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1961 An Analysis of the Growth of Savings and Loan Associations in the Ninth Federal Home Loan Bank District, 1945-1959. James Robert Bobo Louisiana State University and Agricultural & Mechanical College
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BOBO, James Robert, 1923- AN ANALYSIS OF THE GROWTH OF SAVINGS AND LOAN ASSOCIATIONS IN THE NINTH FEDERAL HOME LOAN BANK DISTRICT, 1945-1959.
Louisiana State University, Ph.D., 1961 Economics, general University Microfilms, Inc., Ann Arbor. Michigan AN ANALYSIS OF THE GROWTH OF SAVINGS AND LOAN ASSOCIATIONS
IN THE NINTH FEDERAL HOME LOAN BANK DISTRICT, 1945-1959
A Dissertation
Submitted to the Graduate Faculty of the Louisiana State University and Agricultural and Mechanical College in partial fulfillment of the requirements for the degree of Doctor of Philosophy
in
The Department of Economics
by James Robert Bobo B.S., Florence State College, 1950 M.A., George Peabody College, 1952 June, 1961 ACKNOWLEDGMENT
The writer gratefully acknowledges his indebtedness to the
Statistical Analysis Division of the Federal Home Loan Bank Board and
the United States Savings and Loan League for their assistance in pro
viding Invaluable statistical materials which were unavailable else
where. Mr. John A. Fogarty, President of the FHLB of Greensboro, was
most cooperative in providing materials.
An especial acknowledgment is made to my major professor, Dr.
Stephen L. McDonald, Head of the Department of Economics, who has
given the writer superior professional guidance and an experience long
to be remembered. To Dr. B. F. Sllger, Dr. W. D. Ross, Dr. F. R.
Marshall, Dr. Kenneth Bailey, and Dr. Burle Noggle, the writer extends
his appreciation for the pertinent comments and suggestions made during the preparation of this study.
To his wife, Margaret Seretha, the writer extends his profound appreciation for her efforts and devotion to this project.
li TABLE OF CONTENTS
CHAPTER Page
ACKNOWLEDGMENT...... 11
LIST OF TABLES...... v iil
LIST OF FIGURES...... x lll
ABSTRACT...... xiv
I. INTRODUCTION...... I
II. HISTORICAL DEVELOPMENT OF SAVINGS AND LOAN
ASSOCIATIONS...... 7
Historical Perspective ...... 7
O rigin ...... 7
English Experience ...... 8
The United S tates ...... 9
Early Growth of Building and Loan Associations . . . 14
Early Period ...... 14
A Period of Growth, 1880-1897 ...... 20
Development In the Twentieth Century ...... 20
The Period 1900 to 1920 ...... 20
Expansion, Depression and Recovery, 1920-1945 23
The 1 9 2 0 s...... 23
The 1 9 3 0 s...... 25
Federal Legislation In the 1930s ...... 29
The War Y ears...... 33
111 CHAPTER Page
The Postwar Years...... 34
Sum m ary ...... 37
m . THE NATURE OF SAVINGS AND LOAN ASSOCIATIONS . . 39
The Emergence of the Basic Forms ...... 40
The Terminating P lan ...... 40
The Serial Plan...... 41
Emergence of the Permanent P la n ...... 43
Features of the Permanent Plan ...... 43
The National Associations, 1887*1897 ...... 46
The Permanent Capital Plan, 1890 ...... 51
Contemporary Characteristics ...... 53
C h a rterin g ...... 54
Ownership and Voting...... 56
Character of Portfolio ...... 57
Safety of Savings Accounts ...... 63
Reserves, Supervision and Regulation, and
Mortgage Policies ...... 64
Federal Tax Legislation ...... 68
Sum m ary ...... 73
IV. GROWTH IN THE SOUTH (FHLB DISTRICT 9) 1945-1959. 75
Asset Growth...... 75
Home Mortgage Financing ...... 89
iv CHAPTER Page
Ninth District Mortgage Recordings:
Aggregate Recordings ...... 94
Mortgage Recordings by Mortgagee:
Ninth District...... 103
Mortgage Debt Outstanding ...... 108
Mortgage Debt: Ninth District Savings and
Loan Associations ...... 112
Growth of Savings Capital ...... 115
Growth In District Savings C apital ...... 120
Personal Savings, Financial Savings, and
Savings Capital at Savings and Loan
Associations ...... 134
S um m ary ...... 140
V. CAUSAL FACTORS AND SIGNIFICANCE OF THE GROWTH
OF SAVINGS AND LOAN ASSOCIATIONS...... 142
The Exogenous or Environmental Factors ...... 145
Growth of Population ...... 145
Urbanization...... 147
Urbanization In 1940s ...... 148
Metropolitan growth ...... 150
The Growth of Residential Construction ...... 155
Home ownership and household formation . . . 157
v CHAPTER Page
Government and housing ...... 158
Federal Home Loan Bank System ...... 161
O rigin ...... 161
Purposes and functions of the FHIB System. . 162
Resume of Federal Home Loan Bank Board
credit policy...... 167
Housing starts ...... 171
Personal Income Growth ...... 175
Geographical distribution ...... 175
Income In the FHLB d istricts ...... 176
The Endogenous Factors ...... 181
Factors In the Growth of Savings C apital ...... 181
Redistribution of Income ...... 181
Redistribution and savings ...... 182
Decline in business saving ...... 186
Saver preferences ...... 191
Preferences in the Ninth D istrict...... 191
Savers and savings and loan sh ares ...... 194
The return on savings ...... 195
Taxation and the growth of savings and loan
associations ...... 198
The Development of Hone Financing Services . . 209
vi CHAPTER Page
Significance of the Growth of Savings and
Loan Associations ...... 211
Sum m ary ...... 213
VX. GENERAL SUMMARY AND CONCLUSIONS...... 215
General Summary ...... 215
Conclusions...... 220
BIBLIOGRAPHY...... 226
VITA...... 236
vii LIST OF TABLES
TABLE Page
I. Savings and Loan Associations in the United States,
1889 ...... 19
II. Savings and Loan Associations in the United States,
1893 ...... 21
m . Growth of Savings and Loan Activity in the United
States, 1893-1920 ...... 22
IV. Growth of Savings and Loan Associations in the
United States, 1920-1930 ...... 26
V. Growth of Savings and Loan Associations in the
United States, 1930-1940 ...... 28
VI. Savings and Loan Association Failures and Estimated
Losses, 1920-1945 ...... 30
VII. Growth of Savings and Loan Associations in the
United States, 1941-1960 ...... 35
Vni. Amounts and Percentage Distribution of Assets,
Liabilities and Reserves, FHLB Member Associations,
December 31, 1959 ...... 59
IX. Mortgage Restrictions for State Savings and Loan
Associations ...... 66
X. Asset Growth Savings and Loan Associations, by
FHLB Districts, 1945-1959 ...... 77
v ili TABLE Pag*
XI. Percentage Distribution of Savings and Loan Assets
by District. 1945-1959.. j ...... 81
XII. * Asset Growth Ninth District Savings and Loan
Associations. Selected Years...... 62
xxn. Asset Growth Ninth District Savings and Loan
Associations. 1945-1959 ...... 83
XIV. Percentage Distribution Ninth FHLB District Assets,
1945-1959 ...... 85
XV. Home Mortgage Recordings. $20,000 or Less, by
Type of Lender* ,1945-1959 ...... 91
XVI. Percentage Distribution Home.Mortgage Recordings,
$20,000 or Less, by Type of Lender, 1945-1959. . . . 93
XVH. All Nonfarm Mortgage Recordings, $20,000 or Less,
by FHLB D istricts, 1945-1959 ...... 95
XVni. Percentage Distribution, by FHLB D istricts, All
Nonfarm Mortgage Recordings, $20,000 or Less,
1945-1959 ...... 98
XIX. Savings and Loan Associations Nonfarm Mortgage
Recordings, $20,000 or Less, by FHI3 District,
1945-1959 ...... 100
lx TABLE Page
XX. Percentage Distribution Nonfarm Mortgage Recordings
Savings and Loan Associations, $20,000 or Less,
by Regions, 1945-1959 ...... 102
XXI. All Nonfarm Mortgage Recordings, $20,000 or Less,
little Rock District, 1945-1959 ...... 104
XXII. Percentage Distribution All Nonfarm Mortgage
Recordings, $20,000 or Less, little Rock District,
1945-1959 ...... 106
XXni. Holdings of Mortgage Debt Outstanding, 1-4 Family
Nonfarm Homes, U. S ., 1945-1959 ...... 109
XXIV. Percentage Distribution Holdings of Mortgage Debt
Outstanding, 1-4 Family Nonfarm Homes, U. S.,
1945-1959 ...... I l l
XXV. Mortgage Debt Held by FHLB District Savings and
Loan Associations, 1945-1959 ...... 113
XXVI. Percentage Distribution First Mortgage Loans Out
standing by FHLB Member Savings and Loan
Associations, 1945-1959 ...... 116 xxvn. Investments of Individuals in Savings Accounts,
United States Savings Bonds, Life Insurance Reserves,
U. S ., 1945-1959 ...... 118
x TABLE Page
XXVm. Percentage Distribution Investments of Individuals
in Savings Accounts, United States Savings Bonds,
life Insurance Reserves, U. S ., 1945-1959 ...... 119
XXIX. Growth in Savings Capital, Insured Associations,
by FHLB D istricts, 1945-1959 ...... 121
XXX. Percentage Distribution, Growth in Saving Capital,
Insured Associations, by FHLB District*, 1945-1959. 123
XXXI. Savings Capital Insured Associations Ninth District,
1945-1959 ...... 126
XXXII. Growth in Savings Capital, Insured Association,
Ninth District, 1945-1959 ...... 127
XXXni. Percentage Distribution Savings Capital, Insured
Associations, Ninth District, 1945-1959 ...... 129
XXXIV. Investments of Individuals in Selected Media,
Selected Years, 1950-1959, Little Rock District. . . . 132
XXXV. Percentage Distribution, Investments of Individuals
in Selected Media, Selected Years, 1950-1959,
Little Rock D istrict ...... 135
XXXVI. Total Personal Savings, Total Financial Savings, Net
Inflow Savings Insured Associations, 1945-1959 . . . 139
XXXVII. Population by States, Regions, 1940-1960 ...... 146
xl TABLE Page
XXXVm. United States and Ninth District Metropolitan
Population, 1940, 1950, 1960 ...... 152
3OTX. Metropolitan Population by Regions and FHLB
Districts, 1940-1960 ...... 154
XL. Metropolitan Population by FHLB District, 1940-1960 . 156
XU. Permanent Nonfarm Dwelling Units Started by
Regions, 1945-1959 ...... 172
XIII. Personal Income, by Regions, Selected Y ears ...... 177
XUn. Personal Income, Selected Years by FHLB District
and Selected States, 1945-1959 ...... 178
XUV. Comparison In Rate of Growth: Metropolitan Popula
tion, Personal Income, and Savings and Loan Assets. . 180
XLV. Distribution of Income by Qulntlle, Selected Years• • . 183
XLVI. Percentage Distribution Population by Age...... 186
XLVn. Functional Distribution of National Income ...... 188
XLVin. Savings by Individuals and Corporations...... 189
XLDC. Percentage Distribution Investments of Individuals
in Selected Media, 1950-59 ...... 192
L. Average Annual Yield Selected Types of Investment. • . 195
LI. Insured Savings and Loan Associations Average Annual
Dividend Rates Paid, by FHLB Districts, Selected
Y e a r s ...... 197
x ii LIST OF FIGURES
Page
Date of the First Building and Loan Activity In Each
S ta te ...... 15
Savings and Loan Assets, 1900-1959 ...... 36
Federal Home Loan Bank D istricts ...... 79
Savings and Loan Asset Growth, 1945-1959 ...... 87
Asset Growth Ninth District Associations, 1945-1959 . . 88
Savings Capital of Insured Associations, 1945-1959. • . 125
Savings Capital, Insured Associations, Ninth District,
1945-1959 ...... 130
Federal Home Loan Bank Trends in Advances,
Consolidated Obligations and Member Deposits ...... 166
Permanent Nonfarm Dwelling Units Started ...... 174
Income Distribution by Q uintile ...... 184
Trend in Personal Savings, 1929-1959 ...... 190
x lll ABSTRACT
There it almost a total absence of literature on the regional pattern of development of savings and loan associations. This study is primarily concerned with an analysis of the growth of associations in the Ninth FHLB District in the period 1945-1959.
The study is made in three basic steps. First, a proper perspec tive is developed by treating the nature and historical development of savings and loan associations. Second, the rate of growth of associa tions in the Ninth District is compared with that in the nation and other regions, 1945-1959. In measuring growth, attention is given to assets, savings capital, mortgage recordings, and holdings of mortgage debt.
Third, an attempt is made to identify and analyze the factors tending to promote growth of associations. An effort is made (1) to provide the basic explanation of the observed high rate of growth, (2) to explain the relative growth pattern among the various districts, and (3) to explain the growth of associations relative to that of their Immediate competitors.
The following conclusions are drawn from this study:
1. Associations are promoting thrift and engaging in the financing of home construction among the middle and lower income groups who might otherwise have limited access to such services. The mobilization of funds from outside the District through the medium of the FHLB System has made
xlv possible a more rapid growth of home construction and ownership in the
District than would otherwise have been possible.
2. With a view to promoting greater economic stability, it would appear desirable to bring the FHLB 8ystem within the scope of monetary p o licy .
3. Associations have grown at the relative expense of other thrift account depositories and institutional lenders in home mortgage financ ing in the District. Specialization and a superior legal position held by associations are dominant reasons for this development.
4. The total savings package offered by District associations has
Induced a shift in saver preferences in their favor.
5. The high rate of growth of associations, the regional pattern of growth, and the greater growth of associations relative to that of other deposit intermediaries cannot be adequately explained in terms of sav ings and loan aggressiveness and higher relative dividend rates on shares.
Such an explanation is misleading because it does not focus upon the basic motive force in the growth of associations, v iz ., the growth of home mortgage financing. Nor can such an approach explain the regional pattern of growth.
6. The basic motive force in the growth of savings and loan asso ciations in the period 1945-1959 was the unprecedented demand for home mortgage financing. The preceding does not deny the reciprocal influence of the inflow of savings on home financing. The reciprocal causality of
xv the availability of funds and the demand for home mortgage financing is
Ignored by the conventional explanation running In terms of savings and loan aggressiveness and relative dividend rates.
7. The greater relative growth of savings and loan associations
In the Ninth Federal Home Loan Bank District Is largely a consequence of the greater relative economic growth of the region, particularly as it manifested itself In urbanization and home building •
8. Governmental policies and programs have been important factors not only in the post-war recovery of savings and loan activity from the depressed levels of the 1930s, but also In their ability to out strip their competitors in home mortgage financing and in attracting passbook type accounts.
xvl CHAPTER I
INTRODUCTION
Probably the most striking characteristic of savings and loan
associations, when viewed In the perspective of time, has been
their propensity to thrive and expand, particularly In the decade of the 1920s and more especially In the post WW II period. Deriving
their fundamental character from their historical antecedents in
England, the savings and loan associations emerged in the United
States in 1831 In Frank ford (now part of Philadelphia), Pennsylvania.
Subsequently, the movement spread and tended to grow as the nation grew. Historically, the savings and loan business has been associated with economic progress and development; and the nature of savings and loan associations has closely allied them with the growth of Income, population. Industrialization and urbanization.
Savings and loan associations have been so successful In filling a basic need in our society that they now constitute one of the most Im portant segments of financial activity in the nation. The growth of savings and loan associations since WW II has been greater than for any other comparable period. Total savings and loan assets in 1945 were approximately $8.7 billion,1 and these assets have approximately
^Savinas & Home Financing 8o Book (Washington: Federal Home Loan Bank Board, 1960), p. 10
1 doubled every five years since, reaching a new record high of $67.2 2 billion on June 30th of I960. In every year since 1953 savings and
loan asset growth has exceeded $5 billion. The year 1959 was a year
of unprecedented expansion, both In home mortgage financing and In
the receipt of savings. Most of this saving, as In the past, came
from modest savers.
Savings and loan associations have always been mutual or
member-owned Institutions. They accumulate funds by selling shares
to various investors who become members. They do not accept
"deposits" as do commercial banks; the charters of federal associa tions and the charters of most of the state associations enjoin the acceptance of "deposits." Hence, the return to shareholders is
called a dividend, not Interest. Savings and loan associations, as their title suggests, make their bid for the savings of thrift-minded
savers by offering them an attractive alternative asset to money, one having a high degree of liquidity and capital certainty and a minimum of risk; and In recent years, they have made their shares and services seductively convenient. From their inception, savings and loan associations have Invested almost exclusively In urban home mortgages.
Their two basic functions, accepting savings and making urban real estate loans, continue to be paramount. Hence, the savings and loan
Savinas and Loan News (Chicago: United 8tates Savings and Loan League, July 1960), p. 47. 3
Industry is given to encouraging thrift and home ownership.
Savings and loan associations have tended to outstrip all other competitors, such as time departments of commercial banks, mutual savings banks, and postal savings, for the passbook type savings accounts. In the postwar era savings and loan associations have grown more rapidly, both absolutely and relatively, except for mutual 3 funds and credit unions, than any other financial intermediary. In absolute magnitude, savings and loan associations are exceeded, in
1960, only by savings accounts in commercial banks and the as serves of life insurance companies. This differential is smaller than at any time since 1950.
The growth of savings and loan associations, although signifi cant in all regions of the nation, has been more pronounced in some regions than others. The region comprising the core of this study, the Ninth Federal Home Loan Bank District, has been one of the three most rapidly expanding regions. The assets of the Ninth District savings and loan associations have Increased by approximately 1,021 4 per cent In the period 1945-1959, and the future looks even more prom ising.
The growth of savings and loan associations is a vital factor in one of the most interesting and challenging developments in monetary
3See Table XXVIL Chapter IV.
4See Table X, Chapter IV. theory. The operations of the non "■commercial bank financial Inter mediaries are not directly controllable by the Federal Reserve System.
Therefore, the Federal Reserve System's ability to cope with infla tionary pressures via quantitative Instruments is being increasingly questioned In light of the recent growth and development of non commercial bank financial intermediaries. It has been suggested, and the suggestion has been vigorously challenged, that the non-commercial bank financial Intermediaries ought to be subject to the same or a similar kind of control as commercial banks. If John G • Gurley and 5 Edward S. Shaw, the principal architects of the contention, are correct in their thesis relative to the significance of non-bank intermediary growth, there are now serious limitations on the effectiveness of traditional quantitative monetary controls. These limitations seem to derive essentially from the fact that our modem financial structure Is supplying a significant volume of liquidity and finance that Is not sub ject to direct monetary controls.
The primary objective of this study is to analyse the growth and development of savings and loan associations in selected southern states, those comprising the Ninth Federal Home Loan Bank District:
M ississippi, Louisiana, New Mexico, Texas and Arkansas. Chapter n ,
5J. G. Gurley and E. S. Shaw, "Financial Aspects of Economic Development." American Economic Review. Vol. XLV (September, 1955), and idem. , "Financial Intermediaries and the Savings-Investment Process," Toumal of Finance. Vol. XI (May# 1956), pp. 557-577. 5
"Historical Development of Savings and Loan Associations In the
United States," Is not Intended to be a definitive chronicle of the
savings and loan movement In the United States; however, since one
of the major emphases of this paper Is the growth of savings and loan
associations, the fundamental consideration of this chapter will be an
attempt to elucidate the origin and development of savings and loan
associations In the United States, with particular emphasis on their
growth. Chapter II, therefore, will present the background against
which the study will be developed in subsequent chapters.
