oversight

Examination of Financial Statements of the Federal Home Loan Bank Board, Federal Home Loan Banks, and Federal Savings and Loan Insurance Corporation for the Year Ended December 31, 1970

Published by the Government Accountability Office on 1971-10-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

       T TO Yi%.E CONGRESS
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                                           III1

Examination Of
     cial Statements Of The
Federal ome Loan Bank Board,
Federal !Home Loan Banks, And
Federal Savings And
Loan Insurance Corporation
For The Year Ended
  cember 31, 1970 B-I   74827




BY THE COMPTROLLER GENERAL
OF THE UNITED STATES
              COMPTROLLER     GE,NERA-L   PF     THE    UNITED   STATES
                            WASHINGTON,    DC.     20545




B-114827




To the President  of the Senate and the
Speaker of the House of Representatives

         This is our report     on the examination    of the                financial
statements      of the Federal    Home Loan Bank Board,                       the Fed-
eral home loan banks, and the Federal           Savings and                   Loan
Insurance     Corporation    for the year ended December                        31, 1970.
In prior    years our examinations      were reported     on                separately.

         Our examination  was made pursuant   to the Budget and
Accounting    Act, 1921 (31 U.S.C. 53), the Accounting   and Au-
diting Act of 1950 (31 U.S.C. 67), the Government      Corpora-
tion Control    Act, as amended (31 U.S.C. 850 and 857), and
the Federal    Home Loan Bank Act, as amended (12 U.S.C.
1431(j)).

        Copies of this report   are     ing sent to the Director,
Office of Management       and Budget; the Secretary    of the
Treasury;     and the Chairman    of the Federal   Home Loan
Bank Board.




                                          Comptroller             General
                                          of the United           States




                   ‘50 TH ANNIVERSARY                  1921 i. 1971
&VPTR~LLER GENERAL'S                        EXAMINATIONOF FINANCIAL STATEMENTSOF THE
* PORT TO THE CONGRESS                      FEDERAL HOME LOAN BANK BOARD, FEDERAL HOME
                                            LOAN BANKS, AND FEDERAL SAVINGS AND LOAN
                                            INSURANCECORPORATION FOR THE YEAR ENDED
                                            DECEMBER31, 1970 B-114827


DIGEST
1-----

,6$'!iYTHE EXAMINATION WAS M4DE
 I
 I    The Comptroller    General is required       by law    to examine and report        annually
 I    on the activities    of the Federal home loan          banks and the Federal Savings
 I
 I    and Loan Insurance    Corporation      and to report       the results     to the Congress.
 I    The Federal Home Loan Bank Board supervises              the activities       of the banks
 I
 I    and the Corporation.      Therefore      the General     Accounting     Office   (GAO) in-
 I    eluded the Board's financial        statements    in   its examination.
 I
 I
 I    As required   by the Federal Home Loan Bank Act, as amended, GAO examined
 I
 I
      the accounts for calendar year 1970 that related      to the acquisition   of
 I    land in the District    of Columbia and to the construction   and equipping   of
 I
 I    buildings   on this land as needed for use by the Board and the agencies
 I    under its supervision.


FkNDINGS AND CONCLUSIONS
 I
 I
 I    FederaZ Home Loan Bank Board
 I
 I
 I    In GAO's opinion,      the Federal Home Loan Bank Board's financial              statements
 I    present fairly     the financial   position   of the Board at December           31, 1970,
 I    and its revenue and expenses and the sources and application             of        its funds
 I
 I    for the year then ended, in conformity         with the principles   and         standards   of
 I    accounting    prescribed   by the Comptroller     General of the United          States,
 I    applied on a basis consistent       with that of the preceding     year.
 I
 I
 I            Acquisition   of si-be for   buiZdinq
 I
 I            As of December 31, 1970, the Board had transferred              $6,085,200    to an ac-
 I
 I            count to be used by the General Services          Administration       (GSA) for site
 I            acquisition    and construction     of a new building     for the Board and the
 I
 I            agencies under its supervision.         As of that date GSA had spent $5,548,066
 I            for land and $524,306 for site studies, appraisals,              and building    de-
 I
              sign.     Plans for use of this site,      however, were changed, and in December
 I            1970 the Board requested        GSA to locate  a new site for the-building.
 I            (See p. 10.)
 I




 year Sheet                                                                  OCT.20,1971
    Federal   home loan banks

     GAO is of the opinion    that the financial      statements    of the 12 Federal home
     loan banks present fairly      the financial    position    of the banks at December 31,
     1970, and the results    of their    operations   and the sources and application
     of their   funds for the year then ended, in conformity           with generally accepted
     accounting    principles applied on a basis consistent         with that of the preced-
     ing year and with applicable      Federal laws, except for a change in the ac-
     counting   for items of a fixed or permanent nature in 1970 with which GAO
     agrees.

     In July 1970 the Federal home loan banks began to capitalize               items of a
     fixed or permanent nature,      such as bank premises,      furniture,     and equipment.
     The net amount shown on the comparative        consolidated      statement    of financial
     condition  at December 31, 1970, for bank premises and furnishings               represents
     the cost of land and the cost of office        buildings,     furniture,     and equipment,
     less accumulated  depreciation.       In previous years the cost of furniture             and
     equipment was charged directly      to an expense account.

    FederaZ Savings     and Loan Instance       Cozyoration

    GAO is of the opinion that the financial           statements    of the Federal Savings
    and Loan Insurance      Corporation    present fairly     the financial    position   of
    the Corporation     at December 31, 1970, and the results           of its operations    and
    the sources and application         of its funds for the year then ended, in con-
    formity    with generally    accepted accounting      principles    applied on a basis
    consistent     with that of the preceding year and with applicable             Federal laws,
    except for a change in the accounting          for insurance     premiums in 1969 with
    which GAO agrees.

    Prior to December 1969 insurance       premiums assessed were amortized          and taken
    into income by the Corporation       in equal monthly installments.          Since the
    Corporation  considers  that no portion      of the insurance     premiums is refund-
    able, the Corporation   revised    its accounting    for insurance     premiums to show
    all premiums earned when the institutions         are assessed.      The Corporation's
    1970 income from insurance     premiums and admission fees is not comparable
    with the 1969 income because about $52 million          in additional     insurance
    premiums were taken into income in 1969.

                                                                                                     I
RECOMVENDATIONSOR SUGGESTIONS                                                                        I
     None.


AGENCY ACTIONS AND UNRESOLVEDISSUES

    None.
I
I
I       -


I
I s MATTERSFOR CONSIDERATION
                           BY THE CONGRESS
I
            This report,     required by law, contains   no recommendations   or suggestions
            requiring    action by the Congress.




    I
    I       Tear Sheet
                          Contents
                                                              Page
DIGEST                                                          1

CHAPTER

   1       INTRODUCTION                                         4
               Federal Home Loan Bank Board                     4
               Federal home loan banks                          5
               Federal Savings and Loan Insurance
                 Corporation                                    5

   2       FEDERALHOMELOAN BANK BOARD                           7
              Operations                                        7
              Supervision     and examination    of insured
                institutions                                    9
              Construction     of new building                 10
              New legislation                                  13
              Scope of examination                             14

   3       FEDERALHOMELOAN BANKS                               15
              Operations                                       15
              New legislation                                  16
              Scope of examination                             16

   4       FEDERALSAVINGS AND LOAN INSURANCECORPORA-
           TION                                                17
               Operations                                      17
               Problem institutions                            18
               Assets acquired as a result of the
                 Corporation's     insurance activities
                 and related allowance for losses              20
               Reserves and borrowing authority                22
               Scope of examination                            23

   5       OPINION OF FINANCIAL STATEMENTS                     25

FINANCIAL STATEMENTSOF FEDERALHOMELOAN BANE BOARD

Schedule

   1       Comparative statement of financial condi-
             tion at December 31, 1970, and Decem-
             ber 31, 1969                                      29
                                                                            1




Schedule                                                             Pane

   2        Comparative    statement     of revenue,  expense,
              and retained      earnings   for the years
              ended December 31, 1970, and December 31,
              1969                                                    30

   3        Statement    of sources and application  of
               funds,   year ended December 31, 1970                  31

            Notes   to the   financial     statements                 32

FINANCIAL    STATEMENTS OF FEDERAL HOME LOAN BANKS

   4        Comparative   consolidated    statement of fi-
              nancial   condition    at December 31, 1970,
              and December 31, 1969                                   35

   5        Comparative consolidated  statement of in-
              come and expense for the years ended
              December 31, 1970, and December 31, 1969                36

   6        Consolidated statement         of retained   earnings,
              year ended December         31, 1970                    37

   7        Combined statement    of sources and applica-
              tion of funds,   year ended December 31,
              1970                                                    38

            Notes   to the   financial     statements                 39

FINANCIAL STATEMENTS OF FEDERAL SAVINGS AND LOAN
INSURANCE CORPORATION

   8        Comparative statement of financial condi-
              tion at December 31, 1970, and Decem-
              ber 31, 1969                                            42

   9        Comparative   statement       of income,  expense,
              and primary    reserve      for the years ended
              December 31, 1970,         and December 31, 1969        43

  10        Statement    of sources and application  of
               funds,   year ended December 31, 1970                  44
Schedule                                          Page
            Notes to financial      statements     45
                                ABBREVIATIONS

GAO        General Accounting      Office

GSA        General   Services    Administration
* COMPTROLLERGENERAL'S                     EXAMINATION OF FINANCIAL STATEMENTSOF THE
  REPORT TO THE CONGRESS                   FEDERAL HOME LOAN BANK BOARD, FEDERAL HOME
                                           LOAN BANKS, AND FEDERAL SAVINGS AND LOAN
                                           INSURANCE CORPORATION FOR THE YEAR ENDED
                                           DECEMBER31, 1970 B-114827


 DIGEST
 ---_--

 WHY THE EXAMINATION WAS MADE

      The Comptroller   General is required        by law to examine and report         annually
      on the activities    of the Federal home loan banks and the Federal Savings
      and Loan Insurance Corporation         and to report     the results     to the Congress.
      The Federal Home Loan Bank Board supervises            the activities       of the banks
      and the Corporation.      Therefore      the General Accounting       Office   (GAO) in-
      cluded the Board's financial        statements    in its examination.

