gate assets of these associations increased by 8.17 percent, and their total private repurchasable capital rose by 13.06 percent. The combined volume of mortgage loans made by the associations in that period amounted to $11,797,000, and they accounted for two-thirds of all nonfarm mortgages of not more than $20,000 recorded in this lending area. The situation today is in sharp contrast to that exist-ing in 1934 when virtually all associations in the city were on a restricted basis with respect to the payment of withdrawals, homefinancing activity was at a standstill, and many associations were in imminent danger of going into receivership.

In the city of Milwaukee where there has been developed a comprehensive program of rehabilitation and insurance, 25 associations were insured as a group in June 1939. These associations had not been operating normally in the payment of withdrawals and it was therefore felt that simultaneous insurance would do much to foster confidence. In the first few weeks following insurance, this group of 25 associations, far from being overwhelmed with withdrawal demands, actually recorded substantial net gains in private capital investments. In Baltimore, Chicago, and Philadelphia, city-wide programs to rehabilitate the local savings and loan industry are in various stages. of progress. Of these, the Chicago program is perhaps nearest to completion. When this program was originally drawn up, there were 256 associations with combined assets of approximately $105,569,000 operating in the Chicago area. Many of these associations were small neighborhood institutions under part-time management and barely able to operate profitably. As of June 30, 1939, the Federal Savings and Loan Insurance Corporation had insured 89 institutions with assets of $79,739,000, and there remained 54 associations, with total assets of $21,234,000, which appeared to be insurable either as independent institutions or on a merger basis. Estimates as of June 30, 1939, indicate that at the conclusion of the Chicago program there will be approximately 125 active associations with combined assets of about $100,000,000, all of which will be sound, normally operating institutions with the majority insured by the Federal Savings and Loan Insurance Corporation.

In the State of New Jersey the Insurance Corporation has cooperated in the development of rehabilitation programs for some 64 communities. As of June 30, 1939, there were 56 insured associations in that State; a substantial number of these institutions represent mergers or consolidations of two or more associations. As the execution of community programs continues, a further increase in the number of sound insured associations in New Jersey is expected.

ELIGIBILITY REQUIREMENTS

On June 30, 1939, there were 222 applications for insurance of accounts pending. Of these, 30 were undergoing examination in Washington, and 192 were awaiting action in the field, divided as follows: conditionally approved cases, where the applicant association had not yet complied with previously imposed requirements, 106; awaiting field examination, 19; and deferred or in suspense, 67 cases.

As a protection to the Government, which has provided its capital stock, and as a safeguard to the investing public and to the institutions which are already insured, the Federal Savings and Loan Insurance Corporation maintains minimum eligibility requirements which must be met before insurance can be obtained by applicant associations. Through these requirements, which are based on the best practices developed by the industry itself, the general quality of management and operations of the savings and loan business throughout the country has been raised substantially.

As efficient management is a prime requisite to the continued successful operation of a financial institution, the Corporation requires in general that full-time executive management be provided. Under modern conditions the growth and development of an association in a measure commensurate with the opportunities in its community usually demand the full time and attention of an association's management. Full-time executive management also tends to eliminate the combination of savings and loan management with that of other businesses such as real estate, insurance, or the practice of law-a relic in many parts of the country of the early days of the savings and loan industry. Where necessary, improvement in the quality of management is a condition for the insurance of accounts. In reorganization cases, the Corporation requests changes in management and directorate whenever this is dictated by the past record of operations.

The Corporation urges insured associations in all but the smallest communities to establish full-time office quarters in a location commensurate with the needs of a financial institution, and desires that such offices be dissociated from any other business enterprise. For obvious reasons, the Corporation insists in every case that the insured association shall not share space with any savings and loan association or other financial institution accepting funds from the public not insured by the Corporation itself or by the Federal Deposit Insurance Corporation.

Another requirement of the Corporation, designed to strengthen public confidence, is the elimination of unpaid withdrawals and

maturities and the submission of evidence that the applicant association will be willing and able to meet withdrawal demands promptly. As membership in the Federal Home Loan Bank System is the best assurance of an association's ability to meet unusual cash requirements, membership in the Bank System is regarded as desirable for all associations applying for insurance.

The Corporation advocates the adoption by insured associations of a few uniform, basic types of share investments. In past years there was a tendency among savings and loan associations in certain parts of the country to offer installment savings facilities exclusively and to refuse lump-sum investments. In other sections so many different types of share accounts were made available to investors that the public was confused. In its requirements relative to forms of security, the Insurance Corporation has endeavored to take a middle course between these extremes. It has encouraged the use of simple types of share accounts providing opportunity for lump-sum investments and for installment payments, either regular or optional.

The Corporation requires that all forms of security issued by an insured institution shall be approved by the Corporation and shall not contain any language which might in any way serve to confuse or mislead investors. The Corporation encourages all insured associations either to eliminate penalties for withdrawals of share investments or at least to adopt a reasonable dividend-retention schedule which will not work an undue hardship on the withdrawing investor.