Since savings and loan associations are fundamentally different
from all other financial Intermediaries, and since a major factor In their
growth arises from this fact, Chapter III, "The Nature of Savings and
Loan Associations," will consist of an elaboration of their nature.
Chapter IV, "Growth in the South (Ninth District), 1945-1959," will
be almost exclusively quantitative In character. Data will be presented
revealing the regional and national growth of savings and loan associa
tions In all of its pertinent manifestations. Chapter V, "An Identifica
tion and Analysis of the Causal Factors in the Growth of Savings and
Loan Associations," attempts to explain the rapid -growth, both absolute
and relative, of savings and loan associations through an Identification
and an analysis of the factors contributing to their growth. Emphasis will also be given to the regional pattern of growth as well as to the greater growth of savings and loan associations relative to that of the competitive deposit type financial Intermediaries. Considerable quantitative data will be presented relative to these factors.
Chapter VI will be given to concluding and summary remarks. CHAPTER II
HISTORICAL DEVELOPMENT OF SAVINGS AND LOAN ASSOCIATIONS
It is not the objective of this chapter to chronicle a definitive history of the savings and loan movement. However, since one of the major emphases of the present study Is the growth of savings and loan associations, It Is useful to establish at the outset a proper historical perspective.
I . HISTORICAL PERSPECTIVE Origin
Some historians trace the origin of the savings and loan movement back to the early days of the ancient Greek civilisation. It is known with reasonable certainty that the fundamental theory of cooperative money lending is of ancient origin. In fact, cooperative finance Is probably as old as money itself. Historians have found evidences of cooperative money lending clubs in China centuries before the Christian era. These money lending clubs bore a striking similarity. In some respects, to contemporary building and loan associations.1 The antecedents of contemporary building and loan associations In the
* Howard 8. Piquet. Building and Loan Associations (Princeton: Princeton University Press, 1930), Chapter I.
7 _ 8
United States, however, derive from England.
EnflUih S«B9rtSD£9 The first building and loan association founded in England was 2 established in Birmingham in 1781. Subscribers to the Birmingham
society met monthly and paid dues of half a guinea per share. The
society used these funds to construct homes, develop new streets, and to renovate old ones. Members of the association balloted for actual
houses and lots and not for money loans. These early associations
actually built houses and disposed of them. In contemporary America, because of the specialization that has developed, they merely lend the
funds; actual construction is an Independent function.
The spread of the building societies was rapid, and Parliament
passed the first Benefit Building Societies Act in 1836. The Act re
lieved most of the legal documents from the stamp tax, exempted the
societies from the usuary laws, made it possible for them to adopt model
mortgage forms, and allowed them to discharge a mortgage by mere receipt.
2H. Morton Bodflsh, (ed.) History of Building and Loan in the United States (Chicago: United States Building and Loan League, 1931), pp. 1-19; Savinas Loan Principles (Chicago: American Savings and Loan Institute Press, 1957), p. 23.
P iq u et, o p. c it.. p. 3 ff; Henry S. Rosenthal, Cyclopedia of Building. Loan and Saving Associations (Chicago: American Building Association Publishing C o., 1923), p. 30 ff.; See "Building Societies," Encyclopedia Brttannica (11th ed.), IV, 766. The two decade* following 1836 saw the continued expansion of building societies and the rapid displacement of the termination plan by the permanent plan. By 1850 there were over two thousand building societies in England, some having assets approximating two million pounds.5 Parliament continued to view the building societies with favor, and it granted them still greater privileges in the Building Societies Act of 1874, which allowed them to become legally established corporations and provided uniform requirements for all societies. Another Act, of c 1894, made minor alterations to the rules. However, these acts, with few amendments, have provided the basis for the continued growth and development of building societies in England to the present time.
The United States
In 1831, twenty-two years after the founding of the Greenwich
Union Society in England, the building and loan movement in the United 7 States originated. A better*appreciation of the contributions and potentialities of the building and loan movement can be had by briefly sketching its inception and identifying the factors which were conducive to its growth and development.
4See Chapter III for a discussion of the different plans.
5P lq u et, o p. cit.. p. 3.
6Ib ld . 7 B odflsh, q £ jc it.. p. 19; Rosenthal, o p. cit.. pp. 31w34; Savinas and loan Principles, o p. £11*, p. 24. The United States In the 1830s was a young and rapidly growing nation. Population Increased from 3,929,214 In 1790 to 12,666,020 In
1830, and In the same period the nation's land area almost doubled.
Along with Westward migration and settlement of new land, rapid
Industrialization was characteristic of the era. The development of manufacturing had two fundamental consequences for the growth of building and loan institutions: it gave us a wage earning class, and
It promoted urbanization. Of fundamental significance for the building and loan development was the emergence of a class of wage earners whose principal form of property in the community was their homes, hence their susceptibility to the savings and loan idea. The receipt of regular wages, as opposed to the Irregular Incomes of farmers, per mitted systematic savings. Urbanization provided the necessary basis of large aggregations of people.
With the possible exception of savings banks, the financial facilities current at the time were of little assistance to the working man; and the savings banks did not grant home loans to the wage earning class. Generally, no special attempt was made to provide a depository for the savings of the working man, and the practice of making loans to the wage-earning class was alien to conservative finance. Even
^United States Bureau of the Census, Fourteenth Census of the Vnttffl 1920. Population. Vol. II (Washington: Government Printing Office, 1921), p. 2. 11 commercial banks did not accept savings accounts,** Hence, the economic environment was conducive to the development of a co operative movement which would make available home financing on favorable terms by collecting the small savings of the working man in exchange for security and an Interest return.
Instrumental in founding the first building and loan association in the United States were two important pioneer manufacturers, Samuel
Pilling and Jeremiah Horrocks, and a physician. Dr. Henry Taylor.1**
With their knowledge of English building societies, these men believed that a building society would prosper in the United States. They formed the first building and loan association, the Oxford Provident Building
Association, at Frankford, Pennsylvania11 (at the time an independent borough, now a part of Philadelphia). The event was Hat the inn of
Thomas Sldebotham, at what is now 4219 Frankford Avenue ....
The minute book containing all of the records of the first Association is still in existence . . . in the custody of the Historical Society of
Frankford."1^
g Carl F. Dlstelhorst, "Savings and Loan Associations," American Financial Institutions (New York: Prentice-Hall, Inc., 1950), pp. 126- 155.
10B odfish, g p# 32s
11There have been some attempts to show that the idea came directly from the Schulze-Delltzsch Societies in Germany, but these efforts were to no avail. See Piquet, 2E* olt», p. 5. 12 Bodflsh, on. cit.. p. 35. The Frankford association, which endured from 1831 to 1641,
was a terminating association, i.e ., when the goal which gave rise
to the activation of the association was attained the association was
forthwith deactivated. The affairs of the association were entrusted
to a group of thirteen trustees who served without remuneration. The
fundamental purpose of the association was to enable its members to
build or purchase dwelling houses. Membership in the association
required an initial payment of $5 and a monthly payment of #3 per share; 13 the par value of a share was $500. No one could hold more than five
shares. Loans were allowed up to $500 per share to the member bidding
the highest premium. Withdrawal required a month's notice, and a 5
per cent penalty of the amount paid in was assessed at the time of
withdrawal. New members could be elected at monthly meetings. If
a member allowed twelve months to expire without making the standard
payment of $3 per month, it was grounds for expulsion. Moreover,
loans were not made available for building houses more than five miles
from Frankford. It was further provided that;
The association shall continue until every member shall have opportunity of building or purchasing a dwelling house for each share of stock he may hold in the same, after which the balance In the treasury shall be egg ally divided among the members according to their respective shares.14
13Seymour Dexter, 4 ISSMSXMSLSSL g ff-W O T tlY t faYiJDfl M& Associations (New York: D. Appleton and Company, 1891), pp. 42-43.
1 Codfish, o p . cit.. p. 36. 13
The Oxford Provident Association may be considered, to some extent at least, a model for subsequent associations, since many of its provisions reappear in subsequent associations. The fundamental motivation was not profit in the conventional sense; rather, the
Association was a humanitarian, cooperative undertaking to facilitate the acquisition of homes by individuals.*^*
This cooperative spirit gave rise to many later associations. The granting of loans on the basis of highest bidder continued in some associations for over a half century, and the purchase of shares of stock Ifi on an installment basis prevails on a minor scale even yet. Although the five-mile limitation mentioned above no longer prevails,*7 modern savings and loan associations continue to limit their loans to local urban real estate. Some of the larger associations, however, do busi ness throughout a state, and in some instances their operations may 18 cover a territory containing several states.
*5It probably should be noted that a cooperative association grants voting rights on the basis of membership, not stock ownership; and profits are apportioned on the basis of patronage, not ownership.
16Jack W . Cashln, History of Savings and Loan in Texas (Austin: Bureau of Business Research, The University of Texas, 1956), p . 5 . 17 The associations are still generally restricted, conventionally to 50 miles.
*®Harold G. Moulton. Financial Organisation and the Economic System (New York: McGraw-Hill Book Company, Inc., 1938), p. 458. 14
II. EARLY GROWTH OF BUILDING AND LOAN ASSOCIATIONS
The building and loan idea did not spread Immediately. The
second association was established at the same place in 1845, fourteen years after the Provident Association. Subsequent to 1845, however, the
building and loan venture gained ground rapidly; and in 1850, the state
of Pennsylvania, the first state to have a savings and loan association,
enacted a special law for their incorporation. Moreover, Pennsylvania
continued to lead the field in activity for many years. As noted by
D exter:
During the last years of that decade (1840s), the organiza tion of these associations in Philadelphia was very rapid. Until 1849 or 1850 none were Incorporated. They were simply voluntary associations, holding their property through the medium of trustees. Yet so rapid had been their growth in that city that fifty or more were organised between 1831 and 1849. . . Hence it can be said with great fitness that Philadelphia has been the "breeding place" of these associations in America.19
Early Period
Data relative to the early spread of building and loan associa tions in the United States unfortunately are scarce. However, it is known that after 1845 the movement continued at an accelerated pace.
Statistics for the 1850s are lacking, but in the 1860s one hundred and forty-eight associations were chartered; from 1870-1875 three hundred and seventeen were chartered. Figure I below summarizes the years of
19D ex ter, q q ,cit., pp. 43-44. FMUM I - M T t Of THE FIMT BMLONM ANO LOAN ACTIVITY IN EACH 9MTC 16 origin of savings and loan associations by states.
In the years following raid-century, the early type of association, which had already developed In the vicinity of the Atlantic seaboard and In the new states of the upper M ississippi and Ohio valleys and In the far West (more especially In California and Texas), spread more generally throughout the country. The development of a new plan—the
"Serial Plan"‘--during the period 1855-1690 proved to be something of a boon to building and loan associations. This technique made possible the continuity of existence of an association by assimilating new members at frequent Intervals. Two other types of organization, the
"Permanent Plan" and the "Permanent Capital Plan" (to be described In detail in the next chapter) made their appearance before 1900 and con tributed significantly to the development of the savings and loan m ovem ent.
It Is apparent that the building and loan associations expanded with an expanding nation, entering Into new areas as they were popu lated (see Fig.. 1). Literature and propaganda on building and loan associations was scarce, because the associations were local organiza tions without any state or national organ for the dissemination of In formation; therefore the building and loan Idea had to be spread by
Individuals who were familiar with building and loan activities in the communities from which they came. One of the basic factors in the explanation of why the building and loan movement spread when it did and where It did is to be found In an analysis of the movements of the 17 20 people having been previously associated with such institutions.
A close scrutiny of Figure 1 reveals certain patterns • The first spread of the building and loan movement was to New York in 1836.
The next earliest date of a first association is 1843 in South Carolina.
The next evidence of the building and loan movement is found in the states of Maryland, New Jersey, and Connecticut in 1849, followed by M assachusetts, 1852; Maine, 1854; Virginia, 1859; District of
Columbia, 1861; Georgia and California, 1865; Texas, 1866; and Ohio and Delaware, 1867.
The building and loan movement was carried westward with the stream of migration In that direction. One stream carried It to Buffalo in 1851 and another carried it into Illinois in 1849.21 The early ap pearance of building and loan associations in California is largely explained by the Influx of people from the eastern part of the United
States during the gold rush in 1849. As the savings and loan idea was carried from city to city by the migrating population, the associations gradually pervaded the entire country. By 1890, they were established
In every state and territory in the nation.22
20B odfish, f P* 8 3 .
21in a strictly technical sense the Chicago Building Association dates from 1851 when its charter was granted; however it carried on business for two years before it was chartered. This association is known as the first "in the West •M
22piBtclhorst,o p . cit.. p. 128. 16
There was no unified organizing force to give centralised direction and supervision to these emerging associations. Consequently, they came to be known by a wide variety of names and plans of operation
(see Chapter 111). In Louisiana and in a few other scattered areas, for example, they came to be known as "homestead associations," and in the New England area as "cooperative banks." The most common corporate title In the early period was "building and loan association" or "building association." However, as the nature of the associations evolved and the savings function gained in significance, the associa tions Increasingly came to adopt the designation "savings and loan," or "savings association." The corporate title of "savings association" was In use before 1900 and appeared to be in increasing use in the decades subsequent to 1900.
By the 1890s savings and loan associations were receiving wide spread attention. In 1887, The American Economic Association was recognizing them in its monographs, and Professor Sanbom, Secretary of the American Social Science Association, noted In a report at an annual meeting of the association In 1889: "At the rate the building associations are now gaining, the time may come when their accumulated savings at any one time may exceed those of our savings-banks."23
Table I below Incorporates Professor Sanborn's data.
23D ex ter, o p . c i t . , p . 1 . TABLE I
SAVING AND LOAN ASSOCIATIONS IN THE UNITED STATES, 1889
All New England ------120 N tw York ------350 N«w Jtrtey $------200 Pennsylvania ------950
Delaware and M aryland ------— 225
Ohio ------750
Indiana ------200
Illin o is ------500
W is c o n s in ------— ------45
Michigan- SO
Minnesota ------150
Iowa and N abraska ------150
M is s o u ri ------100
K a n s a s ------130
K entucky ------100
Tsnnassss and tha Southwest------300
Southern Atlantic States ------100
California and tha Northwest ------150 TOTAL------4 ,5 8 0
SOURCE: Financial Review and American Building A asoc|tflpp News. 13:10, January 1894, Cited by Cashln, alt., p. 14. 20
It was not until 1893 that anything approaching a comprehensive
survey was made. In that year Carroll D. Wright, United States
Commissioner of Labor, conducted the first government sponsored survey
of savings and loan associations in the United States. Table II below
summarizes his findings.
A Period of Growth. 1880-1897
In the period from 1880 to 1897 the savings and loan associations
in the United States experienced their first extended period of prosperity
and expansion. By 1897, there were 5,872 local associations, with
1,642,179 members. Their combined assets amounted to $601,130,037.
However, in the four years subsequent to 1897 their membership and
assets steadily declined. This is the only known time prior to 1930
that savings and loan associations experienced a decline in their
activity and growth, the decline being explained by the severe depres
sion in business activity following the panic of 1893. The savings and
loan movement emerged from this setback without serious damage, and
in the next three years it more than regained its former position (see
Table i n ) .
i n . DEVELOPMENT IN THE TWENTIETH CENTURY
The Period 1900 to 1920
Although the first two decades of this century were not periods of
sensational growth for savings and loan associations, they were a period of continued expansion, as shown in Table UI. After 1904 the savings 21 TABLE II
SAVINGS AND LOAN ASSOCIATIONS IN THE UNITED STATES, 1893
L ocation Associations Shareholdars Net Assets
A rkansas ------69 19,493 $ 5,851,205 C a lifo rn ia ------139 31,677 13,090,802 C o l o r a d o ------60 16,950 5 ,0 8 8 ,0 0 4 Connecticut ------15 3,222 433,578 D e la w a r e ------24 5,331 2 ,4 1 0 ,8 6 2 D itt. of Columbia ------32 24,451 6 ,8 2 1 ,8 6 1 Georgia* — ------10,453 3 ,1 3 7 ,6 0 3 F lo rid a ------37 10,524 3 ,1 5 9 ,4 1 8 Illlnofta ------146,571 55,821,888 Indiana ------350 90,157 2 1 ,3 9 0 ,5 5 0 Iowa ------100 36,865 9 ,0 4 9 ,3 1 0 K ansas ------164 46,330 13,907,211 L o u is ia n a ------21 6,569 3 ,3 9 1 ,5 5 7 M aine ------36 10,064 2 ,0 2 0 ,0 6 3 M a r y la n d ------200 62,294 14,921,607 Massachusetts ------115 54,484 14,574,334 M ichigan* ------99 27,968 8,395,207 M in n e so ta ------91 25,708 7 ,7 1 6 ,8 0 6 M ississippi ------41 11,393 3 ,7 2 6 ,2 9 1 M issouri ------418 7 4,620 3 5 ,4 4 6 ,4 2 9 N ebraska ------4V 13,278 3 ,9 8 5 ,6 0 3 New Hampshire*------17 8,857 1 ,1 3 7 ,7 1 9 New Jersey------282 87,019 3 0 ,8 7 1 ,6 4 4 New Y o r k ------447 156,660 32,820,563
O h i o ------723 227,535 5 9 ,2 0 4 ,8 2 6 Pennsylvania ------1,100 254,918 8 0 ,8 6 0 ,9 7 6 Rhode Island ------7 2,506 791,410 T en n essee ------143 40,398 1 2 ,1 2 6 ,4 1 0 U tah------11 3,108 932,801 W isco n sin ------67 18,928 5 ,6 8 1 ,6 0 5 All other states ------45,Q -127<12£ 38,160^032 TOTAL------5 ,8 6 0 1 ,4 9 6 ,4 5 6 $496,928,405 s o u r c e : linairelfli BffYteAad A ntrtaa Building Hear*/ i3:io, January, 1894, Cited bv Cashln. o p . olt.. p. 15. 22
TABLE III
GROWTH OF SAVINGS AND LOAN ACTIVITY IN THE UNITED STATES 1893-1920
Amount of mortgage Number of A sse ts Number loans made associations (billions of of hom es (thousands D ate (thousands) dollars) financed of dollars)
1893 5 .8 .50 1894 5 .9 .6 0 1895 6.0 w62 1896 6.0 .65 1897 5 .9 .67 1898 5 .6 .66 1899 5 .6 .62 1900 5 .5 .60 1 1901 5 .4 .60 5 0 ,0 0 0 $124,334 1902 5 .4 .61 5 5 ,0 0 0 137,482 1903 5 .3 .6 0 60,000 150,689 1904 5 .3 .62 60,500 151,537 1905 5 .3 .65 69,000 173,923 1906 5 .4 .69 76,000 197,244 1907 5 .5 .75 7 8 ,0 0 0 209,925 1908 5 .6 .8 0 73,000 195,047 1909 5 .7 .86 8 0 ,0 0 0 224,350 1910 5 .9 .95 87,000 260,642
1911 6.1 1.00 9 5 ,0 0 0 282,252 1912 6 .3 1.10 99,700 299,133 1913 6 .4 1.20 109,000 327,831 1914 6.6 1.40 112,000 341,647 1915 6.8 1 .5 0 114,000 351,820 1916 7 .0 1 .6 0 129,000 413,289 1917 7 .3 1.80 154,000 492,095 1918 7 .5 1 .90 145,000 480,292 1919 7 .8 2.10 210,000 693,000 1920 8.6 2 .5 0 215,000 770,000
SOURCE: Federal Home Loan Bank Board; United States Savings and Loan League. 23 and loan movement grew at a steady pace, assets passing the billion dollar mark in 1911, and the two billion dollar figure in 1919.