      As required   by the Federal Home Loan Bank Act, as amended, GAO examined
      the accounts for calendar year 1970 that related      to the acquisition   of
      land in the District    of Columbia and to the construction   and equipping   of
      buildings   on this land as needed for use by the Board and the agencies
      under its supervision.


 FINDINGS AND CONCLUSIONS

      Federal   Home Loan Bank Board

      In GAO’s opinion,    the Federal Home Loan Bank Board's financial              statements
      present fairly    the financial   position    of the Board at December         31, 1970,
      and its revenue and expenses and the sources and application             of      its funds
      for the year then ended, in conformity         with the principles   and       standards   of
      accounting prescribed      by the Comptroller     General of the United        States,
      applied on a basis consistent      with that of the preceding      year.

          Acquisition     of site   for   buiZdinq

          As of December 31, 1970, the Board had transferred           $6,085,200     to an ac-
          count to be used by the General Services Administration             (GSA) for site
          acquisition    and construction     of a new building    for the Board and the
          agencies under its supervision.         As of that date GSA had spent $5,548,066
          for land and $524,306 for site studies,         appraisals,    and building    de-
          sign.     Plans for use of this site,      however, were changed, and in December
          1970 the Board requested        GSA to locate a new site for the building.
           (See p. 10.)
                                                                                                   1
    Federal   home Zoan banks

     GAO is of the opinion          that the financial      statements    of the 72 Federal home
     loan banks present       fairly      the financial    position    of the banks at December 31,
     1970, and the results          of their    operations   and the sources and application
     of their   funds for the year then ended, in conformity                 with generally accepted
     accounting    principles       applied on a basis consistent         with that of the preced-
     ing year and with applicable            Federal laws, except for a change in the ac-
     counting   for items of a fixed or permanent nature in 1970 with which GAO
     agrees.

     In July 1970 the Federal home loan banks began to capitalize             items of a
     fixed or permanent nature,      such as bank premises,      furniture,   and equipment.
     The net amount shown on the comparative         consolidated statement of financial
     condition  at December 31, 1970, for bank premises and furnishings             represents
     the cost of land and the cost of office        buildings,     furniture,   and equipment,
     less accumulated  depreciation.       In previous years the cost of furniture          and
     equipment was charged directly      to an expense account.

    FederaZ   Savings   and Loan Insurance      Corporation

     GAO is of the opinion      that the financial     statements     of the Federal Savings       .
     and Loan Insurance      Corporation    present fairly     the financial     position   of
     the Corporation     at December 31, 1970, and the results           of its operations     and
     the sources and application         of its funds for the year then ended, in con-
     formity    with generally    accepted accounting      principles    applied   on a basis
     consistent     with that of the preceding year and with applicable              Federal laws,
     except for a change in the accounting          for insurance     premiums in 1969 with
     which GAO agrees.

    Prior to December 1969 insurance       premiums assessed were amortized          and taken
    into income by the Corporation       in equal monthly installments.          Since the
    Corporation  considers  that no portion      of the insurance     premiums is refund-
    able, the Corporation   revised    its accounting    for insurance     premiums to show
    all premiums earned when the institutions         are assessed.      The Corporation's
    1970 income from insurance     premiums and admission fees is not comparable
    with the 1969 income because about $52 million          in additional     insurance
    premiums were taken into income in 1969.


RECOMMENDATIONSOR SUGGESTIONS

     None.


AGENCY ACTIONS AND UNRESOLVEDISSUES

    None.
* MTTERS   FOR CONSIDERATION   BY THE CONGRESS

       This report,     required by law, contains    no recommendations   or suggestions
       requiring    action by the Congress.




                                                 3
                           CHAPTER1

                         INTRODUCTION

       Because of the interrelationship  of the activities   of
the Federal Home Loan Bank Board, the Federal home loan
banks, and the Federal Savings and Loan Insurance Corpora-
tion, we have combined our reports on the examination      of the
financial   statements of these entities  for the year ended
December 31, 1970.

        To make home ownership economical and to encourage
thrift,    the Congress, in the early 1930's, established  three
separate but interrelated     organizations--the Federal Home
Loan Bank Board, the Federal home loan banks, and the Fed-
eral Savings and Loan Insurance Corporation.

FEDERALHOMELOAN BANK BOARD

      The Federal Home Loan Bank Board, an independent super-
visory and regulatory  agency, was created in 1932 by the
Federal Home Loan Bank Act (12 U.S.C. 1421).

       The main purposes of the Board are to (1) regulate    and
supervise the operations     of Federal home loan banks, (2) di-
rect the operations    of the Federal Savings and Loan Insur-
ance Corporation,    (3) charter Federal savings and loan as-
sociations,   and (4) regulate   and examine institutions in-
sured by the Federal Savings and Loan Insurance Corporation.
       The Board is directed by a three-man board appointed
by the President of the United States by and with the advice
and consent of the Senate.    During calendar year 1970 the
following   persons served on the Board.

                                        Term of office
                                      From            To

    Preston Martin, Chairman        Mar. 1969     June 1974
    Carl 0. Kamp, Jr.               May 1969      June 1975
    Thomas Hal Clarke               July 1969     June 1973




                               4
FEDERAL HOME LOAN BANKS

       The 12 Federal    home loan banks are corporations           char-
tered under the Federal        Home Loan Bank Act (12 U.S.C.          1432),
approved July 22, 1932, for the purpose of providing                re- d
serve banking facilities        to their  member institutions--
which may comprise      savings   and loan associations,        savings
banks, and insurance       companies--and   to certain     nonmember
borrowers.

       The act provides    that the Federal     Home Loan Bank              Board
may create    new Federal    home loan banks--there     may not             be
more than 12 nor less than eight--and         may liquidate    or            re-
organize   any Federal    home loan bank.     The locations    of            the
12 banks are as follows:

Boston,     Massachusetts                      Chicago,   Illinois
New York, N.Y.                                 Des Moines,      Iowa
Pittsburgh,     Pennsylvania                   Little   Rock, Arkansas
Greensboro,     North Carolina                 Topeka, Kansas
Cincinnati,     Ohio                           San Francisco,       California
Indianapolis,      Indiana                     Seattle,   Washington

         Each of the Federal        home loan banks is operated        under
the direction       of a board of directors,           four members of which
are appointed       by the Federal      Home Loan Bank Board and the
remainder,      ranging     from eight    to 11, are elected       by member
institutions.          The operating    responsibility      of each bank is
vested      in a president      who is elected       by the bank's   board of
directors      subject    to the approval      of the Federal      Home Loan
Bank Board.                                                                          *

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
      The National   Housing Act (12 U.S,C, 1725)                 created  the
Federal  Savings   and Loan Insurance Corporation                 in 1934.

       The Corporation,        a wholly    owned Government         corporation,
insures    withdrawable       share and deposit      accounts      up to
$20,000 for each insured           member in all federally           chartered
savings    and loan assoc?'ations        and qualified      State-chartered
savings    and loan associations         and similar     institutions         upon
their   request    and approval       by the Federal     Home Loan Bank
Board.     Certain    functions     of the Corporation,         such as


                                        5
processing applications         for insurance and examining insured
institutions,       are carried out by the Federal Home Loan Bank
Board.      Other operating     responsibilities,    such as receiver-
ship activities       and liquidation     of assets, are vested in a
director      who is appointed by the Board. During calendar
year 1970 the Director         of the Corporation was Robert B.
O'Brien, Jr.
                                CHAPTER2

                    FEDERAL HOMELOAN BANK BOARD

gPERATIONS

       The Board establishes  policies   and supervises  the op-
eration of various organizations.       The type, number, and
total assets of the organizations      supervised at December 31,
1970, were as follows:

                                                    Total assets
            Type   of organization           Number
                                             --      (billions)

Federal home loan banks                           12      $ 14.7
Federal Savings and Loan Insurance
   Corporation                                     1         3.0
Federal savings and loan associations         2,067         96.3
Insured State-chartered savings and
   loan institutions                          2,298         74.4
    Total                                     4,378       $188.4

      The Board's expenses are financed by charges to savings
and loan institutions     to cover most of the cost of examina-
tions and by assessments against the Federal home loan banks
and the Federal Savings and Loan Insurance Corporation            to
cover administration     expenses and expenses incurred in
supervising    savings and loan institutions.       The Congress
placed limitations     on the amounts that could be expended by
the Board in fiscal year 1970-- $5,716,082 for administra-
tive expenses and $14,125,000 for nonadministrative           ex-
penses incurred in making regular examinations          and in super-
vising insured institutions.          The Board's expenses were
within the prescribed     limitations.

