Districts and by States, see Exhibit 43. which, as a result of the depression, are burdened with excessive holdings of real estate and other assets of doubtful quality, and which therefore cannot qualify for insurance of accounts at the present moment. Naturally, the solution of the involved problems of associations in need of reorganization requires time and effort. This results in a less rapid increase in the number of insured associations than was the case in the early years of the Corporation's history. COMMUNITY PROGRAMS In the last fiscal year the Federal Savings and Loan Insurance Corporation, in cooperation with the Federal Home Loan Banks and State supervisory authorities, has devoted much attention to the alleviation of conditions which prevent home-financing institutions in certain parts of the country from operating normally. For several areas where fundamental improvements are necessary, community programs have been developed with a view to providing an over-all solution of the savings and loan situation. These programs are based on a review of general economic and real estate conditions in the community, a determination of the need for savings and home-financing facilities, and a survey of the condition of existing savings and loan associations. Based on these analyses, the programs provide for the voluntary or involuntary liquidation of associations which should be discontinued, for the merger of weak or small associations, for reorganizations in various forms, and for the ultimate insurance of accounts of eligible associations. In some areas, the execution of community programs has progressed steadily and has brought about a substantial rehabilitation of the local savings and loan industry. In other areas, the development of community programs is under way and will result, in the near future, in the insurance of an appreciable number of sound associations. An example of a well-rounded community program for the rehabilitation of the entire local savings and loan industry is that for the city of New Orleans. At the close of 1934, when the New Orleans program was formulated, there were 53 associations with assets of $87,386,000 operating in the city. As a result of a rehabilitation program executed by the State supervisory authorities in collaboration with the Insurance Corporation, there remained 32 associations, which on June 30, 1939, had aggregate assets of $57,563,000. All these associations have been insured by the Federal Savings and Loan Insurance Corporation. The beneficial effects of a program such as this are clearly evident in the operating statistics of the present New Orleans associations. From July 1, 1938, to June 30, 1939, the aggre |