By 1920 savings and loan associations had almost five million members, approximately thirty per cent more than in 1900C During the period there was also a steady gain In the annual volume of mortgage loans made. The latter amounted to more than three quarters of a billion dollars in 1920, an increase of approximately 535 per cent over 1900.
There were seven states (Illinois, Indiana, M assachusetts, New
Jersey, New York, Ohio, Pennsylvania) in which the reported assets were in excess of $100,000,000. Aggregate assets for the nation rose from $0.6 billion In 1900 to over $2.5 billion in 1920, more than a 300 per cent Increase •
Expansion. Depression and Recovery. 1920-1945
At the beginning of the 1920s, savings and loan associations were about to embark upon a turbulent period of first a decade of ex pansion and then a decade of contraction and adjustment. The decade of the twenties saw a huge growth in numbers of associations and assets; but in the following decade the associations were confronted with the agonising task of adjusting to a severe contraction in economic activity In general.
The 1920s. The nation's population growth during the 1920s exceeded that of any other comparable period in its history. There was a net addition to the nation's population of 17,000,000, raising the total to almost 123,000,000 in 1930. Moreover, this was the
decade of a most important demographic change—an increasing move
ment from the countryside to the cities. More than 6 ,000,000 people
moved from farms to cities from 1920 to 1930. So large was the exodus
from the farm in the decade of the 1920s, that the farm population, for the first time, sustained a net loss, declining by 1,200,000. The
fundamental and far-reaching nature of this change in the American
social structure can be comprehended when it is noted that in 1900
nearly 60 per cent of the American population resided in the country and
in small towns under 2,500; by 1930, only 44 per cent lived in rural
a r e a s .
The decade of the 1920s was a period of general expansion, a
major stimulus to which was the growth Iin the construction industry 24 after 1918. A great expansion occurred in the construction of dwell
ings, essentially as a consequence of increasing urbanization and the
growth of income. In 1920, 247,000 nonfarm housing units were
Initiated. By 1922, the figure had risen to 716,000. This expansion
continued until a peak was attained in 1926, when a record of approxi
mately 970,000 non-farm dwelling units were started. It was almost a quarter of a century before this record was surpassed.
2*ArthurS. Link. American Epoch (New York: Alfred A. Knopf, 1958), p. 302.
25The 1926 record was surpassed in 1949 (see Chapter V). Given this environment, the 1920s proved to be a fertile decade
Indeed for the savings and loan business. The number of savings and loan associations Increased from 8,633 In 1920 to a peak for the decade of 12,804 In 1927, primarily in response to the demand for financing of the approximately seven million new housing units started In the decade of the 1920s and the liberal charter granting policy on the part of state supervisory authorities. From the following tables and charts It can be seen that aggregate savings and loan assets Increased from approxi m ately $8 .6 billion in 1920 to $11.8 billion by the close of the decade.
Similarly, the annual volume of mortgage loans Increased from $770 million in 1920 to $1.85 billion in 1929, having reached a peak of $2*1 billion in 1927. The essence of this growth can be gleaned from selected items in Table IV.
The 1930s. The increasing speculation of the late 1920s culmi nated in the stock market crash in October, 1929, and ushered in a series of events which induced a depression in the American economy. 26
The confidence of the business community was severely shaken, finan cial institutions were weakened, and there was a severe diminution of industrial activity in general. One of the barometers of economic decline was the increasing frequency of bank and business failures. Between
1921 and 1929 approximately 5,400 failures occurred. In 1929, 659 banks
^6John K. Galbraith, The Great Crash. 1929 (Houghton Mifflin, 1925), pp. 1 -212. 26
TABLE IV
GROWTH OF SAVINGS AND LOAN ASSOCIATIONS IN THE UNITED STATES, 1920-1930
Amount of Number of mortgage Number of A ssets hom es loans made associations (b illio n s financed (m illions D ate (thousands) of dollars) (thousands) of dollars)
1920 8.6 2 .5 0 215 770 1921 9 .3 2 .9 0 190 693 1922 10.0 3 .3 0 250 900 1923 10.7 3 .9 0 360 1,206 1924 11.4 4 .8 0 425 1,460 1925 12.4 5 .5 0 503 1,760
1926 12.6 6 .3 0 550 1,945 1127 12.8 7 .2 0 603 2,110 1928 12.6 8.00 615 2,153 1929 12.3 8 .7 0 500 1,850 1930 11.8 8 .8 0 350 1,300 m
SOURCE: Federal Home Loan Bank Board; United States Savings and Loan League. 27
having deposits of almost $250,000,000 failed; In the following year
1,352 banks failed with deposits of $853,000,000. As the crisis
worsened In 1931, 2,294 banks with deposits of approximately
$1,700,000,000 closed. With the assistance of the Reconstruction
Finance Corporation In 1932, only 1,456 banks with deposits of nearly 27 $750,000,000 failed. During four years, 1930-1933, not less than
9,000 banks closed. Equally dismal from 1829 through 1932 were the
109,371 commercial failures, having aggregate liabilities of approxi
mately $3,000,000,000. The confidence in the future of business
activity and of financial Institutions reached a low ebb.
These events and expectations about the future had serious re
percussions upon savings and loan associations. For the second time
since their founding there was a general decline in savings and loan
business. Heavy withdrawals were common, because of both a diminu tion of confidence and the necessity to supplement declining personal
incomes. The disruption of normal commercial banking service further depressed savings and loan activity, especially by freezing savings and loan deposits in commercial banks in many instances.
The magnitude of these contradtionary developments can be seen in Table V below.
The recessions of 1896-97 and 1929-33 are the only ones in the history of the building and loan movement which tended to reduce the
27Link, op. cit., p. 359. 28
TABLE V
GROWTH OF SAVINGS AND LOAN ASSOCIATIONS IN THE UNITED STATES/ 1930-1940
* = = Number of Associations Amount of Jftpm anfli) ______m ortgage A ssets loans made State Federally Total (m illions (m illions D ate Chartered Chartered Assns of dollars) of dollars)
1929 12,342 12,342 8,695 1,791 1930 11,777 11,777 8 ,8 2 9 1,262 1931 11,442 11,442 8 ,4 1 7 892 1932 10,997 10,997* V,750 543 1933 10,668 59 10,727 6 ,9 7 8 414 1934 10,280 639 10,919 6 ,4 5 0 451 1935 9 ,5 4 9 985 10,534 5 ,8 8 9 564
1936 9,044 1,212 10,256 5 ,7 4 2 755 1937 8 ,3 3 4 1,328 9 ,7 6 8 5 ,712 897 1938 77,583 1,368 8,951 5 ,6 3 0 798 - 1939 6,918 1,410 8,324 5 ,6 7 4 986 1940 6,293 1,445 7,738 5,795 1,200
SOURCE: Savina and Home Finance Source Book. 1954 (Washington, D. C .: Horaa Loan Bank Board), p. 6; U. S. Bateau of tha Census, Historical Statistics of the United States. 1789-1945 (Washington, D. C ., 1949), p. 175; Bodfish. op- cit.. p. 136. Savinas and Loan Fact Book, and Savinas and Loan Annals. 1959 (Chloago: United States Savings and Loan League, 1959), p p . 38—64•
* Federal Home Loan Banks opened for business. 29 total assets of savings and loan associations. But the effects of the latter recession were by far the more severe. Both the number of associations and the aggregate assets declined during the entire decade of the 1930s.
The number of associations and the annual volume of home mortgage financing began to decline after 1929. However, in its first years, the depression of the 1930s had very little immediate effect upon
savings and loan assets. Table V shows that it was 19%2 before the decline in economic activity seriously influenced savings and loan assets. By 1932 the number of associations, the dollar value of assets, and the annual dollar volume of mortgage loans were all declining •
Considering net assets, there was about a thirty per cent decline in assets from 1931 to 1939, more than half of them either transferred to 28 other associations or voluntarily liquidated. The behavior of savings
and loan association failures and approximate losses are shown in
Table VI below.
Federal Legislation in the 1930s
The havoc wrought by the "Great Crash" among savings and home
financing Institutions compelled Congress to take action. Consequently, the Federal Home Loan Bank System was created by the Federal Home
28Savlngs and Loan Principles, o p . cit.. p. 33. 30
TABLE VI
SAVINGS AND LOAN ASSOCIATION FAILURES AND ESTIMATED LOSSES, 1920-1945
Number Number Total liabilities Estimated of Assns. Failed Sailed Assns. ______Loss
8,633 2 $ 506 1921 9,255 6 9 1,547 1922 10,009 4 158,674 1923 10,744 9 132,612 1924 11,844 18 398,245 1925 12,403 26 500,000
1926 12,626 12 380,725 1927 12,804 21 1 ,0 1 3 ,0 0 0 1928 12,666 23 56 8 ,0 0 0 1929 12,343 159 2,312,626 1930 11,777 190 $ 80,437,508 2 4 ,6 7 6 ,0 5 9
1931 11,442 126 6 1 ,9 0 8 ,5 2 9 2 2 ,3 2 7 ,8 4 2 1932 10,997 122 5 2 ,8 1 8 ,3 8 7 2 0 ,3 3 7 ,2 5 5 1933 10.727 88 215,516,812 43,954,547 1934 10,919 68 34,727,616 10,174,442 1935 10,534 239 31,946,235 15,782,068
1936 10,256 144 20,316,197 9,051,583 1937 9 ,7 6 2 269 4 4 ,7 3 8 ,7 4 7 1 5 ,7 7 5 ,0 9 6 1938 8,951 277 3 6 ,0 2 4 ,8 7 4 1 1 ,2 8 1 ,2 4 6 1939 8 ,3 2 8 183 8 4 ,9 0 0 ,8 4 0 2 0 ,0 4 0 ,2 2 5 1940 7,839 129 69,559,865 6,743,643
1941 7 ,207 44 8,575,580 1,052,231 1942 6 ,806 18 8,918,951 1,789,291 1943 6 ,517 11 1 ,4 8 3 ,9 3 7 260,777 1944 6 ,299 5 2,502,835 154,924 1945 6,163 0 0 0
United States Savings and Loan League; Federal Home Loan Bank Board; Housing and Home Finance Agency • 31
Loan Bank Act, July 22, 1932,29 The future of the savings and loan
movement was profoundly affected by the establishment of this system.
The contributions of the Federal Home Loan Bank System to savings and
home financing are noted by Dlstelhorst as follows:
The economic environment of the early and middle 1930's provided an Immediate opportunity to the Federal Home Loan Bank System to demonstrate Its usefulness. The heavy withdrawals of savings In that period had all but dried up the supply of home mortgage funds. By advancing to Its member savings and home financing Institutions, this reserve credit system did more than make new funds available for home loans. It made funds available to meet withdrawals of savings promptly, thereby helping to restore confidence in Its member savings Institutions and attracting a new flow of savings . 30
The System was created to provide a central reservoir of credit
for savings and home financing Institutions. It opnsists of eleven
regional reserve banks known as Federal Home Loan Banks. The
System Is governed by a board known as the Federal Home Loan Bank
Board. The function of the Banks Is to make additional cash available
to member Institutions when needed to help them maintain their liquidity
and supplement their funds for mortgage lending. The Home Owners Loan
Act of 1933 gave the Federal Home Loan Bank Board chartering authority
and supervision over Federal Savings and Loan Associations, which must be members of the System. State chartered associations are members by
29 Link. op. cit.. p. 372.
^^Dlstelhorst, o p . o l t . . p . 139. 32
choice. There has been a continuous and constant increase in FHLB
membership since 1933.
The Home Owners Loan Corporation was created in 1933 to re
finance the mortgage loans of distressed mortgage debtors with long
term, amortized, low-interest loans. In addition, the HOLC bought
share-accounts in existing savings and loan associations. The United
States Treasury and the HOLC combined Invested $273.2 million in 1,400
applicant associations from 1933 to 1950, thereby aiding substantially
the recovery of the savings and loan Industry Unlike the FHLB System,
the HOLC was a temporary venture designed as a rescue program. It
expired in 1950, when its remaining portfolio of mortgage loans was sold
to prteate institutions.
Congress further contributed to the restoration of confidence by
creating the Federal Deposit Insurance Corporation in 1933. In 1934,
Title IV tvas added to the National Housing Act of 1933, providing for
the creation of the Federal Savings and Loan Insurance Corporation.
This institution extended to savings and loan associations protection
similar to that given to commercial bank deposits by the FDIC. The
FSLIC operates under the supeiMaion of the FHLB Board. The Corporation
insures share-accounts up to $ 10,000 for each investor's account in each
Insured savings and loan association. A settlement of accounts beffas
^ ^Savinas and Loan Associations (New York: Research Council American Bankers Association, February, 1958), p. v. 33 whenever an association is proclaimed in default by the appropriate authorities and ordered to be liquidated (See chapter IH).
The depression experience produced changes and adaptations In the savings and loan business proper as research revealed the causes
of their difficulties. Under the influence of federal charter provisions
enacted by Congress In 1933, tnd the sponsorship of savings and loan
leagues, greater flexibility and uniformity were provided in state laws governing savings and loan associations. Another significant Innova tion Was provided:
During the period, the associations changed their method of making loans to the direct reduction plan. This Is the plan which provides for the direct application of the principal portion of the monthly payment to the balance of the loan each month. Prior to this time all loans, while amortized, had been credited periodically with the accumulation of principal In a savings account. This plan, now superseded by the direct reduction plan, was known as the share account-sinking fund loan plan. The direct reduction loan pbui Is the most desirable from the borrower's standpoint.
The WflTYWff Under the Impetus of these innovations and Improvement in general business conditions, the savings and loan business gradually recovered, beginning slowly at first In 1938 and not achieving an accelerated pace until after 1945. There are many reasons for the slow growth during the period 1941-45, even though personal Income rose considerably and
32 8avlngs and Loan Principles, o p . cit.. p. 34. 34
savings ware enormous. There are two basic reasons: First, personal savings were channeled into United States Savings Bonds. Largely under the Influence of patriotic motivation, savings bond Investment rose from approximately $2.8 billion in 1940 to $46.2 billion in 1947 and leveled off at approximately $50 billion or less thereafter in the postwar period. Second, the total number of housing starts declined from
602,600 in 1940 to a low of 141,800 in 1944. Even with rising home prices and a growing share of home financing by savings and loan associations, the dollar value of mortgage loans made by savings and loan associations during the period remained approximately constant.
The Postwar Years
The postwar years saw the fruition of a century and a half of savings and loan experience in a rapidly growing demand for their services and assets. With the possible exception of Mutual Funds and credit unions, which are of relatively inconsequential magnitude, savings and loan associations have grown more rapidly in the postwar pariod than any other financial intermediary. The magnitude and scope of this new era of expansion is to be observed in Table VII below.
Association assets have increased from about $4.7 billion in 1945 to over $67 billion In June, 1960—over a fourteen hundred per cent increase In twenty years. For seven consecutive years, 1953-60, asset growth has exceeded $5 billion per year. (Figure 2 depicts the behavior of assets from 1900 to 1959.) Annual mortgage loans have exceeded 35
TABLE VII
GROWTH £>T SAVINGS AND LOAN ASSOCIATIONS IN THE UNITED STATES, 1941-1960
Number of: Associations Amount of ______( t o u a r a i i ) ______mortgage A ssets loans made State Federally Total (millions (millions D ate Chartered Chartered Assns. of dollars) of dollars)
1941 5/751 1,456 7,207 6,053 1,379 1942 5,342 1,464 6,806 B, 199 1,051 1943 5,045 1,466 6,511 6,593 1,184 1944 4,836 1,464 6,299 7,480 1,454 1945 4,696 1,467 6,163 8,794 1,913
1946 4,643 1,471 6,114 10,195 3,584 1947 4,586 1,478 6,064 11,725 3,811 1948 4,536 1,485 6,021 13,067 3,607 1949 4,485 1,508 5,993 14,605 3,636 1950 4,421 1,526 5,947 16,885 5,238
1951 4,387 1,549 5,936 19,174 5,250 1952 4,360 1,581 5,941 22,667 6,617 1953 4,395 1,605 6,000 26,625 7,767 1954 4,390 1,640 6,030 31,633 8,969 1955 4,365 1,683 6,048 37,656 11,432 ltftS 4,397 1,739 6,136 42,875 10,545 1957 5,397 1,772 6,169 48,183 10,402 1958 4,393 1,807 6,200 55,075 12,346 1959 4,389 1,841 6,230 63,472 15,463 1960 * 6 7 ,2 0 0 **15,320
SOURCE: United States Saving and Loan League; Home Loan Bank Board; Housing and Home Finance Agency; Savings and Loan News.
* June 1960 **May 1960 ASSETS, BILLIONS OF DOLLARS IUE AIG AO ON SES 1900-1959 ASSETS, LOAN ANO SAVINGS - 2 FIGURE ORE UIE SAE SAVINGS STATES UNITED SOURCE: OE ON AK BOARD. BANK LOAN HOME AND LOAN LEAGUE; FEDERAL FEDERAL LEAGUE; LOAN AND $10 billion for six successive years, 1954-1959. Moreover, savings
and loan associations have grown in favor with the public as a
depository of savings. More than 50 per cent of the volume of the
passbook-type of savings since 1955 has found its way into savings 33 and loan associations. This means that from 1955 to 1959 savings
and loan associations have experienced an Increase in savings greater i than commercial banks, mutual savings banks, and credit uniM i com
bined. At the end of 1959, the combined mortgage portfolio of savings
and loan associations exceeded $56.3 billion, after a net gain of $7
billion in mortgages during 1959. During 1959 savings and loan
associations accounted for the largest share of aggregate home financ
ing In their history, an unprecedented 40 per cent.
IV. SUMMARY
Today, one hundred and twenty-nine years after the first savings
and loan association was founded in Frankford (now part of Philadelphia),
Pennsylvania, there are more than 6 ,000 savings and loan associations, one or more in virtually every urban center, in the United States and Its territories. like their precursors, they are essentially local in opera tion and still specialize in the promotion of their original purposes of encouraging thrift and home financing activities. These institutions
33Savinas and Loan News (Chicago: United States Savings and Loan League, July, 1960), pp. 46-4V. have throughout their entire existence filled a basic need In our economy—the promotion of thrift and cooperative financing of home construction in a growing nation where there were no other specialized financial institutions catering to the wage-earning class. The growth of savings and loan associations was slow at first, but in the post
Civil War period their growth was steady, as these new institutions made adjustments and adaptations to an evolving environment. Their first minor setback occurred In 1897, but In 1904 they entered a period of steady growth, which accelerated In the 1920s.
The decade of the 1930s was a period of M cline for the savings and loan business. However, there were some developments which laid a firmer foundation for later growth. The Federal Home Loan Bank
System and The Federal Savings and Loan Insurance Corporation were created and aided the recovery of the savings and loan business.