       The following   summary shows the Board's revenue from
assessments and examination       fees, expenses for examination
and supervision , and administrative      expenses for the year
ended December 31, 1970. The summary shows also revenue and
expenses for services performed for other Federal agencies,
such as printing     and reproduction,   and revenue and expenses
relating   to leases of Board property acquired for construc-
tion of a new building.

                                     7
                                                Sbqervised       Organizations

                                                                                                            Services
                                                                                          Federal           provided
                                                        Savings                           Savings              for         Land
                                                      and loan              Federal     and Loan             other        and
                                                      institu-            home loan     Insurance           Federal      build-
                                                         tions               m         Corporation          agencies      -5

Revenue:
     Assessments     and
        examination      fees     $21,286,526        $8,056,996          $3,782,957    $9,446,573           8 -         $     -
     Reimbursements        for
        services    performed
        for other Federal
        agencies                       138,174               -                               106,739         31,435
     Leases--Federal         Home
        Loan Bank Board
        property                         39,012              -                                                           39,012
     Miscellaneous                 _-_    4.801              1.505             3,296    -A                   --L-        --L--
                                    21,468,513        ~058.501           sJ86.253       9.553.312            31,435         39,012

Expenses:
     Examination         of sav-
        ings and loan
        institutions:
           Regular                  13,009,930        8,296,744                -        4,713,186
           Special                   1,001,149           312,858            479,599        208,692
     Supervision         of
        savings and loan
        institutions                 1,412,766               -               734,777         677,989
     Services       performed
        for other Federal
        agencies                        138,174              -                              106,739          31,435
    Administrative                   6,306,075               -            2,459,369     3,846,706
     Land and buildings                  25,477              -       _          -       ---                              25.477

                                   2l,893.571         8.609.602           3,673,745     9,553,312            31,435         25,477

                 Expenses in
                   excess of
                   revenue             425 058 $ ..__
                                   $====L=,        551,lOL_              $ -112,508    $ --__          ~~   $ -L-.     -$13
                                                                                                                          :4- 532




                                                                  8
SUPERVISION AND EXAMINATION
OF INSURED INSTITUTIONS

         The supervision        of insured      institutions           is carried       out
through       the Board's      Office    of Examinations           and Supervision
and the Board's          field    supervisory      agents who are officers
of the 12 Federal            home loan banks.           Insured     institutions
are Federal        savings     and loan associations;              building      and
loan,      savings     and loan,      or homestead        associations;         or   co-
operative        banks whose accounts         are insured          by the Federal
Savings       and Loan Insurance         Corporation.          For State-chartered
institutions         the Board coordinates            its supervisory           activi-
ties with those of the State supervisory                       authorities.

       The supervisory         objectives     of the Board are to obtain
compliance       of insured     institutions       with applicable            laws
and regulations          and to avoid the development             or continuance
of unsafe or unsound financial               practices      by the institutions.
Supervision        is based on information           obtained     primarily
through     the Board's      examinations       of the insured          institutions
and the companies which have a controlling                     interest         in the
insured     institutions       and through      audits     conducted       by inde-
pendent accountants.

         The Board's        examinations        include    reviews      of the insti-
tutions'       financial       condition,       compliance      with applicable
laws and regulations,               and operating       practices.         The examina-
tions     also cover other matters                of supervisory        interest,
such as reserve           policies,       potential     losses,      lending      and loan,
collection        policies,       character       of mortgage      loans,      earnings
and expenses,          and consistency          of competitive         practices      with
general      standards       of the savings          and loan business.

        During calendar         year 1970 the Office         of Examinations
and Supervision         made 1,891 examinations           of Federal        savings
and loan associations             and 2,199 examinations           of State-
chartered     institutions        --of which 2,074 were conducted               jointly
with State examiners.               In accordance     with the Board's          policy,
the examinations           at each of the insured         institutions         were
made at intervals           of approximately        12 months.        Information
obtained     during      these examinations         has been used by the
Board to identify           problem    institutions      which are discussed
on pages 18 and 19.
         In addition,      the Office    of Examinations        and Supervi-
sion made 21 eligibility            examinations       of State-chartered
institutions        applying    for insurance      of accounts      by the Fed-
eral Savings        and Loan Insurance        Corporation     and for member-
ship in the Federal           Home Loan Bank System and 302 miscella-
neous examinations.

CONSTRUCTION OF NEW BUILDING

        The Federal    Home Loan Bank Act, as amended on Novem-
ber 3, 1966, by Public         Law 89-754 (12 U.S.C.      1438(c)),    au-
thorizes     the Board to utilize      the services     of the Adminis-
trator    of General    Services   in acquiring     real property    in
the District       of Columbia   and in constructing      and equipping
buildings      for use by the Board and the agencies          under its
supervision.

       The act provided      that (1) no obligations          be incurred
 in excess of $13.2 million         to acquire       the land and to con-
struct   and equip such buildings           and (2) the Board finance
such acquisition     of land and buildings             from assessments
against,    or from advances of, funds by the Federal                 home
loan banks.      The actprovidedalso          that an annual audit be
made by GAO of the accounts          relating      to the acquisition        of
land and to the construction           and equipping       of buildings.
On November 26, 1969, Public           Law 91-126 authorized          an in-
crease   in the obligating       authority      from $13.2 million       to
$21.6 million     to acquire     a site     and construct     and equip
the buildings.

        On January       17, 1968, the Attorney     General   acquired,      by
condemnation,       title    to square 532 which consisted        of about
76,000 square feet of land between Third and Fourth                  Streets
and D and E Streets,          Northwest,   Washington,    D.C., and title
to square 570 which consisted            of about 48,000 square feet
of land on Third Street           between D and E Streets,      across
Third    Street   from square 532.        The Board intended     that its
building     would be located        on square 532 and that square 570
would be open space on the surface             with provision    for under-
ground parking.

        As of December 31, 1970, the Board had transferred
$6,085,200     to a fund account  to be used by GSA for the ac-
quisition    of those sites   and the preparation for construction


                                       10
of a new building.        Of this amount, $6,025,000     was advanced
to the Board from the 12 Federal        home loan banks, which the
Board must repay over a period        of not more than 25 years.
As of December 31, 1970, GSA had disbursed         $5,54.8,066     for
acquisition      of land and $524,306   for site  studies,     apprais-
als,    and building    design.

        We were advised   by an official      of the Department       of
Justice    that the price   of all the land acquired           by condemna-
tion proceedings      had been settled     with the former       owners,
either    out of court   or by their     acceptance    of a court     award,
except for two parcels       owned by the same person.           We were
advised    that this owner had indicated         his intention     to ap-
peal the court      award and to ask for about $261,000 more
than the amount of the award which was for the Government's
appraised     value of the properties       at the time of condemna-
tion.

        As of July 9, 1971, all buildings       on square 532 had
been razed except for some condemned buildingsonThird
Street,     a building  on the corner    of Third and D Streets
which was being rented,       and a building    on the corner   of
Fourth    and D Streets   which the Board intended      to use as a
training     facility.   Square 570 has been paved and is being
rented    to the Board's   Welfare  Association    for employee park-
ing.
         In June 1970, shortly        before      GSA was going to issue an
invitation       to bid for a contract           for the construction            of
the building         on square 532, the Board instructed                  GSA to de-
fer issuing        the invitation     until      further     notice     by the Board.
In December 1970 the Board requested                   GSA to proceed with a
feasibility        study for acquiring         another    site      in northwest
Washington,        D.C., for the building.             The Board requested            a
new site because it wanted its building                   located        closer    to
the financial         district    and because it believed              the acquired
site     to be too small to provide            for the construction             of a
building      that would contain        sufficient       office       space to meet
the increased         needs resulting       from the creation            of the Fed-
eral Home Loan Mortgage            Corporation.

        On July 9, 1971, we discussed       with the Associate   Direc-
tor,    Office     of Management Systems and Administration,     Fed-
eral Home Loan Bank Board, the current           status  of the Board's
building       plans.   He advised us that:
                                          11
1, No final         decision   had been made on disposing    of the
   acquired         land.

2. GSA had advised    the Board of two sites,        each having
   an estimated   acquisition         cost of about $11 million,
   which met the Board's          requirements  as to location
   near the financial       district.

3.   No final  decision  had been made as to whether     the
     Board would acquire   either of the suggested   sites.

4.   New design       plans would have to be developed      for the
     construction        of a building at either of the     two
     sites.

5. Consideration          might be given to having   a building
   constructed          by a private  developer  and leased by
   the Board.




                                  12
NEW LEGISLATION

        Section     101 of the Emergency Home Finance Act of 1970
(Pub.    L. 91-351;      84 Stat.  4501, approved July 24, 1970, au-
thorized      $250 million     to be appropriated   for use by the
Federal     Home Loan Bank Board for disbursement           to Federal
home loan banks for the purpose of adjusting              the effective
interest      rates charged by the banks on short-          and long-term
borrowing       to promote an orderly     flow of funds into residen-
tial    construction.       Public  Law 91-556 (84 Stat.      14611, ap-
proved December 17, 1970, appropriated            $85 million     for such
purpose.

