An analysis of the surplus and undivided profits of the Federal Home Loan Banks, individually and collectively, as of June 30, 1939, is given in Exhibit 24.

Because of the decrease in the volume of advances and the reduction of interest rates charged on such advances, total earnings of some of the Federal Home Loan Banks were lower than in the preceding fiscal year, and five of the twelve Banks reduced their dividend rates. As a result, the annual dividend rate on the average capital stock of the twelve Federal Home Loan Banks for the fiscal year 1939 was approxi mately 1.36 percent as compared with 1.57 percent in the preceding year. The United States Government is receiving the same annual rate of return on its investment in the capital stock of the Banks as is received by the member institutions. Exhibit 25 shows the dividends declared by each Bank to stockholders for the fiscal year 1939 and cumulative from the beginning of operations to June 30, 1939.

Administration of the Federal Home Loan Bank System

Under the direction of the Board, the chief responsibility for the administration of the Federal Home Loan Bank System and the supervision of the twelve Federal Home Loan Banks is vested in the Office of the Governor.

Each Federal Home Loan Bank is examined twice a year. These semi-annual examinations are conducted in considerable detail for the purpose not only of ascertaining the actual condition of the Banks, but also for the purpose of determining that all disbursements were proper and all requirements of the Federal Home Loan Bank Act and the Rules and Regulations of the Federal Home Loan Bank Board have been adhered to in every respect.

After the completion of each semi-annual examination of a Federal Home Loan Bank, a copy of the report of examination, together with a letter of criticism based on such report, is transmitted to the Bank with the request that the Board's Comptroller be promptly advised of the action taken by the Bank to correct the situation which may have been discussed in the report and letter of criticism. The President of the Bank is also requested to present the report of examination and the letter of criticism to the Board of Directors of the Bank and to incorporate the Comptroller's letter of criticism as well as the Bank's reply thereto in the minutes of the next meeting of the Board of Directors.

In addition to the close supervision by virtue of these semi-annual examinations, each Bank is required to furnish the Board's Comptroller with a daily statement reflecting its lending and other transac

tions, as well as with a detailed monthly report on the operations and condition of the Bank. Each Bank is also required to furnish copies of the minutes of the meetings of its Board of Directors, Executive Committee and Stockholders, and copies of reports of its Advisory and Reviewing Committees. On the basis of this information, the Federal Home Loan Bank Board is able to conduct current analyses of the activities of the twelve Federal Home Loan Banks. Such current analyses are designed to bring to light any undesirable trends or conditions which may be found to exist and enable the Board to keep in close touch with the operations of the Banks, so that such changes in its Rules and Regulations or policies as may be deemed desirable may be made from time to time.

The management of each of the Federal Home Loan Banks is vested in a Board of twelve Directors, four of whom are appointed by the Federal Home Loan Bank Board to represent the public interest, while eight Directors are elected by the member institutions in each Bank District in accordance with the terms of the Federal Home Loan Bank Act and the Rules and Regulations prescribed by the Federal Home Loan Bank Board. The respective Boards of Directors elect the executive officers of the Banks subject to the approval of the Federal Home Loan Bank Board.

The Bank Presidents' Conference, established by Resolution of the Board and consisting of the executive heads of the twelve Federal Home Loan Banks, held two meetings during the year ended June 30, 1939. At these meetings, administrative and supervisory problems, credit policies, and home-financing conditions in each of the Bank Districts were considered, and in view of the growing importance of Government bonds in the total assets of the Banks, proper investment procedures were discussed.

The Federal Savings and Loan Advisory Council, created by the Federal Home Loan Bank Act, also held two meetings during the year. This body consists of one member elected by each of the twelve Boards of Directors of the Federal Home Loan Banks and six members appointed by the Federal Home Loan Bank Board. The meetings of the Federal Savings and Loan Advisory Council were helpful in the formulation of the Board's policies and in the maintenance of a close contact between the management of home-financing institutions in the various parts of the country and the central administration in Washington. During the year ended June 30, 1939, the discussions of the Advisory Council were focused upon the liquidity of homefinancing institutions, the determination of interest and dividend rates, and the questions of supervision, competition, and taxation. The

Council also considered the Banks' policies with respect to the establishment of lines of credit for member institutions and endorsed the legislative proposals sponsored by the Federal Home Loan Bank Board. A list of members of the Federal Savings and Loan Advisory Council attending the two meetings during the fiscal year 1939 is presented in Exhibit 26.