Recovery among savings and loan associations was slow until 194S, after which time their growth was pronounced. The last five or six years (1955-60) were record years of growth for the savings and loan b u s in e s s .
A basic factor In the continued growth of savings and loan associations derives from their ability to adapt to new conditions.
Chapter in will outline the historical and present characteristics of savings and loan associations.’ CHAPTER III
THE NATURE OF SAVINGS AND LOAN ASSOCIATIONS
Savings and loan associations are highly specialised institutions
devoted to encouraging thrift and home ownership. Their nature and
purpose, conditioned by time and circumstances, are fundamentally
different from those of other principal financial intermediaries . A
major factor in the continued growth and development of savings and
loan associations is their specialized nature. The purpose of this
chapter, therefore, will be to elucidate the nature and purpose of
savings and loan associations, both in their historical and current
manifestations *
The building and loan association is the oldest form of coopera
tive credit institution in the United States . 1 It is evident that any
institution surviving for over a century and a quarter must adapt to
emerging circumstances, even if fundamental modifications are neces
sitated. During the 129 years of building and loan activity in the
United States, the following developmental phases are apparent in the organisational and functional development of savings and loan associations. These phases are, in the order of their appearance,
Harold G. Moulton, Financial Organisation and the Economic System (New York: McGraw-Hill Book Company, Inc., 1938), p. 456. 40
the terminating plan, the aerial plan, the permanent plan (with or
without the Dayton oharaoteriatlca), the era of the "Nationals," and
the permanent capital plan. It should be noted that these plans may
overlap. For example, while the permanent plan is the most extensive,
the serial plan is still In operation in some states. Moreover, a given
association may have both serial and permanent shares.
I . THE EMERGENCE OF THE BASIC FORMS
Plan The original form of building and loan associations, the terminating plan, was essentially a homebuilder's club. The terminating association derived its name from the fact that the asso ciation was dissolved when the objective which brought it Into being had been attained. The building association was a device whereby a group of Individuals could pool their financial resources, thereby forming a fund accessible for member borrowing to buy or build a house. When the shares of stock matured the association was terminated. All stock was given the same date and maturity. New members to the association had to pay back dues, plus a special fee, for equal standing with the original subscribers. Funds were apportioned among members by auction.
Near the termination date, however, when an eaoess of borrowers was no longer available, the remaining funds were apportioned by drawing lots. If those chosen by lot did not wish the loan, they had to take it 41 2 anyhow or else find someone who would. This was a serious disad vantage of the terminating plan. It should be noted that the automatic termination of the association when the stock matured was debilitating, because accumulated business experience, goodwill, etc., were dissipated immediately upon diseolutlon.
The Serial Plan
The serial plan was in evidence in the early 1850s. The Oxford
Provident Association in January, 1854, elected to issue stock in a 3 series. The basic distinction between the terminating and the serial plan is that under the latter plan several series of stock are issued at given intervals. Dues In the terminating associations were payable at the time of the stock issue, and the maturity dates of the several stock issues varied. It was the issue of a new series that insured the con tinued existence of the association. New members in this plan had to pay back dues only from the beginning of the last series. Since new members were continually entering, the association was relieved of the necessity of forcing loans upon the members at given times. Dues under the serial plan were paid periodically, with fines for delinquency.
Numerous techniques, such as membership fees, withdrawal fees and
2H. Morton Bodflsh, History of Building and Loan In the United States (Chicago: United States Building and Loan League, 1931), p. 86.
Savina Loan Principles (Chicago: American Saving and Loan Institute Press, 1957), p. 25. 42
fines, were used to Induce members to continue payment until the
shares matured. The accumulated earnings of the association were
distributed to the shareholders in proportion to the number of shares
h eld.
A most significant corollary development evolved during the rise
of the serial plan. The promotion of saving came to be recognized as being important per se. A depositing membership plan emerged under which a depositing member joined the association, not expecting to borrow and build, but for the return on the deposit.* The development of the saving member was a significant breakthrough in the savings and loan business. This differentiation and specialization of the saving and the loan function made the savings of all people everywhere fair game. No longer were the associations restricted to that local group who wished to pool their resources and build homes.
The serial plan was an improvement upon some of the inherent defects of the terminating plan. It capitalized good will and insured the continuity of the association. Hence the serial plan tended to supplant the terminating plan. Bodflsh notes the dominance of the serial plan:
The generalization may be safely made that the serial form quite completely dominated the building and loan picture until the entrance, upon a wide scale, of the permanent plan about 1880, but even the entrance of this new form did not remove the serial type organization from
* Moulton, op. c it.. p. 457. 43
the field. It continues today (1931) to dominate the field in many states and to have a wide usage generally throughout the country.5
Emergence of the Permanent Plan
Dissatisfaction with the serial plan manifested Itself early in the post-Civil War period. Most of the dissatisfaction emanated from the following: (1) Many of the association executives wished to sell shares and make loans at any time, rather than at regular weekly or monthly periods; (2) they also wanted to stagger maturities over a more continuous basis which would make possible payment out of regular collections rather than at quarterly periods, which necessitated borrowing from banks; (3) the larger associations found the serial accounting system Increasingly difficult as accounts grew in size and number.5 Hence, these considerations gave rise to the permanent plan type of organization with the advent In 1880 of the Mutual Home and
Savings Association of Dayton, Ohio.
Features of the Permanent Plan. The payment of large sums when the maturity of a series occurred and the periodic issue of stock were eliminated with the rise of the permanent plan. Shares were issued at any time and the accounts of individual members were kept separately.
Net earnings were distributed as a dividend, conventionally semi annually, relative to member accounts.
sBodfish. on. cit., p. 88.
6Bodflsh, op. c it.. p. 92. 44
Significant innovations in the permanent plan were made by the
7 Dayton Association. The basic innovations were the use of optional payment shares and paid-up stock, withdrawals being permitted without the heavy penalties of the other plans • Members were per
mitted to subscribe to shares at any time and in any amount upon the
payment of dues , and withdrawals were usually permitted to the extent of all dues paid-in and dividends earned. The paid-up stock feature
originated in Dayton and is now in general use. The Dayton Plan also
abolished the premium charge associated with loans, in lieu of which
"the borrower was required to pay a fixed minimum sum per share per week or month out of which interest or other charges were deducted a and the balance applied as dues on the maturity of the share." The
United StateB Savings and Loan League encouraged the demise of the
premium and went on record as follows:
Whereas the premium, whether gross or installment, is simply an extra interest charge imposed upon the borrower, and whereas its use heretofore has proved a stumbling block in the path of building associations, by complicating an otherwise simple plan and rendering it almost impossible of comprehension; be it RESOLVED, that it is the sense of this United States League that all newly organized homestead associations should charge interest only, and that all old associations should so modify their by-laws as to do away entirely with the feature of premium.®
7Savino and Loan Principles . o p . cit.. pp. 28-29. g Bod fish, op. c it.. p. 94. 9Bodflsh, ££. cit., p. 97, citing Proceedings of the United State* League, 1901, p. 160. 45
Subsequent to 1901 there was general abandonment of the premium p ra c tic e .
The permanent plan abolished the practice of assessing of fining shareholders for delinquency in dues. Fines have been continued, however, for delinquent borrowers. Another deviation was in the treatment of matured shares. Under the serial plan the matured shares were paid in cash and the Investors had to go elsewhere to invest, but eventually the argument in favor of retention of the matured shares became accepted. It was only a small step to the issuance of full-paid shares, which is a feature of associations in every state at p re se n t.
The practice of maintaining a contingent reserve fund is asso ciated with the development of the permanent plan. The semi-annual crediting of dividends to individual accounts increased the desirability of such a fund. It therefore became the practice at each dividend period to set aside a percentage of the profits as a contingency fund. Some state laws require as much as 5 per cent of net profits to be so set aside. The decade of the 1890s was filled with much pro and con discussion of the reserve fund. Finally, in 1907, the United States
League passed the following resolution:
W hereas, several states provide by statute for a small reserve or contingent fund for building and loan associa tions, and this action meets the approval of this League;
10Bavlnas and Loan Principles, fifi.. pp. 28-29 46
therefore be It RE80LVED, that at each distribution of the profits, a certain amount not exceeding five per cent of the same should be set apart for the establishment of a reserve fund, until such fund shall reach an amount not exceeding five par cent of its total assets.11
This feature has contributed immensely to the stability of the savings and loan associations, and at the present time It Is widely used.
Another development In this respect was the establishment and main* tenance of an undivided profits fund which the recession of 1907*06 revealed as necessary. Where permitted by law, associations have generally established such funds. The resulting stability of the current rate of dividend has added strength to the associations.
The safety and the simplicity of the permanent plan and the innovations of the Dayton Plan were favorably received, and a new interest was manifest in savings and loan associations.
The National Associations. 1867-1897
By the middle of the last quarter of the 19th century the savings and loan business had grown significantly and was highly regarded by
Investors. It was in this era of enthusiasm for the local associations that the national associations emerged in 1887 and then declined spectacularly after reaching a peak In 1897.
The "Nationals" were dedicated to the Idea of taking money from areas where It was more plentiful and Investing it anywhere In the nation.
11Bodflsh. o p . olt.. p. 98. 47
They launched a campaign to exploit and monopolise the savings and loan business. The "National Building, Loan and Protective Union"
In Minnesota was the first "National." Between 1887 and 1896 twelve national associations were established In Minnesota, and these asso ciations established branches or local boards throughout the states.
The methods employed In the sale of savings and loan stock by the
"Nationals" are described by Bodfish as follows:
. . . A crew Invaded a small town and established a branch with a local board, generally composed of persons of some prominence, Including a banker and an attorney whose aid was enlisted by the promise that the local business would be thrown their way. It was announced that this "National organisation" had come to the town to place a large sum of loans at once. This helped allay suspicion, so that the promises of large returns did not frighten away investors as much as might be supposed* In addition, many of the citizens were potential borrowers and so subscribed to shares In the hope of securing loans.12
It was a common practice to enlist prominent men In these enter prises. Sometimes they were unscrupulously exploited. Cashln notes this instance:
• . . His name president G. Percival Steward/ and influence has been used to an extraordinary degree in bolstering up and advertising the association. He It was who, as President, deposited his personal check with the association as a guarantee to stock holders that all its promises should be fulfilled. This was photographed, and these photographic copies were circulated freely throughout the country in the hands of agents. It is reported that It proved a winning card In securing new subscribers. The eloquent agent was able to convince many unsophisticated
12Ibid. . p. 103-104. 48
people that the Granite State was all right beyond a doubt or the president would nevv risk $100,000 of his own money in guaranteeing it.
Many of the "Nationals" were outright frauds; however, others were started apparently by men of integrity. The "Nationals" grew at
first and, in the period 188? to 1897, collected $250,000,000 and
loaned $150,000,000.14 It can be observed from Table in , Chapter HI
that the total assets of all building and loan associations amounted to
approximately one-half billion dollars. Thus the "Nationals" made
significant Inroads into the savings and loan business.
An inevitable clash between the locals and "Nationals" occurred.
In consequence, the locals organized the United States League of
Building and Loan Associations in 1893, essentially to fight the
"Nationals." The National Building and Loan Herald was the instru
ment used by the "Nationals." The struggle was a bitter one, with
the "Nationals" trying to convey the impression that their real opponents were Insurance companies, commercial banks and the "Wall Street
crowd," whereas their aim was to help the small saver.
The small saver, however, did not fare so well. A poignant
Instance is found in the following:
. . . I joined a "National" building and loan associa tion in order to secure a loan. For the high and mighty
*3jack W. Cashln, History of Savings and Loan in Texas (Austin: Bureau of Business Research, College Business Administration, University of Texas, 1956), p. 17. 14 Bodfish. on. cit.. p. 105. 49
privilege of being a member of one of these grandiloquent associations 1 had to pay the modest sum of $10 on twenty - five shares and monthly payments of $ 15. For reasons satisfactory to themselves, and of which I will not com plain, the loan was so long delayed that I finally concluded I did not want it, but I did want the money I had paid in, and how to get it was the question, and the further 1 in quired, the more serious it became. First, 1 found that I could not withdraw under one year without paying the forfeiture of all I had paid in; second, that I must continue to pay in my $ 15 per month until the end of the year or it would "lapse"; third that, even if 1 stayed in, I could get neither interest nor profits under two years; fourth, I learned that after the expiration of the twelve months they could hoCB back my money for sixty days longer, which they actually did. At last, after fourteen months from my first payment, we had a settlement. I had paid in in actual cash: Membership fee ------$ 10.00 Twelve payments of $15 each 180.00 TOTAL ------190.00 The association returned ------147.00 Showing a clear loss to me of------4 3 .0 0 Interest on $190 for average time @ 6% for twelve months would b e ------5 .7 0 And for $190 for full two months @ 6% ...... - ...... 1.23 TOTAL LOSS------$ 49.93
Leaving out the question of Interest I had to pay them 22 1/2 per cent of my money for the time it was in their possession. *5
The local associations were tenacious in their struggle with the
"Nationals," and many state laws were passed which were designed especially to curb some of the activities of the "Nationals." The
Comptroller of the Currency in 1893 employed the National Banking
Act of 1863, which enjoined the use of the word "national" in the title
l5Cashin, on. cit.. p. 18 50
of a financial organization not organized under the Act. In some of the
states, the state leagues of building and loan associations induced
the banking commissioners to make investigation into the activities
of the "Nationals." One of these reports*® emphasized some funda
mental distinctions between the "Nationals" and local associations:
(1) the "Nationals" used solicitors to secure most of their business,
while the locals employed no agents; (2) the "Nationals" sought to do
business throughout the nation, while locals confined their operations
to the Immediate locality; (3) the "Nationals" took from eight to ten
cents out of every 60 cents paid in for an expense fund while locals
did not take any of the monthly payment for expenses. The flavor of
the report can be shown in the following:
While the so-called local building and loan associa tions offer to their patrons the advantage of cooperation and benefits of economy and thrift, the so-called nationals, although Identical in purpose seem to deprive their patrons of the very objects for which building and loan associa tions are organized. The strictly national building and loan associations of California are organized and conducted mainly for tflhe benefit of managers whose promises to their patrons are very doubtful to fulfillment and whose methods are illegitimate to say the least. 17
The "Nationals" declined precipitously after 1896 for a number of reasons. Many of the national associations were unquestionably
1®Bodflsh. o p . c i t . . p . 114.
17IbU s' c^ing a Report on National Building and Loan Associa tion. Board of Bank Commissioners, Sacramento, California, February 18, 1892. 51 fraudulent and apparently organized as "schemes." Their stock was often misrepresented and sold to naive and ill-informed buyers. The
"Nationals" did not conform to the financial conservatism of the traditional savings and loan associations. Their malpractices—result ing in disclosures of fraud, attack from the locals, heavy losses of
Investors—finally subjected them to harassment from state authorities.
The era of the "Nationals" had some detrimental effects on the savings and loan movement. However, beneficial results in the form of the United States League and state regulations and supervision can be noted. Strangely enough, the building and loan movement seems to have become a healthier industry because of the "Nationals" and the reaction to them.
The Permanent Capital Plan. 1890
A more recent plan for organizing and operating a building and loan association is probably best described as the permanent capital plan. Under this type of plan there is a nonwlthdrawable class of stock which is acquired by the founders; however, the founders may subsequently sell the stock to other investors. These stockholders have specific contractual liabilities to all other members of the associa tion. The stock has a variety of designations such as guaranty, per manent, nonwlthdrawable, contingent-re serve, or reserve-fund stock.
The first appearance of this type of plan was in the Northwestern
Guaranty Loan Company established in Minneapolis in 1884. From 52
here the practice spread to California, Kansas, Oregon and other
states. It is apparent that this plan makes savings and loan associa
tions more like a corporation and less like a mutual. There is no
specified dividend associated with permanent stock. However, as
the association grows and prospers, It is apparent that the dividend
rate may possibly be greater than the rate paid on ordinary stock. It
should be noted that there may be no dividend at all in the early years.
As to the motivation for the use of such stock, Cashin observes that:
It is probably impossible to ascertain which of the reasons accounts for the use of a permanent stock plan: the desire to provide a better protected investment for the ordinary stockholders or the desire to provide a high yield from the investment of the original organizers. The latter is probably the stronger motivating force even though the former is automatically achieved when permanent stock represents a large enough percentage of all stock.
Many states make it possible for all or a majority of the board
of directors to be selected from among the permanent stockholders.
Thus, control by a relatively small group is possible, since permanent
stock is as a practice not widely owned. Although all members have the right to vote for the directors, they would be restricted in their
choice according to this practice. Of the four preceding plans dis
cussed, the permanent plan and the permanent capital plan appear to be most advantageous for both organizers and future investors. From a
purely administrative point of view, the permanent stock plan makes
lfi xoC a s h in , o p . cit.. p. 23. 53 control and sound management more feasible. Founders would probably prefer the plan, since there is always the Inducement of potentially large dividends on permanent stock. The permanent plan, on the other hand, seems to favor the saver. The permanent plan places all shareholders on a par, by permitting them to share equally in dividends, by permitting greater freedom in election of directors, and by making them equally eligible for directorships.
The following states have associations with permanent, reserve or guaranty stock: Arizona, Arkansas, California, Colorado, Kansas, 19 Nevada, Oregon, Texas, Utah.
n . CONTEMPORARY CHARACTERISTICS
The first savings and loan associations took a form very similar to a partnership. In subsequent years, however, they gradually assumed the corporate form, and as time passed, the various states evolved laws providing for the general regulation of savings and loan associations. The significance of the corporate form for savings and loan associations should not be overlooked. For example, it makes it possible for members of savings associations to enjoy "limited" liability. Since 1933, when Congress enacted the Home Owners Loan
Act, there has been a dual system of savings and loan associations,
"Assets and liabilities—All Operating Savings and Loan Associations." Trends in the Savinas and Loan Field (Washington: Federal Home Loan Bank Board, 1959), pp. 9-14. 54
with 4,393 state chartered institutions and 1,807 operating under
federal charter at the present tim e.2® The various states provide laws
governing incorporation. Federally chartered associations secure their
charter from the Federal Home Loan Bank Board.21 The federal charter
ing system and the activities of the United States Savings and Loan
League have contributed to the uniformity of organization and operation
of these institutions in recent decades.
C h a rte rin g
It commonly requires five or more responsible citizens of a com
munity to organize a new savings and loan association. There are
certain other requirements that must be met, such as the good character
and responsibility of the applicants, community need, probability of
success, and likelihood that its operation will not unjustly affect similar existing institutions. Generally, a given number of members must subscribe to a minimum amount of capital in the form of savings 22 and Investment accounts. Federally chartered associations must be members of the Federal Home Loan Bank System and the Federal Savings
2 °8avlnas and Home Financing Source Book (Washington: Federal Home Loan Bank Board, 1960), p. 11. 21 For Federal Chartering Requirements, see Rules and Regulations for the Federal Savings and Loan Associations (Washington; Federal Home Loan Bank Board, 1960), p. 71.
22Herbert V. Prochnow, American Financial Institutions (New York: Prentlce-Hall, Inc., 1951), pp. 126-156. 55
and Loan Insurance Corporation. In some of the states, membership in the Federal Home Loan Bank System and the Federal Savings and Loan
Insurance Corporation is a condition of chartering. Currently, associa
tions may be categorised as follows:
1. Federally-chartered, insured. FHLB member associations.
Federally-chartered associations are required by law to Insure
their accounts with the FSUC and to become members of their
regional Federal Home Loan Bank.