        Pursuant     to this    legislation         the Board and the banks
established       the Housing Opportunity               Allowance      Program to
help    the moderate-income          family     attain       home ownership.           Un-
der the program an eligible               prospective         home buyer is pro-
vided with a direct          monthly      allowance         of $20 for a maximum
period     of 60 months of the term of his mortgage                        loan.      The
allowance       is a monthly      credit      passing      directly      to the home
buyer's     mortgage    account maintained              by the eligible          partic-
ipating      lender.    The participating             lender      is reimbursed         for
such credit       by the Federal         home loan bank of which it is a
member, which bank, in turn,                is reimbursed           by the Board out
of the appropriated          funds.

       Also the Emergency Home Finance Act of 1970 established
the Federal    Home Loan Mortgage    Corporation     on July 24, 1970,
to provide    a secondary   market for residential      mortgages.
Under the act the three members of the.Federal            Home Loan
Bank Board serve as directors      of the Corporation.         Also the
act provides    that the financial    transactions     of the Corpora-
tion be subject     to audit by GAO and that a report         on each
such audit be made by the Comptroller          General   to the Con-
gress.

        The Corporation       has adopted for accounting           purposes   a
fiscal     year ending on June 30.          Financial      statements     for the
first    fiscal     year of operation     ended on June 30, 1971, had
not been prepared         at the time of our audit           and therefore
were not included          in our audit   for this year.         We plan to
include      a review    of the financial      transactions       of the Cor-
poration      in our future      audits.



                                             13
                                I
SCOPEOF EXAMINATION

       Our examination of the Federal Home Loan Bank Board
for   the year ended December 31, 1970, consisted of a review
of:

      1. The basic laws authorizing    the Board's activities
         and the rules and regulations    of the Board to as-
         certain   the extent of its authority   and responsi-
         bilities.

      2.   The examination    and audit programs of the Board's
           Office of Examinations and Supervision    and its Of-
           fice of Audits to determine the adequacy of the
           prescribed   procedures.

       3. The reports on examinations    and audits   to the ex-
          tent deemed appropriate.

      4. The Board's financial    statements in accordance with
         generally   accepted auditing   standards,   including   an
         examination   of selected financial    transactions    and
         such tests of accounting records as we considered
         necessary in the circumstances.




                                 14
                             CHAPTER3

                     FEDERALHOMELOANBANKS

OPERATIONS

      The banks' primary function    is to make loans to, and
accept deposits from, member institutions.       Any building
and loan association,    savings and loan association,     cooper-
ative bank, homestead association,     insurance company, or
savings bank is eligible     to become a member of, or a non-
member borrower of, a Federal home loan bank if such insti-
tution makes long-term home mortgage loans and meets the
other qualification   requirements   of the Federal Home Loan
Bank Board. All institutions      whose accounts are insured by
the Federal Savings and Loan Insurance Corporation       are re-
quired to be members of a Federal home loan bank.

       The banks obtain funds for their lending activities
from earnings,    deposits by member institutions,   subscrip-
tions to capital    stock, and the issuance of consolidated       ob-
ligations.     The Federal home loan banks' consolidated     obli-
gations are the joint and several liabilities      of all the
banks and are not guaranteed by the U.S, Government.         Also
the banks can obtain funds through the Secretary of the
Treasury who has authority    to purchase Federal home loan
bank obligations    up to $4 billion;  however, this authority
had not been exercised by the Secretary of the Treasury
through calendar year 1970.

      To help maintain a reasonable flow of funds into the
home mortgage market, the Federal home loan banks advanced
$3.3 billion   to member institutions      in 1970, compared with
$5.5 billion   in 1969. Advancesrepaid       totaled $1.9 billion
in 1970 compared with $1.5 billion       in 1969. The net in-
crease in the balance of bank advances outstanding         was
$1.3 billion   in 1970, which increased the total advances
outstanding  to $10.6 billion      at the end of the year.

      During 1970 consolidated      obligations    of $8.1 billion
were sold and maturing obligations         of $6.3 billion  were re-
tired by the Federal home loan banks, which increased the
balance of outstanding    obligations      to $10.2 billion    at the
end of the year.

                                  15
       The Federal home loan banks' interest   on advances in-
creased from $449 million   in 1969 to $760 million     in 1970,
an increase of 69 percent.    The interest   and concessions
(marketing)   expense on the banks' consolidated    obligations
increased from $406 million   in 1969 to $780 million      in 1970,
an increase of 92 percent.

NEWLEGISLATION

      The ESnergency Home Finance         Act of 1970 (Pub. L. 91-351;
84 Stat. 4521, which established           the Federal Home Loan Mort-
gage Corporation,   requires    that      Federal home loan banks
subscribe to the Corporation's          common stock in an amount not
to exceed a cumulative     total of       $100 million.   At Decem-
ber 31, 1970, the Federal home          loan banks had subscribed to
the maximum amount of stock.
SCOPEOF EXAMINATION
        Our examination     of the Federal home loan banks included
a review of the Federal Home Loan Bank Act, as amended, and
the Federal Home Loan Rank Board's rules and regulations             is-
sued pursuant to the act, to ascertain         the policies     and re-
strictions    within which the banks are required to operate.
It included also a review of the banks' lending and invest-
ment policies,      an examination of their financial       reports and
statements,    and   direct   confirmations with  the  custodians    of.
securities    held at December 31, 1970.
      We relied to the fullest   extent practicable    on examina-
tions made by the Board's Office of Audits.        Our review of
the work of the Office of Audits was accomplished by (1) re-
viewing audit programs to determine the adequacy of pre-
scribed audit procedures,    (2) observing its examination of
the Federal Home Loan Bank of Seattle,      and (3) reviewing re-
ports and working papers pertaining      to the examinations  to
the extent we deemed appropriate.




                                   16
                               CHAPTER4

       FEDERAL SAVINGS AND LOAN INSURANCECORPORATION

OPERATIONS

        The Federal Savings and Loan Insurance Corporation             in-
sures withdrawable       share and deposit accounts in all insured
institutions,      assesses and collects      insurance premiums, and
invests surplus funds.         In addition,     the Corporation    may be
appointed receiver       of defaulted    insured institutions.       The
Corporation     also acts to prevent a default         of an insured in-
stitution     or to restore an institution         in default   to normal
operation     by making loans to, purchasing the assets of, or
making a contribution       to, such an institution.

        The Congress placed a limitation   of $384,000 on the
amount that the Corporation     could expend in fiscal    year 1970
for administrative    expenses other than for supervisory       and
various other administrative     services provided by the Fed-
eral Home Loan Bank Board.      The Corporation's   administrative
expenses for fiscal     year 1970 were within the prescribed
limitation.

        During calendar year 1970 the Corporation        disbursed
about $42.8 million     in connection with 35 insured institu-
tions that were financially        unable to remain in operation      or
that required financial       assistance    to continue in operation.
Of the $42.8 million,      about $21.9 represented      additional
disbursements     in connection with 31 insured institutions
that required financial       assistance    prior to January 1, 1970,
In contrast    to the $42.8 million      disbarsed in 1970, $28.7
million    was disbursed in 1969 and $172.2 million         was dis-
bursed in 1968.

        The disbursement    of $42.8 million was offset by receipts
of about $47.1 million       realized from the sale of some of the
assets acquired from insured institutions,       from repayments
of principal     on some of the loans, and from liquidation    dis-
tributions     on subrogated accounts.

        The records of the Corporation       show that financial    dif-
ficulties     of institutions requiring      Corporation  assistance


                                    17
during the year ended December 31, 1970, were caused by un-
safe and unsound operating practices, such as:

      1. Obtaining funds through the extensive use of money
         brokers for a fee paid by the institution or by the
         ones to whom loans are granted.

      2. Granting loans     in violation     of existing     laws and
         regulations.
      3. Concentrating    loans to borrowers having          little     or
         no financial    means or responsibility.
      4. Making excessive     loans    on the basis    of inflated       ap-
         praisals.
      5. Concentrating    loans to a few speculative          borrowers.

      6. Paying dividends     in violation     of existing      laws.

PROBLEMINSTITUTIONS

        To ensure that appropriate     supervisory    attention   is
given to insured institutions       when needed, the Federal Home
Loan Bank Board's Office of Examinations and Supervision
has developed procedures for rating each insured institu-
tion and for identifying      those showing signs of weakness
and trends which could later involve the Corporation.               The
most serious cases are classified        as category I--hard-core
institutions--    and the next most serious cases are classified
as category II--possible      hard-core institutions,         Cases
classified     in lower categories   are not considered by the
Board to represent     a threat to the Corporation.

       The number of problem institutions classified             as cate-
gories I and II, which the Board follows closely,               are as
follows:




                                  18
                                 December 31,            December 31,
       Category                      1970                    1969

                I                       14                      16
           II                           -8                     -10
                    Total               -22                    --26
       The classification      of problem institutions      and the re-
lated records provide a means of keeping the Board informed
of the status of the problem institutions;            the supervisory
matters involved;       and the timeliness,    appropriateness,     and
persistence    of supervision.       The records provide also a su-
pervisory   tool and a chronology of supervisory           action.    Be-
cause problem institutions        are brought to the attention        of
the Board, such institutions         generally  receive more super-
vision than do institutions        not so classified.