SUPERVISION

As a means of protecting its own interests as well as those of the insured investors, the Federal Savings and Loan Insurance Corporation exercises close supervision over insured institutions. This supervision extends not only to the annual examination and audit of each insured savings and loan association and to matters of statute and regulation, but includes constant study of the progress of each insured institution through an analysis of monthly reports and through personal contacts of the officers of the twelve Federal Home Loan Banks, who act as agents of the Insurance Corporation in their respective Districts.

While its immediate purpose is to discover unhealthy trends in the operation of insured institutions and to bring about remedial steps before such trends impair the safety of insured investments, supervision attempts at the same time to develop to the maximum degree the usefulness of savings and loan associations to their communities. It undertakes to assist local management with respect to sound lending and savings plans and progressive and efficient business

practices. The Federal Home Loan Banks which, through their close observation of the operations of hundreds of institutions in each District, have become a storehouse of experience in this field, are doing a great deal of consultation work designed to improve the operations of insured institutions. In a number of Federal Home Loan Bank Districts, operating budgets have been developed for associations of various sizes to assist in cost analyses and control. With the cooperation of the Insurance Corporation, the Federal Home Loan Banks have also helped in the development of effective advertising methods and in the organization of joint advertising campaigns by groups of insured associations in the same community or

area.

Federal savings and loan associations are examined annually by the Examining Division of the Federal Home Loan Bank Board. For State-chartered insured institutions, joint examinations by the Examining Division of the Bank Board and the State supervisory authorities are conducted in all but fifteen States. This should result in keeping the cost and inconvenience of examination to such institutions at a minimum.

As was mentioned in an earlier part of this report, the cost of examinations conducted by the Examining Division of the Federal Home Loan Bank Board was reduced materially during the fiscal year 1939.

SETTLEMENTS

During the reporting period, the Federal Savings and Loan Insurance Corporation completed three settlements, which brought the total number of settlements since its creation to seven. On June 30, 1939, there were three additional cases pending.

In all cases hitherto settled, the Corporation has acted under the authority given by Section 406 (f) of the National Housing Act as amended, which reads:

"In order to prevent a default in an insured institution or in order to restore an insured institution in default to normal operation as an insured institution, the Corporation is authorized, in its discretion, to make loans to, purchase the assets of, or make a contribution to, an insured institution or an insured institution in default; but no contribution shall be made to any such institution in an amount in excess of that which the Corporation finds to be reasonably necessary to save the expense of liquidating such institution."

In three of the seven cases settled up to June 30, 1939, the associations, with the aid of cash contributions by the Corporation, liquidated voluntarily, paying all insured investors in cash immediately. In two instances, the associations, with the assistance of a cash con

Section I, p. 18.

tribution by the Insurance Corporation, continued operation under new management, and in the remaining two instances, the impaired associations after restoration of their assets were merged with other insured institutions in the community.

There follows a brief description of the three cases settled during the fiscal year 1939:

Because of poor management and large real estate holdings, a converted Federal savings and loan association in an eastern State encountered serious difficulties resulting in an impairment of capital. After a thorough examination of the association, the Insurance Corporation determined that continued operation of the association under new management was desirable both from the standpoint of the association's investors and the savings and loan business as a whole, and that the needed contribution was less than the cost of liquidation. The Corporation made a contribution of $34,083.97 to restore the capital of the institution and interested a progressive group of citizens in serving as directors of the association. In the six months following the settlement, the assets of the association more than doubled in size, and the association, under new management, has become an important factor in the thrift and home financing activity of the community. That portion of the contribution not needed to cover losses realized in the liquidation of undesirable assets is subject to return to the Corporation. Appraisals of real estate owned by a State-chartered insured institution in a northeastern State reflected an impairment of capital. In cooperation with the State supervisory authority, a plan of merger with a near-by insured Statechartered institution was developed. Upon determination by the Insurance Corporation that a cash contribution to restore the association's capital was more desirable and less expensive than liquidation, the Corporation made a contribution of $5,000 toward the restoration of the impaired capital of the association. The latter thereupon merged into the neighboring institution.

A similar settlement was effected for another State-chartered savings and loan association in the Northeast, in which a considerable impairment developed because of poor management and a decline of real-estate values in the community. A detailed audit of the association and a study of the local situation revealed that the most desirable and the least expensive method of settlement was restoration of the association's capital and merger into a strong well-managed Federal savings and loan association in the same community. A contribution of $246,905.35 was thereupon made to the association, and after conversion of the association to Federal charter, the merger was effected. It was agreed that the portion of the contribution ultimately not required to absorb losses is subject to return to the Corporation and if losses are greater than anticipated, the Corporation will make further contributions to a maximum of $104,629.36, upon approval of its board of trustees.

Contributions made during the fiscal year 1939 totaled $285,989.32. Aggregate gross contributions since the beginning of operations to June 30, 1939, were $390,834.82, part of which is subject to recovery in the liquidation of assets. Recoveries of $4,752.74 have already been realized and returned to the Corporation prior to June 30, 1939.