2. State-chartered, insured. FHUB member associations. State-chartered associations may become FHLB members and FSUC insured upon application and approval of the Federal
Home Loan Bank Board.
3. State-chartered, non-insured. FHLB member associations.
State-chartered associations may upon application and approval
become members of a FHLB without joining the FSUC.
4. State-chartered, non-insured. non-FHLB member associations.
State-chartered associations that are not members of a regional
FHLB may not Insure their accounts with the FSUC.
As of December 31, 1959, 97.1 per cent of savings and loan assets were held by FHLB members, 93.8 per cent by Insured associations, and 54.1
per cent by federal savings and loan associations.23
The original federal charter regulations promulgated in 1933, although promoting stability and uniformity, contained some shortcomings.
23Source Book, on. cit. . p. 11. 56
For example, they provided for four kinds of shares and retained with
drawal penalties. In 1936, these federal regulations underwent
comprehensive revision. The new charter form (Charter K, the original
known as Charter E) provided for only two types of share accounts—
savings share accounts and Investment share accounts. Again in 1949
comprehensive charter revisions designed to simplify regulations and
provide more flexibility than was provided In Charter K were undertaken
in Charter N. The Charter N provisions were revised by Charter K
(revised) on the order of the Federal Home Loan Bank Board on
December 18, 1953. At present, new associations nay be chartered
under either Charter N or Charter K. 24
OwnTflhlP w d Ygttng Almost all savings and loan associations are “mutually" owned.
In 1956, for example, 5,673 of the 6,100 associations, or 93 per cent,
were mutually owned; only 427, or 7 per cent, were of a different type 25 of ownership. The holders of accounts and the borrowers are con
sidered owners and have the right to vote in the selection of the
directors of the association. Both state and federal regulations em
bodied in statutes generally provide that savings members be entitled
24 R u les, o p . c i t . . p p . 7 -1 8 . 25 Horace Russell, "The Characteristics of Savings Associations," BaVlnas and Loan Principles (Chicago! American Savings and Loan Institute Press, 1957), p. 40. 57
to one vote for each $100 balance, the maximum number of votes to
which one is entitled being generally limited to fifty votes. In the
states permitting the purchase of Investment shares of ownership with
specific maturity values (usually $100) through an installment savings
plan, voting is relative to the number of shares. Some states limit the
number of investment shares that one person may purchase. Borrowing
members are generally accorded one vote.
Character of Portfolio
Another insight into the nature of savings and loan associations
can be had by viewing the kinds, amounts and percentage distribution
of their assets and liabilities.
The principal assets of savings and loan associations, as shown in
Table VIII, are as follows:
First Mortgage Loans. Savings and loan associations' basic
activity is reflected in the fact that first mortgage loans make up over
four-fifths of the total assets of the associations. The preponderance
of these mortgage loans require monthly payments of interest and
amortization of the principal. This policy Insures a steady flow of
cash into the lending institution. The steady inflow of cash repayments
on mortgages is a further contribution to the liquidity which savings and
loan associations possess as a result of holding cash and governmental bonds. As of 1959 the total mortgage portfolio of savings and loan
associations was made up as follows: Conventional mortgages, 90.6 58
TABLE VIII
AMOUNTS AND PERCENTAGE DISTRIBUTION OF ASSETS, LIABILITIES AND RESERVES, FHLB MEMBER ASSOCIATIONS, DECEMBER 31, 1959 (Amounts in thousands of dollars)
Number of associations ------4 ,5 9 9
ASSETS First mortgage loans ------$51,528,233 Other loans ------802,737 Real estate sold on contract ------118,213 FHLB s t o c k ------857,462 U.S. Government obligations ------— ------4 ,3 8 4 ,2 5 3 Other investments ------648,161 Cash on hand and in banks ------2 ,1 2 6 ,5 9 0 Office building (net) ------748,604 Furniture and fixtures (net) ------126,417 Other assets ------6 6 ,3 4 0 Real estate owned ------100,100 TOTAL A SS E T S ------$61,507,110
LIABILITIES AND CAPITAL Savings capital------$52,904,095 Advances from FHLB ------2 ,0 9 2 ,6 6 5 Other borrowed money------216,088 Loans In process ------1,303,324 Other liabilities ------511,250 Permanent stock ------8 8 ,1 7 4 Deferred credits ------161,431 Specific reserves------38,495 General reserves------3,629,689 Undivided profits------561.899 TOTAL LIABILITIES AND CAPITAL------$61,507,110
PERCENT TO ASSETS First Mortgage loans ------83.8 Cash and U. S. Gov'ts------1 0.6 Savings capital------86.0 G en . r e s . &U.P.------Gen. res. & perm. stk. ------7.0
SOURCE: Federal Home Loan Bank Board. 59 per cent; FHA mortgages, 5.4 per cent; and VA mortgages, 4.0 per cent. In the decade of the 1950s the conventional type has ranged from 80 to 90 per cent of the mortgage portfolio, the VA type from 14 per cent in 1950 to a low of 4 per cent in 1959, and the FHA type being
5.1 per cent and fluctuating from a low of 2.3 per cent in 1954 and
1957 to a high of 5.4 per cent in 1959.
Cash and Government Bonds. Cash on hand and government bonds are the basic items of liquidity for savings and loan associa tions . These items are held for withdrawals of savers and investors and for routine business needs. Generally, the liquidity requirement 27 is at least 6.0 per cent of savings accounts.
Federal Home Loan Bank Stock. Member savings and loan associa tions are required to purchase Federal Home Loan Bank capital stock in an amount equal to at least two per cent of the aggregate of the unpaid balance of their home mortgage loan holdings. Members of the FHLB
System may borrow from the FHL Banks. In the case of federally- chartered associations amounts up to fifty per cent of share accounts may be borrowed; and in the case of state-chartered associations, de pending upon the law of the particular state involved, up to twenty-five
^Source Book (Washington: Federal Home Loan Bank Board, 1960); Savinas and Loan Fact Book (Chicago: United States Savings and Loan League, 1959), p. 52. 27 Six per cent is the minimum liquidity requirement for all members of the Federal Home Loan Bank System. 60 to fifty per cent of share accounts may be borrowed.
The principal liability of savings and loan associations, as shown in Table VIII, is savings capital.
Savinas accounts comprise between 80 and 90 per cent of the liabilities of savings and loan associations. Savings accounts come in a bewildering variety. They are rendered somewhat comprehensible by viewing them in two classifications, according to type of ownership and according to the manner o< sfevlng. According to ownership, they are:
1. Individual accounts 2. Partnership accounts 3. Corporation and voluntary association accounts 4. Joint tenancy accounts 5. Tenancy in common accounts 6. Trust accounts
Savings and loan associations have developed different types of savings accounts to appeal to the savings habits of different people. They are:
1. Systematic Savina Accounts. This was the only account
available under the serial plan. Modem associations refer
to this planned type of saving as a bonus "account," because
the saver is given a higher dividend than the sporadic saver.
2. Regular Savinas Accounts. This type of account alms at that
large body of savers who have short-term savings objectives.
The regular account also appeals to those who add to their
accounts sporadically. It is the most popular type of 61
ac co u n t. 28
3. Investment Accounts. Investment accounts are designed to
attract the larger Investor with savings In lump sums,
commonly In amounts of $100.
4. Prepaid Accounts. The prepaid account is designed for lump
sum investments in any amount. Dividends are not distributed
but added to the account until the maturity value is reached.
This type of account is not in frequent use.
Beginning in 1933, federal associations operating under Charter C permitted the four types of accounts just enumerated. However, with charter simplifications in Charter N and K (revised), the savings account structure was simplified. At present "the capital of a Federal associa tion may be through payments on savings accounts. ..." Hence there is only one type of account. For the systematic saver, Charter N and
Charter K make provisions for a bonus on extra dividend. The bonus rate is 1 per cent per annum.
The charters of federal associations and the associations chartered in many of the states enjoin the labeling of share accounts as "deposits," even though they have almost all of the characteristics associated with deposits. Some states permit both share and deposit accounts. In such states a lower dividend rate is usually paid on
2®William Prather, "Savings Accounts, " Savinas and Loan Principles (Chicago: American Savings and Loan Institute Press, 1957), p . 95. 62 deposit accounts than on share accounts, but deposit holders usually have a prior claim on the assets in the event of liquidation. In actual practice, however, there is no very real distinction between savings accounts in savings and loan associations and time deposits in banks.
The laws governing savings and loan associations specify the conditions of withdrawal. Neither associations nor commercial banks, even though they do. are required to pay on demand. The majority of the laws provide that associations may require a 30 or 60 day written notice of withdrawal . ^ In the event an association invokes the notice requirement, withdrawal notices are numbered and paid out in order of filing. If a period of financial stringency prevails, the laws generally outline the withdrawal procedure to be followed. The various laws are not uniform, but usually one-third of all the receipts must be devoted to withdrawals until all written requests have been honored.
In order to alleviate hardship cases among savers, it is also frequently provided that the directors may authorise withdrawal payments up to f 100 to any one account holder in any one month without regard to the order of filing notice. It is also sometimes provided that not more than $1,000 shall be paid on account of any one withdrawal request in the order filed and that upon the payment of such an amount, any balance on notice will be renumbered and returned to the end of the list.30
29 Prochnow, o p. clt.. p. 133.
3Qprochnow , o p. c it.. p. 134; for detail procedures on withdrawal, see R ules . o p. clt., p. 11. 63
Safety of Savinas Accounts
Most of the savers utilizing savings and loan associations are vitally concerned with the safety and availability of their savings. The safety of savings Is related to insurance, management/ mortgage lending policies, reserve policies, and supervision.
Insurance Is basic to the safety of share accounts. The Federal
Savings and Loan Insurance Corporation provides this function for savings and loan associations. The associations having membership In the Federal Savings and Loan Insurance Corporation have shareholders' accounts insured up to $10,000 per shareholder; however, any given family may have as much as $30,000 insured. At year end 1959, 93.4 per cent of all savings in savings and loan associations were covered by insurance.
In the event of default by a member association the FSLIC settles all insured accounts. Default means official determination by public authority for purposes of liquidation. An association is usually not considered in default as long as one-third of its cash receipts are used to repurchase proffered share accounts. An insured account holder may have to accept partial reimbursement for an indefinite period, even though ultimate repayment up to $10,000 is assured. In the event of a default, either state or federal authorities take charge for liquidation or
^Annual Financial Report (Washington; Federal Savings and Loan Insurance Corporation, 1959). 64
reorganization. The Insurance corporation makes a determination of
the Insured members and takes action to refund up to $10,000 per
insured account In one of two ways: (1) by payment in cash, or (2) by
establishing an account of the same amount in an Insured association
in the same locality.
The premium charge is 1 /1 2 (originally 1/8) of one per cent per
annum on the total amount of all Insured accounts plus all creditor
obligations of the Insured association. The FSLIC may increase the
premium to an amount not to exceed 1/8 of one per cent if it is neces
sitated. The FSLIC, although owned by member associations, is 32 subject to regulation of the Federal Home Loan Bank Board.
Reserves, Supervision and Regulation, and Mortgage Policies
Savings and loan associations are required by law to accumulate
reserve against which losses may be charged.
In general, the requirement is that a certain minimum percentage of annual net income must be transferred to reserves for losses until such reserves (including undivided profits or unallocated reserves) are the equivalent of 10 or 15 per cent of assets, depending upon the law tinder which the association operates. 3
Federal and State authorities with administrative and supervisory authority examine savings and loan associations periodically and require
32 For complete details on the insurance of accounts, see Rules and Regulations for Insurance of Accounts (Washington: Federal Saving and Loan Insurance Corporation, March 15, 1960), p. 43.
33Prochnow, op. c l t . . p. 133. 65 them to submit operating and condition reports at least once a year.
General summaries of these reports can be found in the Federal Home
Loan Bank Board's Combined Financial Statements and in the Annual
Reports of the individual state banking commissioners. Supervision is basically to Insure compliance with legal requirements, solvency, and the integrity of management.
There are special regulations designed to Insure the solvency of savings and loan associations. The federally chartered associations and most state chartered associations are regulated as to the size of mortgage loans, amortization period of their mortgage loans, and the location of the property to be mortgaged. The loans of federal associa tions are generally limited in amount to the lesser of 80 per cent of the appraised value of the mortgaged property or $20,000, for terms up to
25 years on a monthly amortized basis, on first mortgage liens on property situated within fifty miles of the association's home office.
It is possible, however, for up to 15 per cent of federal associations' mortgage lending to be outside the 50 mile limit and the $20,000 maximum.
Moreover, FHA and VA loans for terms of more than 25 years are allowed.
Federally chartered associations that have been converted from state chartered associations are permitted to lend in the area permitted them 34 under the state charter. A summary of regulations applying to mortgage lending by state chartered associations is contained in Table DC below.
34For details of mortgage lending by Federal associations see Rules and Regulations, fife. clt.. pp. 22-31. 66
TABLE DC
MORTGAGE RESTRICTIONS FOR STATE SAVINGS AND LOAN ASSOCIATIONS
State Per Cent of Appraisal Maximum Maturity
Alabama no restrictions ------20 y ears Arizona - 60 per cent, or 70 per no restrictions cent if insured by FSLIC Arkansas - no restrictions no restrictions C alifornia 80 per cent up to $10,000r 20 y ears 70 per cent above C olarado no resctrlctlons except 50- 20 years amortized per cent if not amortized Connecticut ------80 per cen t ------25 y e a rs Delaware------no restrictions ------25 y ears D . C . ------60 to 75 per cent 20 y ears F lo rid a ------no restrictions no restrictions G e o rg ia ------no restrictions* ------no restrictions Idaho ------no restrictions ------no restrictions I llin o is ------75 per cent------25 y ea rs In d ia n a ------00 to 80 per cent ------20 y ears I o w a ------75 per cent 20 y ears K ansas ------60 to 80 per cent - - 20 y e a rs K entucky ------no restrictions*------no restrictions L o u is ia n a ------no restrictions ------no restrictions M a i n e ------no restrictions 20 y ears Maryland ------no restrictions ------no restrictions M assachusetts------no restrictions ------20 y ears Michigan------information not available- - - M in n e so ta ------no restrictions ------no restrictions M ississippi------no restrictions ------no restrictions M i s s o u r i ------no restrictions ------no restrictions M ontana ------75 per cent ------no restrictions N e b ra s k a ------75 per cent ------no restrictions Nevada ------no restrictions ------no restrictions New Hampshire------80 per cent over $10,000- - 20 y ea rs New J e r s e y ------80 per cent, amortized 20 y ea rs New Mexico- - no restrictions no restrictions New Y o r k ------80 per cent — ------20 y ea rs North Carolina ------no restrictions ------— no restrictions North D a k o ta ------no Information ------O h i o ------66 2/3 to 80 per cent 12 years 67
TABLE IX (continued)
State Per Cent of Appraisal Maximum Maturity
Oklahom a ------no restrictions ------no restrictions O re g o n ------75 per cent------25 y ea rs Pennsylvania ------70 to 80 per cent------no restrictions Rhode Island------no restrictions 25 years South Carolina no restrictions no restrictions South Dakota 75 per c e n t ------no restrictions T e n n e s s e e ------66 2/3 per cent ------no restrictions T e x a s ------80 per c e n t ------25 y ears U t a h------75 p er c e n t ------5 y e a rs u n le ss am ortised V e rm o n t ------no restrictions ------20 y ears Virginia no restrictions ------no restrictions Washington - 60 to 80 per cent 25 years West Virginia - no restrictions ------no restrictions W is c o n s in ------65 to 80 per cent------5 y e a rs Wyoming ------65 per c e n t ------no restrictions
SOURCE: Hearings on H. R. 6228: National Banking Residential Mortgage and Construction Loans, July 15, 1955, pp. 49-50. 68
Federal Tax Legislation
There are two categoric* of federal legislation affecting savings and loan associations. One is the regulation of the conduct of savings and loan affairs which has just been described, and the other has to do with the taxation of savings and loan associations. Savings and loan associations have received differential treatment in the realm of federal taxation. These associations have been exempted in whole or in part from the provisions of every income and excise tax which the Congress has enacted.
This differential tax treatment has been secured, at least in part, by the vlgteous efforts of the savings and loan associations, principally through the United States Savings and Loan League. The first tax exemption recognition in a federal tax law came in the Wilson
Tariff Act of 1894 This Act, although subsequently declared uncon stitutional, was of great historical significance for savings and loan associations. It established a significant precedent and portended the favorable attitude of Congress toward savings and loan associa tions . The Act provided a two per cent net income tax on corporations, but savings and loan associations were categorically exempted by one of the amendments to the Act which declared that "nothing herein con tained shall apply to building and loan associations . . . which make
3®Bodfish, o p. c l t .. p. 185; see also Link,o p. c lt ., p. 104. 69
loan* only to thair shareholders."36 Thus, the tax free status of these associations was continued. Concerted action by savings and loan associations secured preferential treatment.
This exemption precedent was continued in subsequent congres
sional enactments. An exemption was secured from the proposed stamp taxes in the Dingley Tariff Act of 1897.3? The following year savings and loan associations were given preferential treatment by the War
Revenue Act of 1896, which levied a tax on stocks and bonds of corporations. A section of the Act provided: "... that stock and bonds issued by cooperative building and loan associations whose capital stock does not exceed ten thousand dollars, and building and loan associations or companies that make loans only to their share holders, shall be exempt from the tax herein provided."3® Again, the
Corporation Excise Act of 1909, popularly designated as the Payne- 39 Aldrich Tariff Act, an important act in American tax history because it is generally regarded as the prototype of the corporate income tax 40 law, extended tax exemption to "domestic building and loan
3^28 Statute 556 (1895).
3?Bodflsh. o p . clt.. p. 188; Cashin, o p . clt.. pp. 131-138; L ink, o p . c lt.. pp. 104-105. 3830 Statute 455 (1897).
39L lnk, o p . c l t . . p p . 1 0 1 -1 2 8 .
48William J. Schultz and C. L. Harris*. American Public Finance (Englewood: Prentice*41all, Inc., 1959), pp. 237, 292. 70
associations, organized and operated exclusively for the mutual benefit 41 of their members.
The ratification of the Sixteenth Amendment In 1913 made possible the enactment of an Income tax on corporations and Individuals, which
Congress provided in the Revenue Act of 1913. The Act did not apply to . . domestic building and loan associations,"42 and differential treatment was continued. The qualifying phrase, "operated exclusively
for the mutual benefit of their members," was omitted In this Act. This constituted an unqualified tax exemption generalized to all associations, whether mutual In character or not. It is not possible to determine whether the tax exemption was given because associations were pre sumed to be mutual organizations, or for other reasons.
Subsequent revenue laws continued the tax exempt status of savings and loan associations. The Revenue Act of 1921 exempted all building and loan associations without requiring that they be mutual, and further provided that gross Income to an individual should not
Include:
So much of the amount received by an Individual after December 31, 1921, and before January 1, 1927, as divi dends or interest from building and loan associations, operated exclusively for the purpose of making loans to members as does not exceed $300. *3
4136S tatu te 113 (1911).
4238S tatu te 172 (1915).