      The Board and the Corporation         seek to preserve the
Corporation's    liquidity      by (1) encouraging insured institu-
tions to correct unsound operating          practices   and (2) provid-
ing aid to institutions         requiring financial    assistance
through techniques designed to reduce cash outlays.               As of
December 31, 1970, the Corporation          had liquid   assets of
about $2.5 billion,        an increase of $107.million      during the
year, to help meet any combination          of events that might oc-
cur.




                                   19
ASSETS ACQUIREDAS A RESULT OF THE
CORFOR$TIONPSINSURANCEACTIVITIES
AND fFP.TED
     -.1--.-- ALLOWANCEFOR LOSSES
      At December 31, 1970, the Corporation          held assets which
sere acq;lired  in   discharging   its   insurance   indemnity liability
to insured institutions       and established     an allowance for
losses on these assets, as follows:
                                            Allowance
      Type of asset          Book value     for losses      Net value

Assets acquired from
   insured institutions     $216,630,387    $46,007,498   $170,622,889
Loans to insured in-
   stitutions   and ac-
   crued interest            100,649,718         -         100,649,718
Subrogated accounts
   in insured institu-
   tions in liquida-
   tion                      143,335,819         -         143,335,819
Insured accounts in
   institutions    in
   liquidation    (pend-
   ing and unclaimed
   accounts)                      364,369        -              364.369
    Total                  $460.980.293     $46,007,498   $414,972,795
      The allowance for losses is based on the evaluations
and judgments of Corporation       officials   who consider such data
as actual losses experienced by the Corporation,           latest    fi-
nancial data available      on insured institutions      in liquida-
tion, and results     of independent appraisals      made by contract
appraisers.     As of December 31, 1970, the Corporation          did
not anticipate    that any losses would be incurred on the loam,
subrogatedaccounts,     or insured accounts.       Any losses which
might occur would be recognized when and if the accounts be-
come deficient.
      The book value of assets acquired from insured institu-
tions represents     unpaid balances of mortgage loans at thy
time of acquisition,      the acquisition    cost af real estate and
other assets, plus capitalized        expenditures--such  as taxes


                                   20
and insurance--less     amounts received      on the principal  of
the loans.      The net value of assets acquired       at December 31,
1970, was $170.6 million,        a net increase    of about $69 mil-
lion over the balance      at December 31, 1969, due principally
to the Corporation's     acquisition     of the assets of one as-
sociation.

           The loans to insured            institutions        and accrued           interest
of $100.6 million             consisted       of interest-bearing              loans of
$88.8 million          to associations            that required          financial         as-
sistance       and accrued         interest       thereon     of $11.8 million.                 Of
the loans of $88.8 million,                    $6.9 million        were for loans
made in 1970.            Included       in the $11.8 million               accrued       interest
is $10.7 million            interest       on a loan made in 1966 to an as-
sociation        experiencing         serious       financial       problems.          The as-
sociation        is deferring         payment of the interest                until       1971
under the terms of the loan.                      Therefore       the Corporation             has
not included         the $10.7 million              accrued     interest       as income in
its financial          statements         but has included            it in the state-
ment of condition             as an asset under loans to insured                         insti-
tutions       and accrued        interest        and as a deferred            credit       in the
 liabilities       and reserves           section.

        Subrogated      accounts      of $143.3 million          represent     the
 rights    of depositors       acquired      by the Corporation          through     pay-
 ment to the depositors            of their     insured     accounts.       Thus the
 Corporation,       in place of the original              depositors,      has ac-
 quired    claims     against    the assets of the associations.                   Dur-
 ing 1970 the subrogated             accounts      decreased     by $87.8 million
 due to receipt        of liquidation        distributions         of $3.8 million
 from two associations           and release        of claims      of $84 million
 in return      for the assets        of one association.

        At December 31, 1970, insured            accounts--$364,369--in
 four institutions         in liquidation     (pending     and unclaimed)
 had not been subrogated.              This amount is shown on the Cor-
 poration's      statement    of financial     condition     at December 31,
 1970, as both an asset and a liability.




                                                21
RESERVESAND BORROWING
                    AUTHORITY

       The Corporation  estimated that, at December 31, 1970,
savings insured by the Corporation      in 4,365 insured insti-
tutions   totaled about $141.7 billion.     The resources avail-
able to the Corporation      at December 31, 1970, to meet de-
mands which may be made upon it for discharge of its insur-
ance liability    are described below.

      Cumulative net income of $1.4 billion    from operations
has been retained   as a primary reserve pursuant to sec-
tion 404(a) of the National Housing Act (12 U.S.C. 1727).
This amount includes net income of $151 million      for the year
ended December 31, 1970. The secondary reserve amounting
to $1.5 billion   at December 31, 1970, consisted    of cumula-
tive insurance premium prepayments of $1.2 billion      assessed
against insured institutions    since fiscal  year 1962 and in-
terest of $342 million,which    represented  a return on the out-
standing balance of the secondary reserve in accordance with
sections 404(d) and 404(e) of the act.

       The Corporation's     pr@~ary and secondary reserves are
available    to meet future losses.        These reserves,     which have,
been established     pursuant to law and administrative          action9
do not represent     a measure of the insurance risk which is
imposed upon the Corporation       by pertinent     legislation.       In
our opinion,    the reserves were adequate to meet potential
losses that might result from problem conditions              known to .
exist in specific      insured institutions      at December 31, 1970,
under existing     economic conditions.       The adequacy of the re-
serves, however, is directly       affected     by economic conditions.
Whether these reserves would be adequate during periods of
severely adverse economic conditions          is currently     not deter-
minable.
         The Corporation   may draw on three other sources, in ad-
dition     to its reserves,   for insurance purposes.   It may:

         1. Require insured institutions     to deposit with the
            Corporation   up to 1 percent of their withdrawable
            deposits.    The exercise of this authority    as of De-
            cember 31, 1970, would have provided funds of about
            $1.4 billion   to the Corporation.


                                   22
      2. Assess additional premiums against insured institu-
         tions equal to accumulated losses and expenses of
         the Corporation.   Such assessments against an insti-
         tution in any one year may not exceed one eighth of
         1 percent of the total amount of the insured members'
         accounts.

      3. Borrow up to $750 million      from   the   United   States
         Treasury.

The Corporation  had not drawn on any of these sources            of
funds through calendar year 1970.

      The insured institutions    have their own reserves and
surplus available   to meet losses.     As of December 31, 1970,
they had, in the aggregate,     about $11.5 billion  in reserves
and surplus available     to meet losses.

SCOPEOF EXAMINATION

       Our examination of the Federal Savings and Loan Insur-
ance Corporation      consisted principally      of a review of its
statement of financial        condition at December 31, 1970, and
the related statements of income, expense, and primary re-
serve and of sources and application          of funds for calendar
year 1970. Also we reviewed the basic laws, rules, and reg-
ulations    applicable     to the Corporation      to ascertain the
policies   and restrictions      under which it is required     to op-
erate.    The examination was conducted at the Federal Sav-
ings and Loan Insurance Corporation,         Washington, D.C., and
at its Midwest Office in Westchester,          Illinois.
        Our review of data oninsuredinstitutions       classified
by the Board as serious problem cases and other problem
cases needing supervisory     attention    and our statistical      sam-
ple review of data on all other insured institutions            were
limited     to an examination of reports and related records of
the Board's Office of Examinations and Supervision            on such
institutions.

      Our examination was made in accordance with generally
accepted auditing    standards and included such tests of the
accounting records and such other procedures as we consid-
ered necessary in view of the effectiveness    of the system

                                  23
of internal    control  and the work performed     by   the   Office   of
Audits   of the Federal    Home Loan Bank Board.




                                 24
                OPINION OF FINANCIAL STATEEENTS
                ---
      The financial statements, schedules 1 through         10, were
prepared by the Federal Home Loan Bank Board.

        In our opinion,  the financial   statements (schedules 1,
2, and 3) present fairly     the financial    position     of the Fed-
eral Home Loan Bank Board at December 31, 1970, and its rev-
enue and expenses and the sources and application            of its
funds for the year then ended, in conformity           with the prin-
ciples and standards of accounting prescribed           by the Comp-
troller    General of the United States, applied on a basis
consistent    with that of the preceding year.

       Also, in our opinion,    the financial      statements (sched-
ules 4 through 7) present fairly       the financial      position of
the 12 Federal home loan banks at December 31, 1970, and
the results    of their operations    and the sources and applica-
tion of their funds for the year then ended, in conformity
with generally     accepted accounting    principles     applied on a
basis consistent     with that of the preceding year and with ap-
plicable    Federal laws, except for a change in the accounting
for items of a fixed or permanent nature in 1970 with which
we agreed.

       In July 1970 the Federal home loan banks began to capi-
talize   expenditures   for items of a fixed or permanent na-
ture, such as bank premises, furniture      and equipment, and
computer equipment.      The net amount shown on the comparative
consolidated    statement of financial   condition     at December 31,
1970, for bank premises and furnishings       represents     the cost
of land and the cost of office buildings,        furniture,     and
equipment, less accumulated depreciation,          In previous years
the cost of furniture      and equipment was charged directly       to
an expense account.