Proposed Federal Legislation

In order to increase the usefulness of the agencies under the Federal Home Loan Bank Board to thrift- and home-financing institutions, the Board has supported a series of proposed amendments to the Federal Home Loan Bank Act and other laws governing the activities of the Federal Home Loan Bank Board. These proposals are based on more than six years' experience and deliberation. During these years, the Federal Home Loan Bank Board has made a thorough study of the effects of the existing legislation and has carefully considered improvements regarded as desirable. The amendments now before Congress represent a program which, in the opinion of the Board, will assist greatly in a more efficient performance of the functions of the agencies under the Board, and which will better enable these agencies to meet future emergencies.

With respect to the Federal Home Loan Bank System, the proposed amendments include two major items:

1. Broadening of the collateral base for Federal Home Loan Bank advances.-Under the existing law, mortgages eligible as collateral for Federal Home Loan Bank advances are confined to mortgages on oneto four-family dwellings with a maturity limit of twenty years. Under the amendatory legislation as introduced in Congress, any first mortgage would be acceptable as collateral, the maturity limit would be extended to twenty-five years, and the present $20,000 limit on mortgages eligible as collateral for advances to members would be removed. In addition, the Federal Home Loan Banks would be allowed to make. advances to members on obligations of the Banks themselves and those of the Federal Savings and Loan Insurance Corporation, as well as on any other obligations, acceptable to the Board, which such members may lawfully have available. The House Committee on Banking and Currency, in reporting the proposed legislation, amended these provisions so that eligible mortgages would have to be on properties designed principally for residential use, and so that a $100,000 limit would be substituted for the $20,000 limit.

The pending legislation would broaden the power of the Federal Home Loan Banks to accept as collateral, without undue restriction, those mortgages and obligations which are legal investments for mem

ber institutions. It would also enable the Banks to extend more useful services to savings banks and insurance companies which are eligible for membership in the Federal Home Loan Bank System, since savings banks and insurance companies have only a small portion of their funds invested in the types of mortgages and obligations which are at present eligible for acceptance as collateral by the Federal Home Loan Banks.

2. Purchase of Federal Home Loan Bank obligations by the Treasury.—In order to enable the Federal Home Loan Banks to meet unexpected emergencies, the amendment provides that the Secretary of the Treasury shall be authorized to purchase, at his discretion, obligations of the Federal Home Loan Banks. While other financial systems of the country are protected against unforeseen developments the commercial banks through the authority of the Federal Reserve System to issue currency; and the farm-credit structure through a 2 billion dollar revolving fund guaranteed by the Government to support Federal Land Banks and other corporations of the Farm Credit Administration-no such provision has been made for the credit reserve system created on behalf of thrift and homefinancing institutions. Under normal conditions, such aid to the Federal Home Loan Bank System is unnecessary. However, to prevent the recurrence of a freezing up of financial institutions and the resulting deflationary effects, safeguards are essential in order to enable the Federal Home Loan Banks to obtain funds for advances in times of financial stress when their securities might not be readily marketable.

Other provisions of the proposed legislation are designed to clarify the powers of the Federal Home Loan Bank Board with reference to annual reports by, and examination, audit, and supervision of, member institutions; to extend the criminal provisions of the Federal Home Loan Bank Act for the protection of the Banks and member institutions against circulation of false statements in regard to their financial condition; and to strengthen the penal provisions pertaining to misconduct by examiners of the Banks and of member institutions and to the unauthorized disclosure of confidential information concerning the institutions examined.

2. OPERATIONS OF MEMBER ÎNSTITUTIONS

Increase in Assets

Operations of member institutions during the fiscal year 1939 showed distinct improvements. Total assets and private investments in member savings and loan associations increased. Mortgage lending