4342.ftfttUtS 253 (1921). 71
Subsequent revenue acts until 1934 made no changes, except for the
removal of the time limit on the $300 feature44 in 1926. Although
the Revenue Act of 1934 left the "exemption status" of savings and
loan associations unaltered, it established a precedent in providing
for tax exempt corporations.45 Savings and loan associations, how
ever, were required, as were all such tax exempt corporations, to
submit "information returns" beginning in 1942.
Congress left the tax status of savings and loan associations
unchanged until 1951. Beginning in 1952, savings and loan associa
tions were removed from the exempt list, and they were made nominally
subject to the same corporate Income taxes as applied to commercial
b a n k s.
Savings and loan associations were permitted by the Revenue
Act of 1951 to accumulate reserves in an amount equal to twelve per cent of the withdrawable shares as follows:
(e) Bad debt reserves,--Section 23 (k) (1) relating to deduction from gross Income of bad debts) is hereby amended by adding at the end thereof the following: "In the case of . . . a domestic building and loan association . . . the reasonable addition of a reserve for bad debts shall be determined with due regard to the amount of the taxpayer's surplus or bad debt reserves existing at the close of December 31, 1951. In the case of a taxpayer described in the preceding sentence, the reasonable addition to a reserve for bad debts for any taxable year shall In no case be less than the amount determined by the taxpayer as the
44Bavinas and Loan Annals (Chicago: United States Savings and Loan League, 1932), pp. 643-644. 45 Ceshin, SIXa* P* 135. 72
reasonable addition for such a year; except that the amount shall not be greater than the lesser of (A) the amount of Its net Income for the taxable year, computed without regard to this subsection, or (B) the amount by which 12 per centum of the total deposits or withdraw able accounts of the depositors at the close of such year exceeds the sum of Its surplus, undivided profits and reserves at the beginning of the taxable year.***
Although savings and loan associations were removed from the list of exempt corporations, the Revenue Act of 1951 provided a sig nificant additional tax advantage In that the following could be treated as a business expense and hence become deductible from gross Income;
(f) dividends paid by banking corporations,—(1) In the case of . . . domestic building and loan associations, amounts paid to, or credited to the account of, depositors or holders of accounts as dividends on their accounts as dividends on their deposits orldlthdrawable accounts, if such amounts paid or credited are withdrawable on demand subject only to customary notice of Intention to withdraw.47
Section 591 of the Tax Code of 1954 allows dividends paid on withdrawable shares only be treated as a business expense. The federal associations have only withdrawable shares. State associa tions may have withdrawable shares, but may also have permanent shares. Some in fact do have permanent shares, e.g ., some associa tions In Arkansas and Texas in the Ninth FHIU district. Dividends paid on permanent shares cannot be deducted from gross Income for
Income tax purposes.
138. See Chapter V for effects.
47Ib id . 73
In summary, savings and loan associations like many coopera tive enterprises were completely exempt from Federal Income taxation prior to 1952. In 1952 they were made subject to Income taxation at the rates for all other corporations; however they are allowed deduc tions such that they pay little, if any, Federal income taxes. Current tax requirements allow as a deduction all amounts paid to, or credited to the accounts of, depositors or holders of accounts as dividends on their deposits or withdrawable accounts, if such amounts paid or credited are withdrawable on demand, subject only to customary notice of intention to withdraw. Moreover, all transfers to reserves are deductible as long as the sum of the surplus, reserves and undivided profits are less than twelve per cent of wtlhdrawable accounts.
III. SUMMARY
Savings and loan associations are highly specialized, privately- owned financial corporations operated essentially on a cooperative basis. They encourage thrift and provide local credit for the repair, construction, purchasing or financing of homes. The character of these institutions has evolved over time and has adapted to changing needs. The experience of the 1930s and federal legislation, both in the field of taxation and the regulation of the conduct of savings and loan affairs, have been fundamental forces in shaping the character of savings and loan associations. This evolutionary adaptation through experience, especially In the 1930s, provided a solid foundation upon which the later growth of these Institutions could take place. Such growth did occur on a significant scale in the 1940s and 1950s.
Chapter IV will be concerned with documenting and describing the regional pattern of growth exhibited by savings and loan associations, with especial attention focused on the Ninth Federal Home Loan Bank
D is tric t. CHAPTER IV
GROWTH IN THE SOUTH (FHLB DISTRICT 9) 1945-1959
This chapter will be almost exclusively quantitative In character.
Its primary purpose will be to document statistically the growth of
savings and loan associations, especially those comprising the Ninth
Federal Home Loan Bank District, In the period 1945-1959. Data will
be presented showing the absolute and relative growth of savings and
loan associations In Its pertinent manifestations. Especial attention
will be directed to contrasting the Ninth D istrict's1 growth with that
of the other FHLB districts, so that the regional pattern of growth is
emphasized. Moreover, some attention will be given to the absolute
and relative growth of associations in each of the five states of the
Ninth District—Arkansas, Louisiana, M ississippi, New Mexico, and
Texas. Chapter V will be devoted to an attempted explanation of the
observed relative growth pattern.
I . ASSET GROWTH
The following procedure will be used in presenting the statistical
^Unless otherwise stated, the use of the name or designation of a district or a state, e.g ., Little Rock or M ississippi, refers to the savings and loan associations of the district or state in question.
75 76 2 data on the growth of savings and loan assets. First, the discussion will be directed to three five-year subdivisions of the fifteen year period being analyzed, beginning with the period 1945-1949, follow ing with 1949-1954, and concluding with 1954-1959. The absolute and percentage Increase in assets will be given for each subdivision.
A final observation will be made about the absolute and percentage
Increase for the entire 1945-1959 period. The procedure outlined will be applied first to all associations of the nation, so as to present a background for the discussion of the associations of the Little Rock
District. An analysis of the assets of the associations in the five states composing the Little Rock District will conclude this section.
Table X reveals the unprecedented growth of savings and loan assets for the nation and each of the eleven FHLB districts in the 3 period 1945-1959. Aggregate savings and loan assets for the nation during the three subdivisions of the fifteen year period rose from
$8,747 million to $14,622 million In the period 194561949, an increase of 67.1 per cent; from $14,622 million to $31,612 million in the period
1949-1954, an Increase of 99.4 per cent; and from $31,612 to $63,472 million, or 68.9 per cent, in the final five years, 1954-1959. Thus, the rate of growth In assets in the 1949-1954 period was substantially
^Essentially the same procedure will be used in the discussion of the growth of mortgage debt, mortgage recordings, and savings. 3 All asset values in the discussion to follow pertain to December 31 of the year in question. TABLE X
ASSET GROWTH SAVINGS AND LOAN ASSOCIATIONS, BY FHLB DISTRICTS, 1945-1959 (In millions of dollars)
United D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. Year S tates t l n «3 ♦4 «5 * #7 «8 #9 «Q i l l 1945 8,747 896 1,075 644 993 1,586 515 816 495 331 340 1,061 1946 10,202 981 1,266 748 1,242 1,783 591 983 589 406 407 1,212 1947 11,687 1,088 1,467 848 1,462 1,982 675 1,153 664 487 473 1,389 1948 13,028 1,179 1,664 937 1,625 2,145 745 1,319 735 569 527 1,581 1949 1,4622 1,275 1,862 1,036 1,813 2,318 823 1,540 846 666 597 1,845
1950 16,846 1,390 2,160 1,197 2,140 2,564 954 1,840 970 794 682 1,883 1951 19,164 1,513 2,460 1,340 2,476 2,884 1,078 2,131 1,105 916 769 2,492 1952 22,855 1,666 2,863 1,537 3,015 3,307 1,255 2,517 1,305 1,097 905 3,117 1953 26,638 1,873 3,284 1,787 3,640 3,742 1,485 3,042 1,573 1,341 1,072 3,800 1954 31,612 2,091 3,815 2,067 4,389 4,257 1,722 3,729 1,903 1,644 1,287 4,708
1955 37,569 2,344 4,487 2,419 5,281 4,933 2,012 4,507 2,279 2,012 1,566 5,757 1956 42,781 2,540 5,027 2,742 6,098 5,512 2,273 5,156 2,584 3,407 1,754 6,788 1957 48,139 2,719 4,776 3,022 6,850 6,079 2,612 5,841 2,871 2,661 1,926 8,007 1958 54,978 2,931 6,179 3,347 7,890 6,748 2,915 6,675 3,347 3,138 2,192 9^616 1959 63,472 3,214 6,957 3,784 8,922 7,789 3,342 7,742 3,866 3,713 2,524 11,456
PER CENT INCREASE
1945-49 67.1 42.2 47.0 60.8 82.5 46.1 59.8 88.7 70.9 101.2 75.8 73.0 1949-54 99.4 64.0 104.8 99.5 139.4 83.6 109.2 142.1 124.9 146.8 115.5 155.1 1954-59 68.9 53.7 82.2 83.0 103.2 82.9 94.0 187.6 103.1 125.8 96.1 143.3 1945-59 625.6 258.7 547.1 487.5 798.4 391.1 548.9 848.7 681.0 1,021.7 642.3 874.8
SOURCE: Federal Home Loan Bank Board. greater than the five year periods which Immediately preceded and
followed 1949-1954. For the entire period 1945-1959, aggregate
savings and loan assets Increased by $54,725 million, or 625.6 per
c e n t.
The rates of asset growth for savings and loan associations,
although substantial in all FHLB districts, differed widely among the
districts# Savings and loan associations In the Ninth FHLB District
(subsequently designated as the Little Rock District, see Figure 3)
exhibited an above-average growth, assets rising from $331 million
in 1945 to $666 million In 1949, or 101.2 per cent. This is a greater
percentage increase than for the nation (67.1 per cent) or for any other
FHLB district In the period 1945-1949. Growth in the Little Rock
District was accelerated in the next five years, 1949-1954, with
assets increasing from $666 million to $1,644 million, an increase of
146.8 per cent. The rate of growth In assets in this period exceeded the national rate (99.4 per cent), but was exceeded by the 155.1 per cent Increase in assets in the associations of the San Francisco District,
The final five years, 1954-1959, showed a somewhat lower rate of In crease In the assets of the Little Rock District. Assets, $1,644 million in 1954, rose to $3,713 million In 1959, or 125.8 per cent. The 125.8 per cent Increase in the assets of the Little Rock associations greatly exceeded the 68.9 per cent for all the associations of the nation in the period 1954-1959, but was exceeded by the 143.3 per cent increase In the assets of the associations of the San Francisco District. Considering e m m ic s - f e d e r a l h o m e loam s a n k d is t r ic t s 80 the whole period 1945-1959, savings and loan assets of the Little Rock
District increased by $3,382 million, or 1,021.7 per cent, as compared with a substantially smaller Increase (625.6 per cent) for the nation.
The rate of asset growth in the Little Rock District exceeded that for each of the other FHLB districts during the fifteen-year period.
The extent to which the differing rates of savings and loan asset growth altered the relative positions of the various FHIB districts is shown in Table XI. The associations of Little Rock and only two other districts, Greensboro and San Francisco, Increased their relative posi tion in the period 1945-1959. The associations of the Little Rock
District, with assets of $331 million, accounted for only 3.8 per cent of total savings and loan assets in 1945. Each year the associa tions of the Little Rock District accounted for an increasing percentage of total savings and loan assets, and by 1959, with total assets of over $3,713 million, Little Rock's relative share was 5.8 per cent.
The respective Increases in Greensboro's and San Francisco's relative positions, especially the letter's, were significant, from 11.4 to 14.1 perucent for Greensboro and from 12.1 to 18.0 per cent for San Francisco during the period 1945-1959. Four districts, Boston, New York, Pittsburgh, and Cincinnati, experienced a diminution of their relative position during the same period. The loss of relative position was most pronounced in the Boston and Cincinnati Districts. Thus, Boston accounted for 10.2 per cent of total assets in 1945, but for only 5.1 per cent in 1959. TABLE XI
PERCENTAGE DISTRIBUTION OF SAVINGS AND LOAN ASSETS BY DISTRICT, 1945-1969
United D iet. D ist. D ist. D ist. D ist. BAst. D ist. D ist. D ist. D ist. D ist. Year States *1 *2 *3 #4 #5 t ? *7 __ # 8 _ __#9 410 t u
1945 100.0 10.2 12.3 7.4 11.4 18.1 5.9 9.4 5.6 3.8 3.9 12.1 1946 100.0 9 .6 12.4 7.3 12.2 17.5 5.8 9.6 5.8 4.0 4.0 11.9 1947 100.0 9.3 12.6 7.2 12.5 17.0 5.8 9.9 5.7 4.2 4 .0 11.9 1948 100.0 9.0 12.8 7.2 12.5 16.5 5.7 10.1 5.6 4.4 4 .0 12.1 1949 100.0 8.7 12.7 7.1 12.4 15.8 5.6 10.5 5.8 4.6 4.1 12.6
1950 100.0 8.2 12.8 7.1 12.7 15.2 5.7 10.9 5.8 4.7 4 .0 11.2 1951 100.0 7.9 12.8 7 .0 12.9 15.1 5.6 11.1 5.8 4.8 4 .0 13.0 1952 100.0 7 .3 12.5 6.7 13.2 14.5 5.5 11.0 5.7 4.8 4.0 13.6 1953 100.0 7.1 12.3 6.7 13.7 14.0 5.6 11.4 5 .9 5 .0 4 .0 13.4 1954 100.0 6.6 12.1 6.5 13.9 13.5 5.4 11.8 6 .0 5.2 4.1 14.9
1955 100.0 6.2 11.9 6.4 14.1 13.1 5.4 12.0 6.1 5.4 4.7 15.9 1956 100.0 5.9 11.8 6.4 M .2 10.4 5.3 12.1 6 .0 5.4 4.1 15.9 1957 100.0 5.6 9 .9 6.3 14.2 12.6 5.4 12.4 6 .0 5.5 4 .0 16.6 1958 100.0 5.3 11.2 6.1 14.4 12.3 5.3 12.1 6.1 5 .7 4 .0 17.5 1959 100.0 5.1 11.0 6 .0 14.1 12.3 5.3 12.2 6.1 5.8 4.0 18.0
SOURCE: Federal Home Loan Bank Board 82
Cincinnati's share declined from 18.1 per cent in 1945 to 12.3 per
cent in 1959. The Topeka and Indianapolis Districts substantially
maintained their relative positions during the period 1945-1959.
The pattern of growth exhibited in assets, i.e ., a substantial rate of growth In all districts and an especially high rate of growth in the Little Rock, Greensboro, and San Francisco Districts, is the characteristic pattern throughout all aspects of growth considered.
This pattern will be further elaborated when the sources of growth receive consideration In Chapter V.
The relative rates of growth of savings and loan assets In the
states comprising the Ninth FHLB District are Interesting. Table XIH
shows the detailed statistics for the growth of assets for the District and for each state of the District • A summary of the Increases in assets for the three five-year periods is shown in Table XII below.
TABLE XU ASSET GROWTH NINTH DISTRICT SAVINGS AND LOAN ASSOCIATIONS, SELECTED YEARS
Assets in millions of Per cent increase ______H o lU f ______1945- 1949- 1954- 1945- State 1945 1949 1954 19S9 1949 _ 1954 1959 1959 Ark. 24 56 128 270 133.3 128.5 110.9 1 ,0 2 5 .0 La. 120 218 424 849 81.6 94.4 100.2 607.5 M iss. 17 42 117 259 147.0 178.5 121.3 1 ,423.5 N . M . 11 27 72 153 145.4 166.6 112.5 1,2 9 0 .9 Tex. 161 323 903 2,182 71.4 179.5 141.6 1,255.2 D ist. 331 666 :1,644 3,713 102.1 146.8 125.8 1 ,0 2 1 .7
SOURCE: Derived from Table XUI TABLE Xm
ASSET GROWTH NINTH DISTRICT SAVINGS AND LOAN ASSOCIATIONS# 1945-1959 (In millions of dollars)
D ist. 9 Year Total 1/ Arkansas Louisiana MlsslssiDDi Htar Mexico Texas 1945 331 24 120 17 11 161 1946 406 31 141 22 14 200 1947 487 40 165 27 18 237 1948 569 48 190 33 23 276 1949 666 56 218 42 27 323 1950 794 66 252 50 35 390 1951 916 77 277 61 40 461 1952 1#097 91 317 75 48 566 1953 1,134 108 369 92 58 713 1954 1,644 128 424 117 72 903
1955 2,012 152 499 146 88 1,126 1956 2,307 175 565 176 102 1,288 1957 2,611 202 640 195 115 1,508 1958 3,138 237 742 225 134 1,780 1959 3,713 270 849 259 153 2,182 PER CENT INCREASE 1945-49 101.2 133.3 81.6 147.0 145.4 81.4 1949-54 146.8 128.5 94.4 178.5 166.6 179.5 1954-59 125.8 110.9 100.2 121.3 112.5 141.6 1945-59 UQ21.7 1 ,025.0 ,607.5 1,423.5 1,290.9 1,255.2
*The sum of the Individual states composing the district may vary slightly from the district total because of the rounding error. SOURCE: Federal Home Loan Bank Board 84
Of the five states, only Louisiana experienced a lower rate of growth in savings and loan assets than the average for the District.
Assets in M ississippi, New Mexico, and Texas grew more than ttrlee as rapidly as in Louisiana. The rate of growth of association assets in Arkansas was nearly 70 per cent greater than that in Louisiana.
Perhaps it should be noted that three states—-M ississippi, New
Mexico, and Texas—exhibited the same general pattern in the rate of asset growth as the District and the nation, a rate in the period 1949-
1954 which greatly surpassed those In the 1945-1949 and 1954-1959 periods. Louisiana grew at an increasing rate in each of the five-year periods, while Arkansas experienced a declining rate in each period.
In terms of the rate of growth for the period 1945-1959, the states ranked: M ississippi, New Mexico, Texas, Arkansas, and Louisiana.
Considering the value of assets, they ranked in the following order
In 1959: Texas, Louisiana, Arkansas, M ississippi, and New Mexico.
The slower rate of asset growth in Louisiana's savings and loan associations significantly altered the relative positions of the various states (see Table XIV). Texas, occupying the predominant position in the District, increased its relative share from 48.6 per cent of district assets in 1945 to 58.8 per cent in 1959. Louisiana, although still occupying second place, suffered an erosion of its relative position
In the period 1945-1959. In 1945, Louisiana accounted for 36.2 per cent of district assets, a figure which declined steadily to a low of
22.9 per cent In 1959. The percentage of assets accounted for by TABLE XIV
PERCENTAGE DISTRIBUTION NINTH FHL8 DISTRICT ASSETS, 1945-1959
D irt. 9 Year Total Arkansas Louisiana Misslssinoi New Mei
1945 100.0 7.2 36.2 5.1 3.3 1946 100.0 7.6 34.7 5.4 3.4 1947 100.0 8.2 33.9 5.5 3.7 1948 100.0 8 .4 33.4 5.8 4 .0 1949 100.0 8 .4 32.7 6.3 4.1
1950 100.0 8.3 31.7 6.3 4 .4 1951 100.0 8.4 32.2 6 .6 4.4 1952 100.0 8.3 28.9 6.8 4 .4 1953 100.0 8 s i 27.5 6.9 4.3 1954 100.0 7,8 25.8 7.1 4 .4
1955 100.0 7.6 24.8 7.2 4.4 1956 100.0 7.6 24.5 7 .6 4.4 1957 100.0 7 .6 24.1 7.3 4 .3 1958 100.0 7.6 23.6 7.2 4.3 1959 100.0 7.3 22.9 7.0 4.1
Federal Home Loan Bank Board 86
Arkansas and New Mexico remained substantially unchanged through out the period 1945-1959. Mississippi substantially Increased her relative share of district savings and loan assets In the same period, accounting for 5.1 per cent of total assets In 1945 and averaging approximately 7.0 per cent after 19M.