      Furthermore the financial     statements (schedules 8, 9,
and 10) present fairly    the financial    position  of the Federal
Savings and Loan Insurance Corporation        at December 31, 1970,
and the results   of its operations     and the sources and appli-
cation of its funds for the year then ended, in conformity
with generally   accepted accounting principles      applied on a

                                  25
basis consistent   with that of the preceding year and with
applicable  Federal laws, except for a change in the account-
ing for insurance premiums in 1969 with which we agreed.

       Prior to December 1969 insurance premiums assessed were
amortized and taken into income by the Corporation       in equal
monthly installments.       Since the Corporation considers that
no portion of the insurance premiums is refundable,        the Cor-
poration    revised its accounting for insurance premiums to
show all premiums earned when the institutions      are assessed.
The 1970 income from insurance premiums and admission fees
is not comparable with the 1969 income because about $52 mil-
lion in additional     insurance premiums were taken into in-
come in 1969.




                                26
   FINANCIAL STATEMENTS

          -OF
FEDERALHOMELOAN BANK BOARD




           27
                                                                                SCHEDULE1

                                 FEDERALHOMELOAN BANK BOARD



                      COMPARATIVESTATEMENTOF FINANCIAL CONDITION

                      AT DECEMBER31, 1970, AND DECEMBER31, 1969




                                                  December 31,        December 31,    Increase or
                                                      1970                1969        decrease(-)
                   ASSETS

CASHWITH THE U.S. TREASURY(note 1)                $ 1,391,808         $ 1,112,915       $ 278,893
ACCOUNTSRECEIVABLE                                     2,237,503        2,958,233        -720,730
INVENTORY--supplies                                       17,120           17,722               -602

LAND AND BUILDING (note 2)                             6,072,372        5,965,964            106,408
FURNITURE, FIXTURES, AND
  EQUIPMENT--net                                         649,183          630,894             18,289
DEFERREDCHARGES                                           24,553                              24,553
    Total   assets                                $10,392,539         $10,685,728       $-293,189

      LIABILITIES         AND CAPITAL

ACCOUNTSPAYABLEAND ACCRUED
  LIABILITIES                                     $ 2,167,028         $ 1,866,509       $ 300,519
LIABILITY F'OREMPLOYEES'ACCRUED
  ANNUALLEAVE                                          1,337,873        1,265,523             72,350
LOANS PAYABLETO FEDERALHOMELOAH
  BANKS                                                5,392,680        5,633,680        -241,000
    Total   liabilities                                8,897,581        8,765,712            131,869
CAPITAL, RETAINED EARNINGS Isched-
  ule 2)                                               1,494,958        1,920,016        425,058
    Total   liabilities       and capital          $10,392,539        $10,685,728       .$-293,189

The notes following         schedule 3   are   an integral     part   of this   statement.




                                                  29
SCHEDULE2


                      FEDERAL                HOME           LOAN          BANK              BOARD


                    COMPARATIVE STATElKENT OF REVENUE, EXPENSE, AND RETAINED EARNINGS

                                                FOR THE YEARS ENDED

                                  DECEMBER 31,      1970,   AND DECEMBER 31,        1969


                                                                   December       31,   December         31,   Increase    or
                                                                        1970                 1969              decrease(-)

 REVENUE:
     Examination       fees --examinations      of savings
        and loan institutions                                      $ 8,056,996          S 9,060,285            $-l,oo3,289
     Assessments       against:
           Federal     home loan banks                               3,782,957              3,145,829                 637,128
           Federal     Savings    and Loan Insurance
              Corporation                                            9,466,573              7,353,038              2,093,535
     Reimbursements        for services    performed
        for other      agencies                                         138,174                144,363                 -6,189
     Leases--Federal         Home Loan Bank Board
        property                                                          39,012               183,944              -144,932
     Miscellaneous                                                         4.801                 6.303                 -1.502

            Total    revenue                                        21.468.513             $9.893.762              1.574.751

 EXPENSES:
     Personnel       compensation                                   15,687,438             14,167,889              1,x9,549
     Personnel       benefits                                        1,289,015              1,076,465                 212.550
     Travel     and transportation         of persons                2,427,439              2,237,727                 189,712
     Transportation          of things                                    18,775                 10.155                   8.620
     Rent,    communications,          and utilities                 1,187,C99                 970.907                216.992
     Printing      and reproduction                                       97,261               1781613                -81,352
     O&her services                                                     465,118                175.688                289.430
     Services      of other     agencies                                135,464                 57;7aa                  j7;676
     Supplies      and materials                                        191,564                156,320                  35,244
     Depreciation        of furniture,       fixtures,    and
        equipment       and acquisition        of expendable
        property      items                                             140,082                112,578                 27,504
     Interest      on Federal      home loan bank loans                 253.516                252.260                  1.256

            Total    expenses                                       21.893.571             $9.396.390              2.497.181

 REVENUE IN EXCESS OF EXPENSES                                         -425,058                497,372              -922,430

 RETAINED    EARNINGS AT BEGINNING         OF YEAR                   1.920.016              1.422.644                 497.372

 RETAINED EARNINGS AT END OF YEAR (schedule                 1)     $ 1,494.958          $ 1.920.016            $    -425.058




                                                            30
                                                SCHEDULE3


                FEDEFXL HOMELOAN BANK BOARD

       STATEMENTOF SOURCESAND APPLICATION OF FUNDS
                YEAR ENDEDDECEMBER31, 1970

FUNDSPROVIDEDBY:
   Examination fees and charges                $ 8,056,996
   Assessments against:
        Federal home loan banks                  3,782,957
        Federal Savings and Loan Insurance
            Corporation                          9,446,573
   Reimbursements from other agencies               138,174
   Leases--Federal      Home Loan Bank Board
     property                                        39,012
   Miscellaneous                                      4,801
   Net decrease in other assets and
     liabilities                                 1,069,648
                                                              *
                                               $22,538,161
                                                --_-
FUNDSAPPLIED TO:
   Administrative    expenses                  $ 6,258,953
   Nonadministrative    expenses                15,483,449
   Purchase of building     site                    106,408
   Repayment of loans to Federal home loan
       banks                                        241,000
   Purchase of furniture,      fixtures, and
       equipment                                    143,981
   Leasehold improvment      expenses                25,477
    Increase in cash balance                        278,893

                                               $22,538,161




                                31
                     NOTES TO THE FINANCIAL STATEMENTS

    1. An additional    $85 million      is available      in a separate
       fund provided    by appropriation        pursuant     to the provisions
       of the Emergency Home Finance Act of 1970.                Use of such
       funds is for the purpose        of adjusting      the effective      in-
       terest   charged by the Federal home loan banks on short-
       term and long-term    borrowings        to promote an orderly        flow
       of funds into residential         construction.

    2, Represents   payment of $5,548,066           for acquisition        of land
       for new Federal       Home Loan Bank Board building            and $524,306
       to cover site      studies,     appraisals,     and architectural        de-
       sign cost.     Title     to this land was acquired          in the name
       of the United      States    on January     17, 1968, by institution
       of condemnation       proceeding     by the Attorney       General.




.




                                           32
 FINANCIAL STATEMENTS

         -OF
FEDERALHOMELOAN BANKS




          33
                              FEDERAL               H 0 M E         LOAN                BANKS



                         cm:BmrwE       CONSOLIDATEDSTATMENT OF FINANCIAL CoNDITIoN
                                   AT DECEMBER31, 1970, AND DECEMBER 31, I969



                                                     ASSETS
                                                              December 31,               December 31,
                                                                  1970                       1969              Increase or
                                                                (note a)                   (note a>            decreased ->

CASH:
    On hand and in commercial banks                      $       69,813,055         $        81,406,309   $     -11,593,X4
   Treasurer of the United States                                35,394,403                  42,095,870          -6,701,467
         Total     cash                                         105,207,458                123,502,179          -18,294,921

INVESTMENTS:
    Securities    (note       1)                              3,731,922,627b             1,862,422,698        1,869,499,929
    Mortgage loans                                                32,076,081                                      32,076,081
    Stock in Federal          Home Loan Mortgage
      Corporation                                               100,000,000                                     100,000,000
         Total     investments                                3,863,998,708              1,862,422,698        2,001,576,010
ADVANCES TO MEMBERS:
    Secured (note 2)                                         10,419,148,258              8,681,607,571        1,739,540,687
    Unsecured                                                    195,383,507               607,359,521         -411,976,014
         Total     advances outstanding                   LO,614,531,765                 9,288,967,092        1,325,564,673

OTHER LOANS                                                      13,885,509                   5,724,005            8,161,504

ACCRUED INTEREST RECEIVABLE                                     105,275,053                  82,716,093          22,558,960

DEFERRED CHARGES                                                 12,344,448                   7,189,OlO            5,155,438

BANK PmISES        AND FURNISHINGS (net)
  (note 3)                                                         7,285,233                  1,780,009            5,505,224

OTHER ASSETS                                                            215,265                 321,698             -106,413
         Total     assets                                8$4,722,943,439            $11,392,622,964       $3,350,120,695

aIn 1970 the Federal
                 __ Home  Loan Bank Beard revised its statement presentation by adding some
 accounts and combining some items which were shown separately  in 1969. The amounts at De-
 cember 31, 1969, have been reclassified to make them comparable with the amounts at Decem-
 ber 31, 1990.
bThe market      value    of securities      at December 31, 1970, was 83,633,333,335.
The notes     following      schedule     9 are an integral      part     of this       statement.
                                                                                                     SCHEDULE4




