date. Exhibit 15 indicates the changes in the percentage of borrowing members to total members for each of the twelve Federal Home Loan Bank Districts, from the fiscal year 1935 to the fiscal year 1939.

Types of Advances

Federal Home Loan Bank advances are made up to ten years on the security of home mortgages, or obligations of or guaranteed by the United States, and up to one year on an unsecured basis. All ad

CHART XXII

PERCENT CHANGE IN THE AMOUNT OF BANK ADVANCES OUTSTANDING
DURING THE FISCAL YEAR 1939 BY FEDERAL HOME LOAN BANK DISTRICTS

vances, whether secured or unsecured, are collateralized by an investment of the borrower in the stock of the Bank to the extent of at least one-twelfth of the total outstanding advances to such borrower. A detailed description of the various types of advances is given in Exhibit 16.1

Through an amendment to the Federal Home Loan Bank Act of May 28, 1935, Congress authorized the Federal Home Loan Banks to make advances to nonmember mortgagees approved under Title II of the National Housing Act. The amendment provided that such advances were not to be subject to the other provisions and restrictions of the Federal Home Loan Bank Act, but were to be made upon the security of mortgages insured under Title II of the National Housing Act. To June 30, 1939, Federal Home Loan Banks made advances to three nonmember mortgagees in the aggregate amount of $159,400, all of which, with the exception of $2,805, had been paid in full prior to the fiscal year 1939. During the year the balance of $2,805 was repaid in full and no advances to nonmember mortgagees were made.

An analysis of the collateral securing Federal Home Loan Bank advances demonstrates that there is a substantial margin of protection behind these advances. Of the total amount of advances outstanding at the end of the reporting period, $145,442,668, or 86.1 percent, was secured by mortgages, obligations of or guaranteed by the United States Government, and capital stock of the Banks, while $23,518,895, or 13.9 percent, was unsecured, except for the amount of capital stock of the Banks paid in by borrowers. Unsecured advances were made exclusively to members whose creditor liabilities did not exceed 5 percent of their net assets.

The secured advances were collateralized by 146,958 home mortgages with unpaid balances of $333,934,883, and obligations of the United States Government (direct or fully guaranteed) aggregating $2,210,625. As additional collateral for both secured and unsecured advances, borrowing members had paid in $22,456,725 on subscriptions to the Banks' capital stock. Exhibit 17 gives detailed information on the trend of secured and unsecured advances by fiscal-year periods, since the beginning of operations to June 30, 1939. Further indication of the soundness of Federal Home Loan Bank advances is the fact that the Federal Home Loan Banks have sustained no losses on their outstanding advances and that on June 30, 1939, there was only one borrowing member (exclusive of those in liquidation) which was delinquent over thirty days, in the nominal amount of $702. At the same date, eleven borrowing institutions were in liquidation, the liquidation in all but three of these cases being voluntary. These eleven borrowers, as of June 30, 1939, had a total indebtedness to the Banks of $421,304 which was secured by home mortgages with an estimated value of $603,857, and by paid-in stock in the Banks aggregating $72,200. No loss is anticipated on the indebtedness of any of the liquidating borrowers.

In accordance with the character of the operations of home-financing institutions, most of the Federal Home Loan Bank advances are on a long-term amortized basis. On June 30, 1939, almost four-fifths of the total amount of outstanding advances was for terms from one to ten years, and only one-fifth for terms up to one year. This is in contrast to the early period of the Federal Home Loan Bank System when a larger portion of the advances outstanding was on a short-term basis.

Distribution of Federal Home Loan Bank advances outstanding, by long-term and short-term advances, as of June 30

This has

Since the Federal Home Loan Banks have been operating but a little over six years, complete data on the actual life of the long-term advances up to ten years are not yet available. However, there are many indications that the average life of these advances will be considerably less than the stipulated period. Reports obtained from the Federal Home Loan Banks evidence that repayments received on long-term advances have been considerably in excess of the amount of repayments due on such advances. During the past fiscal year, in particular, the increased liquidity of home-financing institutions induced many borrowers to make repayments in excess of amortization requirements or to retire their indebtedness in full. naturally contributed to the decline in advances outstanding. Advances from Federal Home Loan Banks are used by member institutions for a variety of purposes, but for the most part, they are obtained to enable home-financing institutions to meet the needs of their communities for mortgage loans on homes when the demand is running at a greater rate than the local supply of funds. Reports from various Federal Home Loan Banks indicate that during the fiscal year 1939 the major portion of the long-term advances, which constitute approximately 80 percent of total advances outstanding, was for the purpose of making mortgage loans, whereas the remainder was used for liquidity purposes. In many cases, of course, the funds advanced for liquidity purposes helped indirectly to maintain normal mortgage-lending activities of member institutions.

Interest rates on advances to members are determined by the Boards of Directors of the respective Banks within a range approved by the Federal Home Loan Bank Board. At the end of the fiscal year 1939, such interest rates ranged from 1% to 3%1⁄2 percent for shortterm, and from 3 to 3%1⁄2 percent for long-term advances. These rates reflect various reductions made during the year. The Federal Home Loan Banks of Boston and New York revised their rates for shortterm advances from 3 to 21⁄2 percent, and on June 28, 1939, the Federal Home Loan Bank Board approved a further reduction on short-term

amortized advances by the New York Bank to 11⁄2 percent. During the fiscal year 1939, the New York Bank also lowered its rate on long-term advances from 3% to 3 percent. The Federal Home Loan Bank of Portland reduced the interest rates on all advances from 31⁄2 to 3 percent. The Federal Home Loan Bank of Pittsburgh likewise reduced its rates on all advances from 3% to 3% percent, and the Federal Home Loan Banks of Cincinnati and Des Moines from 3% to 3 percent. The Federal Home Loan Bank of Chicago decreased the interest rate charged on secured advances from 34 to 3 percent and the rate on unsecured advances from 3% to 3% percent. Exhibit 18 contains detailed information on interest rates charged by each Federal Home Loan Bank as of July 1, 1939.

At the end of the fiscal year 1939, the borrowing capacity of member institutions-which is the approximate amount for which each member may legally obligate itself, or 50 percent of its net assets, whichever amount is the lower-was close to $1,700,000,000, or about ten times the present volume of advances outstanding. Within the borrowing capacity, each Federal Home Loan Bank has established lines of credit for the individual member institutions, and such credit lines are revised at least annually or more often if deemed necessary.

Increase in Liquidity of the Federal Home Loan Banks

Financial operations of the twelve Federal Home Loan Banks during the fiscal year 1939 were characterized by a continued growth in total resources, on the one hand, and by the aforementioned decline in advances to member institutions, on the other. As a result, the Federal Home Loan Banks as a whole and each of the Banks separately experienced a substantial increase in liquidity.

On June 30, 1939, the consolidated resources of the twelve Federal Home Loan Banks were $296,629,853, compared with $265,770,804 at the end of the preceding fiscal year-a growth of 11.6 percent. The main changes in assets and liabilities which occurred during the reporting period are illustrated in Charts XXIII and XXIV, and a detailed statement of condition for the Banks as a whole and for each of the Banks separately, as of June 30, 1939, is presented in Exhibit 19.

The larger liquidity of the Federal Home Loan Banks is shown in the marked increase of cash and investment holdings. On June 30, 1939, cash held by the Banks amounted to $78,205,795 as against $34,334,856 the year before. Investments, which consisted exclusively of United States Government obligations and securities guaranteed by the United States Government, increased from $34,445,173