The comparative growth of savings and loan assets for the nation and the Ninth FHLB District, 1945-1959, Is depicted In Figure 4 .4
Two observations are necessary about Figure 4. Fist, the slope of the line representing the assets of the Ninth District Is steeper throughout the period than that for the nation, depicting a higher rate of growth for the assets of the Little Rock District. Second, there has been a relatively steady percentage rate of growth In assets throughout the entire period 1945-1959, both for the nation and the Ninth District.
Figure 5 (a ratio chart) reveals some features about asset growth among the states composing the Ninth District, 1945-1959, not readily apparent in the tabular data shown above. The District grew at Almost a constant rate throughout the period. Louisiana, Uke the District, grew at almost a constant rate, but at a slower rate than either the
D istrict o fthe ether states. Mississippi showed the most rapid rate
* Figure 4 la on a ratio (or semilog) scale. Although the hori zontal scale Is arithmetic, natural numbers are plotted on the vertical scale at distances from the bottom line proportional to their logarithms; A stralght-Une trend Indicates a constant per cent rate of growth; and parallel lines Indicate equal rates of increase. The steeper the trend, the greater is the percentage increase, of course. fiM I f § 8 8 2 SS~ .MS F OOLLMS OF S U.KM M LK O 1XKLOWI OF S NLLKM 8 8 83 8 8 MILLIONS OF DOLLANS 400 01 8 o * 8 8 3 SSl
I
o p p p pp- * « • ^ • d BILLIONS OF DOLLANS 89 of Increase, followed by New Mexico. Although not too pronounced, there was a general pattern of asset growth among the states over the entire period. There was a high rate of growth from 1945 to 1949.
A diminished rate of Increase ensued from 1949 through 1951, but the rate increased again from 1951 through 1954. In the final five years,
1954-1959, there was a diminished rate of growth, with Louisiana and
Texas tending to run counter to the latter trend.
The growth in assets is closely allied with home mortgage financ ing . It is relevant, therefore to record the growth of mortgage debt out standing and the growth in annual mortgage recordings.
n. HOME MORTGAGE FINANCING
One of the best sources of home mortgage financing information is the "Mortgages Recorded" series compiled by the Operating Analysis
Division of the Federal Home Loan Bank Board. These data indicate the volume and trend in total real estate financing, as well as the shares in the total of the various types of lenders. The "Mortgages
Recorded" series provides monthly data on home mortgage recordings as to both number and dollar amount of recordings for six types of mortgagees, reflecting loans of $20,000 or less in the financing of
1-4 family nonfarm homes. Summary data are based on originating mortgagees; therefore, since given lenders, such as insurance com panies, often purchase mortgages originating and recorded by other lenders, such as mortgage companies, these recordings data may not 90 accurately indicate the Importance of a given type of lender as the ultimate source of mortgage credit.^
It is helpful to examine the place of savings and loan associa tions In the nation's home mortgage financing picture before going to a discussion of the Little Rock District. Table XV summarizes the specific data for all home mortgage recordings of $20f 000 or less for the nation by type of lender in the period 1945-1959.
Savings and loan associations of the nation enjoyed an unpre cedented growth in mortgage recordings throughout the period under consideration. Mortgage recordings by all associations rose from
$2,017 million in 1945 to $3,646 million in 1949, or 80.7 per cent.
The rate of increase of recordings by all other institutional lenders, mutual savings banks (245.6 per cent), commercial banks (122.9 per cent), and Insurance companies (318.4 per cent), was much greater.
In the next five years, 1949-1954, savings and loan recordings In creased from $3,646 million to $8,312 million, an Increase of 127.9 per cent. The rates of growth in recordings by other institutional lenders, 1949-1954, are as follows: mutual savings banks, 100.1 per cent; commercial banks. 73.3 per cent; and insurance companies
69.0 per cent. Savings and loan recordings continued to grow, rising
5A more detailed explanation the exact nature of the statistical series may be found in the "Explanatory Notes" section of Savinas and Home Financing Source Book (Washington: Federal Home Loan Bank Board, 1960), pp. 44-47. 91
TABLE XV
HOME MORTGAGE RECORDINGS, $20,000 OR LESS, BY TYPE OF LENDER, 1945-1959 (In mllllonsaof dollars)
M utual S & L Savings Com m 'l In su ran ce All O ther Year A ssns Banks Banks C om panies Lenders T otal
1945 2,017 217 1,097 250 2,069 5,650 1946 3 ,483 548 2 ,7 1 2 503 3,343 10,589 1947 3 ,6 5 0 597 3 ,0 0 4 847 3,631 11,729 1948 3 ,6 2 9 745 2,664 1,016 3,838 11,882 1949 3 ,6 4 6 750 2,446 1,046 3,940 11,828
1950 5 ,0 6 0 1,064 3,365 1,618 5 ,0 7 2 16,179 1951 5,295 1,013 3 ,3 7 0 1,615 5,112 16,405 1952 6 ,4 5 2 1,137 3 ,6 0 0 1,420 5,409 18,018 1953 7,365 1,327 3 ,6 8 0 1,480 5 ,8 9 5 19,747 1954 8 ,3 1 2 1,501 4,239 1,768 7,154 22,974
1955 10,452 1,858 5,616 1,932 8,626 28,484 1956 9 ,5 3 2 1,824 5,458 1,799 8 ,4 7 5 27,088 1957 9,217 1 ,430 4 ,2 6 4 1,472 8,861 24,244 1958 10,516 1,640 5 ,2 0 4 1,460 8 ,5 6 8 27,388 1959 13,094 1,780 5,832 1,523 10,006 32,235
PER CENT INCREASE
1945-49 8 0 .7 2 4 5 .6 122.9 318.4 90.4 109.3 1949-54 127.9 100.1 7 3 .3 6 9 .0 8 1 .5 9 4 .2 1954-59 5 7 .5 18.5 37.5 -18.9 39.8 4 0 .3 1945-59 5 4 9 .1 7 20.2 4 3 1 .6 5 0 9 .2 3 8 3 .6 4 70.5 A.
SOURCE: Federal Home Loan Bank Board from $8,312 million to $13#094 million In the 1954-1959 period, an
Increase of 57.5 per cent. The rate of growth of recordings by
associations was exceeded only by that of insurance companies (&I319
per cent) in this period, with recordings of mutual savings banks
Increasing by 18.5 per cent and those of commercial banks by 37*5
per cent. In 1959, savings and loan recordings exceeded their 1945
annual volume by $11,077 million, or 549.1 per cent. This compares with the increases of 720.2 per cent for mutual savings banks, 431.6 per cent for commercial banks, and 509.2 per cent for insurance com panies .
Table XVI summarizes the changes in the relative position of the various lenders in the home mortgage market on a national basis • The percentage of total recordings accounted for by savings and loan asso ciations declined from 35.8 per cent in 1945 to 30.9 per cent in 1949.
The decline in the share accounted for by savings and loan associations is in marked contrast to the increase in the percentage accounted for by mutual savings banks, commercial banks, and insurance companies.
In the decade of the 1950s, however, the share accounted for by savings and loan associations rose almost 10 percentage points, from
31.3 per cent in 1950 to 40.6 per cent in 1959. The latter is the highest percentage achieved by any mortgagee in the more than 25 years of the statistical series known as "Mortgages Recorded."
^Savinas and Loan Fact Book (Chicago: United States Savings and Loan League, 1960), p. 38. 93
TABLE XVI
PERCENTAGE DISTRIBUTION HOME MORTGAGE RECORDINGS, $20,000 OR LESS, BY TYPE OF LENDER, 1945-1959
M utual S & L Savings Com m 'l Insurance All Year A etna Banks Banks C om panies Others Total
1945 3 5 .8 3 .8 19.4 4 .4 3 6 .6 100.0 1946 3 2 .9 5 .2 2 5 .6 4 .8 31.5 100.0 1947 3 1.1 5 .1 2 5 .6 7 .2 3 1 .0 100.0 1948 3 0 .5 6 .3 2 2 .4 8 .6 3 2 .2 100.0 1949 30.9 6.3 20.7 8.8 3 3 .3 100.0
1950 3 1 .3 6 .6 2 0.8 10.0 3 1 .3 100.0 1951 3 2 .3 6 .2 20.5 9 .8 3 1 .2 100.0 1952 3 5 .8 6 .3 2 0 .0 7 .9 3 0 .0 100.0 1958 3 7 .4 6 .7 18.6 7.5 29.8 100.0 1954 3 6 .2 6 .5 18.5 7 .5 3 1 .1 100.0
1955 36.7 6.5 19.7 6.8 30.3 100.0 1956 3 5 .2 6 .7 20.2 6 .6 3 1 .3 100.0 1957 3 8 .0 5 .9 17.6 6 .1 32.4 100.0 1958 3 8 .4 6.0 19.0 5.3 31.3 100.0 1959 40.6 5.5 18.1 4 .7 3 1.1 100.0
SOURCE: Federal Home Loan Bank Board
V 94
* The share of mortgage recordings accounted for by insurance
companies rose steadily from 4.4 per cent in 1945 to a peak of 10.0
per cent in 1950, and declined thereafter to 4.7 per cent in 1959.
In 1945, commercial banks accounted for 19.4 per cent of total re
cordings. After reaching a peak of 25.6 per cent in 1947, commercial
bank recordings declined to a low of 17.6 per cent in 1957; their share
was 18.1 per cent In 1959. Mutual saving banks Increased their share
of recordings from 3.8 per cent In 1945 to 6.3 per cent In 1948 and
approximately maintained that percentage thereafter.
Thus, in the decade of the 1950s, savings and loan associations
increased their share of home mortgage financing at the expense of
other competitors, such as Insurance companies, mutual savings
banks, and commercial banks. By 1959 savings and loan associations
occupied a predominant position in home mortgage financing, in both
absolute and relative terms, with commercial banks as their nearest
competitors.
Ninth District Mortgage Recordings; Aggregate Recordings
Since aggregate home mortgage recordings provide a good measure
of the total market in which savings and loan associations operate, it is
Informative to examine the aggregate volume of home mortgage record
ings for the Ninth District. Table XVII gives a breakdown of aggregate
nonfarm mortgage recordings of $20,000 or less by Federal Home Loan
Bank Districts. TABLE XVII
ALL NONFARM MORTGAGE RECORDINGS, $20,000 OR LESS BY FHLB DISTRICTS, 1945-1959 (In millions of dollars)
United D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. Year States #1 *2 #3 *4 ♦5 |6 *7 *8 *9 *10 *11 1945 5,650 430 627 404 570 685 318 523 360 311 245 1,551 1946 10,589 831 1,184 737 894 1,242 682 895 646 583 433 2,282 1947 11,729 872 1,191 746 1,060 1,345 790 946 670 682 483 2,616 1948 11,882 947 1,362 784 1,062 1,311 787 1,012 686 742 500 2,411 1949 11,828 955 1,323 751 1,335 1,252 786 1,012 720 791 573 2,330
1950 16,179 1,222 1,770 949 1,904 1,727 1,110 1,283 998 1,028 811 3,377 1951 16,405 1,216 1,718 1,035 2,073 1,572 1,054 1,283 963 1,105 854 3,352 1952 18,018 1,380 1,807 1,075 2,396 2,022 1,054 1,485 1,075 1,185 933 3,606 1953 19,747 1,565 2,030 1,559 2,450 2,170 1,214 1,710 1,176 1,332 957 3,986 1954 22,974 1,686 2,243 1,275 2,844 2,470 1,493 2,026 1,411 1,606 1,152 4,768
1955 28,484 2,014 3,738 1,498 3,461 3,057 1,906 2,385 1,681 1,948 1,386 6,411 1956 27,088 1,997 2,522 1,465 3,334 3,838 1,741 2,284 1,495 1,826 1,241 6,344 1957 24,244 1,602 2,169 1,315 3,154 2,608 1,558 1,951 1,304 1,711 1,087 5,785 1958 27,388 1,692 2,655 1,364 3,637 2,985 1,698 2,026 1,532 1,939 1,233 6,627 1959 32,235 1,889 2,917 1,611 4,337 3,382 1,876 2,295 1,708 2,314 1,416 8,489 PER CENT INCREASE 1945-49 109.3 122.1 111.0 85.9 134.2 82.8 147.2 93.5 100.0 154.3 133.9 50.2 1949-54 94.2 76.5 69.5 69.8 113.0 97.3 89.9 100.2 95.8 103.3 101.0 104.6 1954-59 40.3 12.0 30.0 26.4 52.5 36.9 25.6 13.3 71.4 44.1 22.9 78.2 1945-59 1410.5 339.3 365.2 298.8 660.9 393.7 489.9 338.8 374.4 644.1 478.0 447.3
SOURCE: Federal Home Loan Bank Board 96
The little Rock District had an unprecedented growth in total
recordings in the period under study. Recordings for all mortgagees
of the Little Rock District Increased from $311 million in 1945 to $791
million in 1949( or 154.3 per cent. This is a greater percentage in
crease than that for the nation (109.3) or for any other FHLB District.
In the period 1949 to 1954, recordings in Little Rock grew from $791
million to $1,606 million, an Increase of 103.3 per cent, a rate which
exceeded the national rate (94.2 per cent) for the 1949-1954 period,
but was slightly smaller than the 113.0 per cent for the Greensboro
District and the 104.6 per cent for the San Francisco District. Re
cordings in the Little Rock District rose from $1,606 million in 1954
to $2,314 million in 1959, or 44.1 per cent. Although exceeding the
national Increase of 40.3 per cent, the Ninth District Increase of 44.1
per cent was less than the 52.5 per cent for Greensboro, the 71.4 per cent
for the Des Moines, and the 78.2 per cent for San Francisco. Aggregate
recordings in Little Rock for the fifteen years, 1945-1959, increased by
$2,003 million, or 644.1 per cent, a percentage increase that was ex ceeded neither by the nation nor by any of the other FHLB districts.
Total mortgage recordings of the Little Rock District in 1959
($2,314 million) were exceeded only by the following four districts:
New York ($2,917 million), Greensboro ($4,337 million), Cincinnati
($3,382 million), and San Francisco ($8,489 million). In contrast, aggregate recordings of the Little Rock District ($311 million) surpassed only the Topeka District ($245 million) in 1945. Changes In the relative positions of the various FHLB districts in the total home mortgage market are shown in Table XVIII. Little
Rock and one other district, Greensboro, showed an increase in their relative positions during the period 1945-1959, The Little Rock
District accounted for 5.5 per cent of all nonfarm mortgage record ings of $20,000 or less in 1945, 6*6 per cent in 1949, 6.9 per cent in 1954, and 7.1 per cent in 1959. Greensboro averaged approxi mately 19 per cent of total recordings between 1945 and 1949, and its share increased thereafter to 13.4 per cent in 1959. Four of the eleven
FHIB districts - Topeka, Des Moines, Chicago, and Indianapolis - maintained a more consistent percentage of total mortgage recordings than the other districts. The share of one district, Cincinnati, de clined from 12.1 per cent of total recordings in 1945 to 10.5 per cent in 1949 and remained almost constant thereafter. The share of three districts, Boston, New York, and Pittsburgh, remained relatively con stant at approximately 7.7, 11.2, and 7.0 per cent, respectively, in the period 1945-1955, but the average for the five years 1955-1959 was somewhat less than the average of the two preceding five year periods.
San Francisco's share declined from 27.5 per cent in 1945 to 19.6 per cent in 1949. It remained at approximately 20 per cent for five years, gradually increasing after 1955 to 26.3 per cent of total recordings in
1959.
We have seen that savings and loan associations on a national basis increased their absolute and relative position in home mortgage TABLE XVm
PERCENTAGE DISTRIBUTION, BY FHLB DISTRICTS, ALL NONFARM MORGAGE RECORDINGS, $20,000 OR LESS, 1945-1959
United D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. Year S tates *1 42 #3 44 _ 45 4* 47 48 49 410 411
1945 100.0 7.6 11.1 7.1 10.1 12.1 5 .6 9.3 6.4 5.5 4.3 27.5 1946 100.0 7.9 11.3 7 .0 8.5 11.9 6.5 8.5 6.2 5.6 4.1 21.9 1947 100.0 7.6 10.4 6.5 9.2 11.7 6.9 8.2 5.8 5.9 4 .2 22.9 1948 100.0 8.1 11.7 6.7 9.1 11.2 6.7 8.7 5.9 6.3 4.3 20.7 1949 100.0 8 .0 11.1 6.3 11.2 10.5 6.6 8 .5 6 .0 6.6 4 .8 19.6
1950 100.0 7.5 10.9 5.8 11.7 10.6 6.8 7.9 6.1 6.3 5 .0 20.8 1951 100.0 7.4 10.4 6.3 12.6 10.6 6.4 7.8 5.8 6.7 5.2 20.4 1952 100.0 7.6 10.0 6 .0 13.3 11.2 5.8 8.2 6 .0 6.6 5 .2 20.0 1953 100.0 7.9 10.2 7.8 12.4 10.9 6.1 8 .6 5.9 6.7 4.8 20.1 1954 100.0 7.3 9.7 6 .0 12.3 10.7 7.1 8 .8 6.1 6.9 5.5 20.7
1955 100.0 7 .0 13.1 5.2 12.1 10.7 6.6 8.3 5.9 6.8 4 .8 22.5 1956 100.0 7.3 9.3 5.4 12.3 10.4 6.4 8 .4 5.5 6.7 4.5 23.4 1957 100.0 6.6 8.9 5 .4 13.0 10.7 6 .4 8.0 5.3 7.0 4.4 23.8 1958 100.0 6.1 9.6 4.9 12.8 10.8 6.1 7.3 5.5 7.0 4.5 24.1 1959 100.0 5.8 9.0 4.9 13.4 10.4 5 .8 7.1 5 .2 7.1 4 .4 26.9
SOURCE; Federal Home Loan Bank Board 99
financing In the period 1945-1959. There remains the task of charting
and describing the growth of home mortgage financing by savings and
loan associations within the Little Rock District. Table XDC contains
detailed statistics on the growth of savings and loan nonfarm mortgage
recordings of $20,000 or less by FHIiJ districts, 1945-1959.