                                LIABILITIES                      AND           CAPITAL

                                                           December 31,             December 31,       Increase or
                                                               1970                     1969           decrease(-)
DEPOSITS:
   Members:
         Time                                            $ 1,998,832,914        $     710,325,137    $1,288,507,777
         Demand                                                 332,007,386           330,327,093          1,680,293
    Government instrumentalities--demand                          1,125,646                494,490            631,158
    Applicants  for membership                            --         171,350               292,800          -121,450
             Total    deposits                               2,332,137,298          l,O41,439,520     1,290,697,778
ACCRUEDINTEREST PAYABLE                                       219,130,336             173,719,110        45.411.226
ACCOUNTSPAYABLE                                               102,288,716                  331,074      101,957,642
DIVIDENDS PAYABLE                                              10,323,063              16,341,098         -6,018,035
UNAMORTIZEDBOND PRBXIUM                                                                     74,666           -74,666
OTHER DEFERREDCREDITS                                            3,894,919                 440,389         3,454,530
OTHER LIABILITIES                                                4,563,628                                 4,563,628
CONSOLIDATEDOBLIGATIONS (note              4)             10,183,020,000            8,422,000,000     1,761,020,000
             Total    liabilities                         12,855,357,960            9,654,345,857     3.201,012,103
CAPITAL STOCK $lOO PAR VALUE:
    Total paid in On subscriptions                          1,607,228,300           1,478,226,925        129,001,375
RETAINED EARNINGS (schedule          6):
    Legal reserve (n0te 5)                                    181,763,887             165,526,977         16,236,910
    Unreserved earnings                                        78.393.292              74,523,005          3,870,287
             Total    retained      earnings                  260,157,179             240,049,982         20,107,197
             Total    capital                               1,867,385,479           1,718,276,907        149,108,572
              Total   liabilities          and capital   $14,722,743,439        $11,372,622,764      $3,350,120,675




                                                               35
SCHEDULE5


                         FEDERAL              KOME            LOAN         BANKS


                 COMPARATIVE CONSOLIDATED STATEMENT OF INCOME AND EXBMSE
                                           FOR THE YEARS ENDED
                             DECEMBW 31, 1970, AND DECEMBER31, 1969


                                                        December 31,       December 31,      Increase or
                                                            L92                1969          decrease(-)
EARNED INCOME:
     Interest   on       advances                       5760,139,441       $449,234,132     $310,905,309
     Interest   on       other loans                            276.374           253.640          22,734
     Interest   on       securities                      177,707;133        111,918;748       65,868,385
     Interest   on       mortgage loans                     4,120,840                          4,120,840
     Income from         other services                         156,408                           156,408
     Miscellaneous                                          1.310.737              23.912      1.286,825

                 Total     income                        943.790.933        561.430.432      382.360.501

COSTS AND EXPENSES:
    Interest     and other financing       costs:
          Interest      and concessions    for
             marketing     consolidated
             obligations                                 779,830,487        406,260,357      373,570,130
          Expenses of fiscal        agent                        954,129          453,005         501,124
          Interest      on members' deposits                 68,131,072      49,345,846       18,785,226
         Gain (-1 or loss on sale of
             securities                                  -2,470,860           1,622,888       -4,093,748
         Fees for servicing         mortgage
             loans                                             160.668                            160.668
                 Total interest     and other
                   financing    costs                    846.605.496        k57.682.096      388,923.400
    Other costs     and expenses:
         Employee compensation and
            benefit   costs                                   7,446,277       5,317,187        2,129,090
         Travel                                                  562,768         Z?3,809          138,959
         Other administrative     evenses                     8.437.931.      6.472.247        1.965.684
                 Total    other     costs andexpenses        16.446,976      12.213,243        4.233.733
    Income (-1 and expense adjustments--
       prior years                                              -2.617                             -2.617

                Total     costs     and expenses         863.049.855        469a895.339      393.154.516
                Net income                              $ 80.741.078       $ 91a535.093     $-10.794.015
GA6 note!       In 1970 the Federal Home Loan Bank Board revised its statement pre-
                sentation    by adding some accounts and combining some items which were
                shown separately     in 1969. The amounts at December 31, 1969, have been
                reclassified    to make them comparable with the amounts at December 31,
                1970.




                                                        36
                                                           SCHEDULE6

        FEDERAL              HOME        LOAN           BANKS


           CONSOLIDATEDSTATEMENTOF RETAINED EARNINGS

                  YEAR ENDEDDECEMBER31, 1970

                                             Legal
                                            reserve        Unreserved
                                           (note 5)         earnings

BALANCE, DECEMBER31, 1969                $165,526,977     $ 74,523,005

Add:
       Net income for year ended
         December 31, 1970
          (schedule 5)                                      80,741,078
       Adjustment for capitaliza-
         tion of furniture   and
         equipment                                               443,471

TRANSFERSTO LEGAL RESERVEFROM
  UNRESERVEDEARNINGS                       16,236,910      -16,236,910

                                          181,763,887      139,470,644

Less dividends    declared                                  61,077,352

BALANCE, DECEMBER31, 1970
  (schedule 4)                           $181,763,887     $ 78,393,292

The notes following     schedule    7 are an integral     part   of this
statement.




                                    37
SCHEDULE7


              FEDERAL                HOME        LOAN          BANKS



          COMBINED STATEMENTOF SOURCESAND APPLICATION OF FUNDS

                           YEAR ENDED DECEMBER31, 1970




 FUNDS PROVIDED;
     Repayment of advances made co members                             $ 1,929,813,667
     Investments     redeemed or sold (at
        amortized cost)                                                 11,775,185,434
     Sale of consolidated      obligations                               8,115,000,000
     Capital paid in by members                                             153,972,875
    Repayment on loan for office          build-
        ing--Federal     Home Loan Bank Board                                     241,000
     Net changes in other assets and li-
        abilities                                                          1,432,178,833
          Total   funds   provided                                     $23,406,391,809

 FUNDS APPLIED:
     Net decrease in funds resulting        from
       operations:
         Amortization     of net discount on
            investments                             $86,012,911
         Less net income for the period
            ($80,741,078)    and depreciation
            of bank premises and furnishings
            ($880,516)                                  81,621,594
          Net decrease                                                 $       4,391,317
     Advances made to members                                              3,255,378,340
     Advances to Federal Home Mortgage Corporation                              2,120,000
     Loans guaranteed by Agency for International
        Development                                                           6,310,885
     Purchases of investments                                           13,696,794,689
     Redemption of consolidated     obligations                          6,347,950,000
     Repurchase of capital    stock                                          24,971,500
     Dividends declared on capital       stock                               61,077,352
     Purchase of furniture    and equipment                                   5,644,845
     Construction   of bank premises                                          1,752,881
          Total   funds   applied                                      $23.406.391.809




                                            38
                  NOTES TO THE FINANCIAL        STATEMENTS

1. Securities     consist    of U.S. Treasury     special     issues,  bills,
   notes,     and bonds,    and various  securities       under resale
   agreements.

2. Of advances to members, $10,419,148,258         was secured     by
   pledges  of collateral    consisting     of home mortgages,
   capital  stock of the Federal        home loan banks, obligations
   of the United States,     and other authorized      collateral
   having a total    face value of $21,826,082,023.

3. In July    1970 the Federal         home loan banks began to capital-
   ize expenditures        for items of a fixed       or permanent    nature
   such as bank premises,          furniture    and equipment,     and com-
   puter equipment.          The net amount shown for bank premises
   and furnishings       represents       the cost of land, and the cost
   of office    buildings,      furniture     and equipment    less accu-
   mulated depreciation.

4. Consolidated     obligations      are the joint      and several    liabil-
   ities   of all Federal       home loan banks and are not guaran-
   teed by the U.S. Government.            The amount shown at
   December 31, 1970, represents            the total     unmatured   obliga-
   tions   of $10.189 billion         less $6 million      held for retire-
   ment by four Federal         home loan banks.        Of the $10.183
   billion   outstanding,       $5.994 billion      represents     the cur-
   rent portion     of the liability.

5. The Federal   Home Loan Bank Act, as amended, requires      each
   Federal  home loan bank to transfer  semiannually    to a re-
   serve account   20 percent of its net earnings until     the
   reserve account equals 100 percent of its paid-in       capi-
   tal; thereafter   each bank must add 5 percent    of its net
   earnings semiannually.     At December 31, 1970, the legal
   reserve of $181,763,887 was 11.3 percent of the total
   paid-in  capital of $1,607,228,300.




                                      39
           FINANCIAL STATEHENTS
                   a
FEDERAL SAVINGSAND LOAN INSURANCECORPORATION
SCH.EDULE 8



                                 FEDERAL SAVINGS AND LOAN INSURANCE CORl'ORATIoN




                                      CQi'ii'ARATIVE STAIEMENT OF           FINANCIAL       CCNDITION

                                       AT DECE,MBER31, 1970,           AND DECEMBER 31, 1969




                                                                           December 31,               December 31,        Increase       or
                               ASSETS                                          1970                       1969          *crease        (- 1

   CASH (principally           with     the U.S.      Treasury)        $        2,333,841         $        5.977,073    8 -3,643.232
   ACCOUNTS RECEIVABLE                                                               747,581               5,463,116      -4,715,533

   INVESTMENTS AT A?lORTIZED COST                  (note    1)             2,505,261,923              2,387,898,260      117,363,663

   ACCRUED INTEREST ON INVESTMENTS                                            34,078,084                  27.913.255        6,164,829

   ASSETS ACQUIRED FRCM INSURED INSTITUTIONS
     iafter allowance for losses)                                            170,622,889                101,312,515       69,310,374

   LOANS TO INSURED INSTITUTIONS AND ACCRUED
     INTEREST                                                                100,649,718                  96,433,530        4,216,188

   SUBROGATEDACCOUNTS IN INSURED INSTITUTIaSS
     IN LIQUIDATION (after allowance for
     losses)                                                                 143,335,819                203,523,377      -60,187,558

   INSURED ACCOUNTS IN INSURED INSTITUTIONS
     IN LIQUIDATICN (pending and unclaimed
     accounts 1                                                                      364,369                  459,273          -94,904

   DEFERREDCNARGES AND OIHERASSETS                                                    77,838                   32,945           44.893
        Total    assets                                                S2,957.472.062             $2.829.013.342        $128.458.720

                LIABILITIES           AND RESERVES

   MISCELLANEOUS ACCRUED AND OTHER LIABILI-
     TIES (note 2)                                                     8        5,345,112         $        7,473,033    $ -2.127.921

   PENDING AND UNCLAIMED ACCOUNTS IN INSURED
     INSTITUTIONS                                                                    364,369                  459,273          -94.904

   ALLOWANCEFOR ESTIMATED LOSSES--CoEITRIBU-
     TION AGREENENTS                                                           28,107,418                 10,101,648       18,005,770
   DEFERRED CREDITS                                                            20,813,650                  9.651,439       11,162,211

   PRIWRY RESERVE (schedule                9) (note        3)              1,394,111,242              1,243,107,277      151,003,965
   SEC~DARY RESERVE (premium                 prepayments)
     (notes 3 and 4)                                                       1,508.730.271              1.558.220.672      -49.490.401
        Total    liabilities           and reserves                    82.957,472,062             82.829.013.342        $128.458.720


   The notes     following        schedule     10 are en integral             part      of this        statement.




                                                                  42
                                                                                    SCHEDULE9



                      FEDERALSAVINGSAND L&W IlWJRANCECGRPORATION



            COMF'ARATIVE
                      STATEXENT
                              OF INCOME, RXPENSE,AND PRIIHRY RESRRVR
                                    FOR THE YMS ENDED
                        DECEMER31, 1970, AND DECEMRER
                                                    31, 1969



                                               December 31,        December 31,      Increase or
                                                  1970                1969           decrease(-)
INCOME:
    Insurance premiums and admission fees
        (note 5)                              $ 111,170,310 $ 161,771,457 $-50,601,147
    Interest on U.S. and Federal agency
        securities                              138,765,795   114,330,342   24,435,453
    Interest     on loans to insured institu-
        tions                                     3,764,443     2,831,803       932,64C
    Income on assets acquired from in-
        sured institutions                       10,713,409     7,793,314    2,920,095
   Miscellaneous                                    121,099         56,293       64,806
        Total income                             264.535.056         286,783,209     -22,240,153
EXPENSES:
   Administrative expenses                              381,230          322,995          50,235
   Services rendered by Federal Home
      Loan Rank Board                                 9,382,6ala       7,425,712'      1,956,969
   Insurance settlement and other ex-
      penses                                          5,978,243         5,500,642        397,601
   Net provision for losses                          14,900,274       -4,512,616      19,412,890
   Interest applicable to premilns pre-
      payments credited to raamberst
      equity in secondary reserves                   82,888,663       71.916.270      10,972,393
        Total expenses                           113.531.091          30,733,003      32.798.088
        Ret income transferred    to pri-
          mary reserve                           151,003,965         206,050,206     -55,046,241
RAIARCE, PRIMARYRESERVE,AT THE RE-
  GINNING OF THE YEAR                          1.243,107.277       ~,037,057,071-    206.050.206
RAIARCE, PRIMARYRESERVE,AT END OF
                                              +l.394.111.242       $1,243.10?,277 $151.003,965
GAOnote:
 aThis amount differs from the amount shown in schedule 2 by $63,892 in 1970 and
  $72,674 in 1969 due to corrections in the billings after the books were closed.
  The Corporation and the Board made the appropriate adjustIDents in the following
  year.
The notes following    schedule 10 are an integral     part of this statement.



                                               43
SCHEDULE 10


             FEDEIUL SXVJ;NGSAND LOAN IK%RANCE CORPORATION
             STATEMENTOF SOFJRCES
                                AND APPLICATION OF FUNDS
                    YEAR ENDEDDECEMBER31, 1970

 FUNDS PROVIDED BY:
    Repayment of loans                                  $    14,237,491
    Sale of acquired security      or collateral            116,928,lOQ
    Income on assets acguired from insured
       institutions                                          10,713,409
    Gain on assets acquired from insured
       institutions                                               52,886
    Interest      on investments and loans                  142,530,238
    Insurance premiums and admission fees                   111,170,310
    Retention of return on insurance premium
       prepayments                                           84,610,406
    Miscellaneous       income                                   121,099
    Proceeds from sales and redemptions of
       securities                                        1,959,480,000
    Decrease in cash balance                                  3,644,447
    Decrease in selected working capital                     24.598.150
                                                        $2.468.086.536
 FUNDSAPPLIED TO:
    Loans made to and mortgages acquired
      from insured institutions                         $    84,489,055
    Cost of security    or collateral    acquired            30,572,509
    Purchase of fixed assets                                       7,937
    Other expenses applied to costs                          42,165,413
    Administrative   espenses                                    381,230
    Other operating expenses                                 15,356,923
    Refund and transfer    of premium prepayments           134,100,806
    Return on additional     premiums--prepayment            82,888,663
    Purchase of securities                               2,078.124,000
                                                        $2.468.086,536
 GAO note:    This statement is based on statements of sources and
              application   of funds submitted by the Board to the
              Treasury Department in accordance with Treasury Depart-
              ment Circular   No. 966.




                                  44
                       NOTES TO FINANCIAL           STATEMENTS

1. The investments    are in U.S. Treasury     securities      and in
   Federal   National  Mortgage Association     obligations.
   These investments     are carried   at cost after      amortization
   of premiums and discounts       and are compared below with
   market value.

                                 December        31, 1970     December     31, 1969
                                 Amortized         Market     Amortized      Market
        Investments                cost             value       cost          value

                                                     (millions)
     U.S. Treasury
      securities                   $2,344          $2,311         $2,228      $2,043
    Federal    National
      Mortgage Associa-
      tion obligations                 161            152            160          136

                                   $2,505          $2,463         $2,388      $2,179
2. Miscellaneous         accrued and other liabilities               includes      the
   Corporation's         estimate    of losses       of $502,237 as of De-
   cember 31, 1970, and $567,928 as of December 31, 1969,
   which it may suffer            as the result        of loans and contracts
   sold to various          insured    institutions         under a guaranty
   plan.      Under the plan the Corporation                 guarantees     20 per-
   cent of the unpaid principal                 balance,     unpaid interest
   and certain        other expenses incurred             in acquiring      title.
   The obligation         of the Corporation           terminates      when the
   principal      balance      is reduced to 80 percent             of the balance
   at the time of purchase.               On the basis of reports              from
   purchasers       of the loans and contracts,               the unpaid prin-
   cipal     balance     of the loans and contracts              sold was about
   $10 million       at December 31, 1970, and about $11 million
   at December 31, 1969.

3. The primary       and secondary      reserves        are considered       by the
   Corporation       to be more than adequate              to absorb the addi-
   tional    disbursements        that it is estimated           the Corporation
   might be required         to make in discharging            its insurance
   indemnity     liability      in connection        with insured      institu-
   tions   currently       in financial     difficulty.


                                            45
4. During 1970 each insured institution's     pro rata share in
   the secondary reserve was applied toward payment of its
   regular annual insurance premium in accordance with sec-
   tion 404(g) of the National Housing Act, as amended in
   December 1969 (83 Stat. 375).     This practice   will con-
   tinue until the combined amount of primary and secondary
   reserves falls below 1.75 percent of the total amount of
   all accounts of all insured institutions.

5. Prior to December 1969 insurance premiums assessed were
   amortized and taken into income in equal monthly install-
   ments.   Since the Corporation considers that no portion
   of the insurance premiums is refundable,      the Corporation
   revised its accounting for insurance premiums earned to
   show all premiums earned when the institutions       are as-
   sessed.   As a result, about $52 million    in additional
   insurance premiums were taken into income in 1969.

6. At December 31, 1970, there were 25 legal actions pending
   final adjudication    or appeal wherein the Corporation          was
   named defendant or codefendant involving         claims that had
   an estimated maximum liability      of about $16 million.          An
   Associate General Counsel of the Board is of the opinion
   that the Corporation's    actual liability     as a result of
   these 25 pending legal actions will be substantially             less
   than $16 million.     The Corporation's    contingent   liability
   on these claims has not been recognized in the accounts.




U.S GAO. Wash.. D.C.



                                  46
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