In brief, Ninth District savings and loan recordings rose from
$113 to $201 million 1945-1949, $201 to $429 million 1949-1954, and
$429 to $785 million 1954-1959. The respective percentage increases were 77.8, 113.4, and 82.9 per cent. Significantly, the 1949-1954
percentage increase was nearly twice that for the five years immediately
preceding and following. The 77.8 per cent Increase from 1945 to 1949
compares with the 80.7 per cent Increase for aggregate savings and loan recordings fo r the nation and the 154.3 per cent Increase in aggregate
recordings for all mortgagees in the Ninth District. In the next five years, 1949-1954, the relationship was reversed. The rate of increase in national mortgage recordings of savings and loan associations (127.9 per cent) and aggregate District recordings for all mortgagees (109.3 per cent) was near that, for Little Rock savings and loan associations
(113.4 per cent). During the last five years, 1954-1959, of the period being studied, the 82.9 per cent Increase In Ninth District recordings by associations greatly exceeded the 57.5 per cent for the nation's associations and the 44.1 per cent for all mortgagees of the Ninth
District. Over the entire period, 1945-1959, mortgage recordings by
Ninth District savings and loan associations Increased by $672 million. TABLE XIX * SAVINGS AND LOAN ASSOCIATIONS NONFARM MORTGAGE RECORDINGS, $20,000 OR LESS BY FHLB DISTRICT, 1945-1959 (In millions of dollars)
D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist, D ist. Year Total1 f l |2 §3 f4 #5 ♦6 ♦7 #8 #9 #10 *11 1945 2,017 155 163 155 208 382 117 231 124 113 107 254 1946 3,483 284 293 253 323 644 230 399 208 186 174 427 1947 3,650 287 299 246 344 677 223 408 221 178 171 493 1948 3,629 302 339 270 334 623 208 424 226 183 163 476 1949 3,646 293 325 248 384 589 198 430 233 201 180 563 1950 5,060 361 439 316 574 781 294 560 339 266 243 886 1951 5,295 346 477 358 677 817 311 588 325 282 255 859 1952 6,452 402 574 405 890 1,027 353 718 384 305 299 1,097 1953 7,365 473 606 484 956 1,031 441 934 433 374 319 1,212 1954 8,312 492 655 525 1,058 1,228 487 1,101 530 429 389 1,416 1955 10,452 573 850 628 1,344 1,543 586 1,287 618 571 493 1,959 1956 9,532 506 746 611 1,230 1,395 543 1,202 548 487 390 1,876 1957 9,217 411 683 579 1,236 1,347 507 1,070 531 539 347 1,966 1958 10,516 459 847 572 1,472 1,523 578 1,555 631 643 436 2,199 1959 13,094 522 965 722 1,825 1,723 698 1,413 727 785 538 3,175 PER CENT INCREASE 1945-49 80.7 89.0 99.3 60.0 84.6 53.7 69.2 86.1 07.9 77.8 68.2 121.6 1949-54 127.9 67.9 101.5 111.6 175.5 108.4 145.9 132.7 127.4 113.4 116.1 151.5 1954-59 57.5 6.0 47.3 37.5 72.4 11.6 43.3 28.3 17.6 82.9 38.3 124.2 1945-59 549.1 236.7 492.0 365.8 777.4 351.0 496.5 511.6 486.3 594.6 402.8 1,150.0
^Savings and Loan only for United States. 2District only, savings and loan associations. SOURCE: Federal Home Loan Bank Board 101 or 594.6 per cent. This percentage increase was somewhat greater than for the nation's associations (549.1 per cent) and greater than any of the other FHLB districts, but substantially less than that for San
Francisco (1,150.0 per cent) and Greensboro (777.4 per cent). In the whole period 1945-1959, recordings of the Ninth District savings and loan associations increased less rapidly (594.6 per cent) than the re cordings of all District mortgagees (644.1 per cent); but, in the last ten years of the period, the recordings of the District associations in creased much more rapidly (195.1 per cent) than aggregate District recordings (125.1 per cent).
The relative positions among the various FHLB districts in nonfarm mortgage recordings of $20,000 or less, 1945-1959 are shown in
Table XX. The share of total savings and loan recordings accounted for by the associations of the Little Rock District fluctuated within a range of 1.7 percentage points In the period 1945-1959, ranging from a low of
4#4 per cent in 1951 to a high of 6.1 per cent In 1958. The Little Rock
District associations averaged approximately 5.2 per cent of aggregate savings and loan recordings in the period 1945-1949, approximately 4.8 per cent from 1949 to 1955, and about 5.6 per cent from 1956 to 1959.
The associations of only two other district*, San Francisco and
Greensboro, significantly increased their relative position in savings and loan home mortgage financing. San Francisco accounted for almost
12.5 per cent in 1945 and increased its share thereafter to about 24.2 per cent in 1959. Greensboro averaged approximately 10 per cent during TABLE XX
PERCENTAGE DISTRIBUTION NONFARM MORTGAGE RECORDINGS SAVINGS AND LOAN ASSOCIATIONS $20,000 OR LESS BY REGIONS, 1945-1959
United D ist. Dist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. Year States _ J U i / *2 #3 #4 ♦5 #6 #7 #8 *9 #10 *11
1945 100.0 7 .6 7.0 7.6 10.3 18.9 5.8 11.4 6.1 5.6 5.3 12.5 1946 100.0 8.1 8.4 7.2 9.2 18.4 6.6 11.4 5.9 5.3 4.9 12.2 1947 100.0 7.8 8.2 6.7 9.4 18.5 6.1 11.1 6.0 4.8 4.6 13.5 1948 100.0 8.3 9.3 7.4 9.2 17.1 5.7 11.6 6.2 5.0 4.4 13.1 1949 100.0 8 .0 8.9 6.8 10.6 16.1 5.4 11.7 6.3 5.5 4.9 15.4
1950 100.0 7.1 8.6 6.2 11.3 15.4 5.8 11.0 6.6 5.2 4.8 17.5 1951 100.10 6.5 9.0 6.7 12.7 15.4 5.8 11.1 6.1 4.4 4.8 16.2 1952 100.0 6.2 8.9 6.3 13.8 15.9 5.5 11.1 6.0 4.7 4.6 17.0 1953 100.0 6.4 8.2 6.5 12.9 13.9 5.9 12.6 5.8 5.0 4.3 16.4 1954 100.0 5.9 7.8 6.3 12.7 14.7 5.8 13.2 6.3 5.1 4.6 17.0
1955 100.0 5.4 8.1 6.0 12.8 14.7 5.6 12.3 5.9 5.4 4.7 18.7 1956 100.0 5.3 7.8 6.4 12.9 14.6 5.6 12.6 5.7 5.1 4 .0 19.6 1957 100.0 4.4 7.4 7.4 13.4 14.6 5.5 11.6 5.7 5.8 3.7 21.3 1958 100.0 4.3 8 .0 5.4 13.9 14.4 5.4 14.7 6.0 6.1 4.1 20.9 1959 100.0 3.9 7.3 5.5 13.9 13.1 5.3 10.7 5.5 5.9 4.1 24.2
1■— — ~ ^ ■I.,. — -i — i— ...... —————
^Saving and loan associations are ftated as a percentage of all lending. The various districts are stated as a percentage of total savings and loan mortgage recordings.
SOURCE: Federal Home Loan Bank Board 103
1945-1949 and Increased Its share thereafter, averaging almost 13.5 per cent In the period 1955-1959. Two districts, Boston and Cincinnati, experienced a significant diminution of their relative position. The relative position of the other districts remained approximately the same throughout the period 1945-1959.
Mortgage Recordings by Mortgagee: Ninth District
Table XXI gives a somewhat better perspective on the absolute growth pattern of home mortgage financing by District Nine savings and loan associations, by comparing the behavior of nonfarm mortgage re cordings, $20,000 or less, of the major competitors in the District: savings and loan associations, insurance companies, commercial banks, mutual savings banks, individual and other miscellaneous mortgagees.
Statistics presented for these various mortgagees Include the entire volume of mortgage recordings of $20,000 or less within the Little Rock
District, 1945-1959.
All mortgagees participated in the vast growth of home mortgage financing, 1945-1959. In absolute terms, savings and loan associa tions were the most significant single institutional mortgagee in home mortgage financing during the period in the Little Rock District.
District associations exhibited a 77.8 per cent Increase in recordings in the period 1945-1949. This is in contrast to an increase of 308.8 per cent for Insurance companies, 160.0 per cent for commercial banks,
66.0 per cent for individuals, and 464.9 per cent for "others." During TABLE XXI
ALL NONFARM MORTGAGE RECORDINGS, $2 0 ,0 0 0 OR LESS, LITTLE ROCK DISTRICT, 1945-1959 (In millions of dollars)
Mutual D ist. 9 U . S . S and L In s. Savings Individ All All Year _ Assns C o s. Banks Banks uals Others Lenders Lenders 1945 113 34 30 97 37 311 5,650 1946 186 72 64 150 111 583 10,589 1947 178 122 73 152 157 682 11,729 1948 183 150 75 162 171 742 11,882 1949 201 139 78 161 209 791 11,828 1950 266 183 101 182 295 1,028 16,179 1951 282 191 105 203 325 1,105 16,405 1952 305 174 118 242 345 1,185 18,018 1953 374 175 144 259 380 1,332 19,747 1954 429 218 176 13 257 526 1,606 22,974 1955 571 246 224 61 268 639 1,948 28,484 1956 487 260 227 271 581 1,826 27,088 1957 539 206 191 82 304 471 1,711 24,244 1958 643 203 228 41 297 567 1,939 27,388 1959 785 222 287 65 318 701 2,314 32,235 PER CENT INCREASE 1945-49 77.9 308.8 160.0 66.0 464.9 154.3 109.3 1949-54 113.4 56.8 125.6 59.6 151.7 103.0 94.2 1954-59 83.0 1.8 63.1 23.7 133.0 44.1 40.3 1945-59 594.7 552.9 8S6.7 227.8 1,794.6 644.0 470.5
SOURCE: Federal Home Loan Bank Board 105 the period 1949-1954, District savings and loan recordings surpassed all others, except commercial banks, with an Increase of 113.4 per cent, as compared to an Increase of 56.8 per cent for Insurance companies, 125.6 per cent for commercial banks, 59.6 per cent for
Individuals, and 151.7 per cent for "others." Recordings by District associations. Increasing more rapidly than other institutional com petitors, grew by 83.0 per cent In the period 1954-1959, as compared with an increase of 1.8 per cent for insurance companies, 63.1 per cent for commercial banks, 23.7 per cent for individuals, and 133.0 per cent for "others." For the whole period 1945-1959, recordings by
District Nine associations increased by $672 million or 594.7 per cent, as compared with an increase of approximately $188 million, or 552.9 per cent, for Insurance companies; $257 million, or 856.7 per cent, for commercial banks; $211 million, or 227.8 per cent, for Individuals;
$664 million, or 1,794.6 per cent, for "others"; and 644.0 per cent for all lenders.
Table XXII gives the percentage distribution of all non farm mortgage recordings of $20,000 or less for the Little Rock District,
1945-1959.
Ninth District savings and loan associations accounted for about the same percentage of total recordings at the beginning and end of the period being analyzed. They accounted for 36.4 per cent of District re cordings In 1945. The proportion declined thereafter to an average of approximately 25 per cent in 1948-1949. The latter percentage remained TABLE XXH
PERCENTAGE DISTRIBUTION ALL NONFARM MORTGAGE RECORDINGS, $ 2 0 ,0 0 0 OR LESS IiTTLE ROCK DISTRICT, 1945-1959
District 9 Mutual District 9 S and L as All S and L Ins. Comm'l Savings as a % of a % of U. S. Year Lenders Assns Cos. Banks Banks Individuals Others U. S. Total S & LAssns.
1945 100.0 36.4 10.9 9 .6 31.2 IliO 5.5 5.6 1946 100.0 31.9 12.3 11.0 25.7 19.2 5.5 5.3 1947 100.0 26.6 17.8 10.7 22.2 23.1 5.8 4.8 1948 100.0 24.7 20.2 10.2 21.8 23.1 6.2 5 .0 1949 100.0 25.4 17.5 9.8 20.3 26.4 6.6 5.5
1950 100.0 25.8 17.8 9.8 17.7 28.6 6.3 5.2 1951 100.0 25.5 17.2 9.5 18.3 29.4 6.7 4 .4 1952 100.0 25.7 14.7 10.0 20.4 29.2 6.6 4 .7 1953 100.0 28.0 13.1 10.8 19.4 28.5 6.7 5 .0 1954 100.0 26.7 13.5 10.9 0.8 16.0 32.7 6.9 5.1 1955 100.0 29.3 12.6 11.4 3.1 13.7 32.8 6.8 5.4 1956 100.0 26.6 14.2 12.4 14.8 31.8 6 .7 5.1 1957 100.0 31.5 12.0 11.1 4.7 17.7 27.5 7 .0 5 .8 1958 100.0 33.1 10.4 11.7 2.1 15.3 29.2 7 .0 6.1 1959 100.0 33.9 9 .5 12.4 2.8 13.7 30.2 7.1 5.9
1. Trust Departments of Commercial Banks, Pension Funds, Philanthropic and Educational Institutions, Fraternal and Beneficial Organizations, Casualty and Fire Insurance Companies, Real Estate and Mortgage Companies.
SOURCE: Federal Home Loan Bank Board 107
relatively stable through 1954; after 1954, however, savings and loan
associations averaged approximately 30.8 per cent of total District Re
cordings , accounting for 33.9 per cent in 1959, the highest percentage
since 1945.
There are only two other significant Institutional competitors—
insurance companies and commercial banks—In home mortgage financ
ing In the Little Rock District. The behavior of the share of recordings
accounted for by insurance companies was In marked constrast to that
of savings and loan associations. Insurance companies tended to
increase their relative position during the period 1945-1952, while
savings and loan associations tended to experience a diminution of their relative position in these years. In the period 1945-1949, Insur
ance companies accounted for an average of about 15.7 per cent of total
recordings. They accounted for 15.4 per cent during 1950-54, but for only 11.7 per cent In the 1955-59 period. Their relative share declined
from a high of 20.2 per cent in 1948 to a low of 9.5 per cent in 1959.
Commercial banks accounted for an average of about 10 per cent of total district recordings through the period under consideration, rising from 9.6 per cent in 1945 to 11.0 per cent in 1946. Their share de clined thereafter to a low of 9.5 per cent in 1951; after 1951, the per centage accounted for by commercial banks tended upward, reaching
12.4 per cent in 1959.
The percentage of total mortgage recordings accounted for by individuals showed a marked tendency to decline, falling from 31.2 108 per cent in 194S to a low of 13.7 per cent In 1957. However, by 1959 individuals accounted for only 13.7 per cent of total District record ings. The percentage accounted for by "others,11 in contrast, rose from 11.0 per cent of total recordings in 1945 Thereafter, the percentage declined to 27.5 per cent of total recordings in 1957, and then increased to 30.2 per cent in 1959. If individuals and "others" are combined into a miscellaneous category, they ac counted for a relatively stable percentage of total recordings in the period 1945-1959. Mortgage Debt Outstanding Closely allied with mortgage recordings is the growth of home mortgage debt outstanding. As suggested by the growth of recordings, savings and loan associations accounted for an increased amount and percentage of home mortgage debt outstanding in the period 1945-1959. Detailed statistics on mortgage debt outstanding for 1-4 family nonfarm homes in the United States, 1945-1959, are contained in Table XXIII. The amount of such debt accounted for by savings and loan associations of the nation increased from $5,156 million in 1945 to $ftl,117 million in 1949, or 113.4 per cent, a percentage somewhat greater than the 102.1 per cent for total mortgage debt of the nation and the 78.9 per cent for mutual savings banks, but far less than the 175.9 per cent for commercial banks end the 165.2 per cent for insur ance companies. In the next five years, 1949-1954, mortgage debt TABLE XXIII HOLDINGS OF MORTGAGE DEBT OUTSTANDING, 1-4 FAMILY NONFARM HOMES, U. S ., 1945-1949 (In millions of dollars) Life Mutual Savings in s. Savings Comm'l Individuals Year Total Assns C os. Banks Banks WOW FNMA and Others 1945 18,591 5,156 2,306 1,894 2,875 852 .007 5,501 1946 23,034 6,840 2,545 2,033 4,576 636 .006 6,398 1947 28,199 8,475 3,497 2,283 6,303 486 .004 7,151 1948 33,279 9,841 4,943 2,835 7,396 369 .198 7,697 1949 37,619 11,117 6,093 3,364 7,956 231 .806 8,052 1950 45,170 13,116 8,478 4,312 9,481 10 1,328 8,445 1951 51,711 14,844 10,610 5,331 10,275 1,818 8,833 1952 58,500 17,645 11,757 6,194 11,250 2,210 9,444 1953 66,094 20,999 13,195 7,373 12,025 2,358 10,144 1954 75,677 25,004 15,153 9,002 13,300 2,328 10,890 1955 88,250 30,001 17,661 11,100 15,075 2,444 11,969 1956 99,037 34,004 20,130 12,990 16,245 2,866 12,802 1957 197,617 37,996 21,441 14,110 16,385 3,777 13,908 1958 117,686 42,890 22,374 15,640 17,628 3,580 15,574 1959 131,144 49,727 23,622 16,868 19,240 4,938 16,749 PER CENT INCREASE 1945-49 102*1 113.4 165.2 78.9 175.9 11,414.2 45.4 1950-54 67.4 90.8 78.8 109.3 40.0 76.9 29.7 1955-59 48.6 65.6 33.3 50.4 27.1 104.1 39.1 1945-59 604.8 855.7 926.0 778.9 562.0 203.6 SOURCE: Housing Statistics: Housing Statistics Historical Supplement: Housing In the Economy. Housing and Home Finance Agency. held by savings and loan associations rose from $11,117 million to $25,004 million, an increase of 90.8 per cent. For the same period, all competitors, except mutual savings banks, showed a much slower growth of mortgage holdings, the comparative Increases being 67.4 per cent for total mortgage debt, 78.8 per cent for life Insurance companies, 109.3 per cent for mutual savings banks, and 40.0 per cent for commercial banks. In the final five years of the period being studied, 1954-1959, savings and loan holdings of mortgage debt out standing grew from $25,004 million to $49,727 million, or 65.5 per cent. The latter percentage surpasses the increase of 48.6 per cent for total mortgage debt, 33.3 per cent for the holdings of Insurance companies, 50.4 per cent for mutual savings banks, and 27.1 per cent for commercial banks. For the fifteen year period 1945-1959, savings and loan holdings of mortgage debt outstanding Increased by 855.7 per cent, surpassing those of all competitors except insurance companies. The comparative increases are 604.8 per cent for total mortgage debt, and 926.0 per cent for life insurance companies, 778.9 per cent for mutual savings banks, and 562.0 per cent for commercial banks. Table XXIV shows the percentage distribution of mortgage debt outstanding on 1-4 family nonfarm homes of $20,000 or less, 1945- 1959, for the nation. The share of such debt owned by savings and loan associations was 27.8 per cent In 1945 and 37.9 per cent In 1959, averaging approximately 29.3 per cent during 1945-1949, 30.1 per cent during 1950-1954, and 35.6 per cent during the period 1955-1959. TABLE XXIV PERCENTAGE DISTRIBUTION HOLDINGS OF MORTGAGE DEBT OUTSTANDING, 1-4 FAMILY NONFARM HOMES, U .S . 1945-1959 life Mutual S and L Ins. Savings Comm'l Individuals Year Total As aw C es. Banks Banks HOLC FNMA and Others 1945 100.0 27.8 12.2 10.2 15.5 4.6 29.6 1946 100.0 29.7 11.2 8.8 19.8 2.8 27.3 1947 100.0 30.1 12.3 8.1 22.4 1.7 25.4 1948 100.0 29.6 14.8 8.5 22.2 1.1 0.6 23.2 1949 100.0 29.6 15.9 9 .0 21.2 0.6 2.2 21.5 1950 100.0 29.1 18.6 9.6 21.0 3.0 18.7 1951 100.0 28.5 20.9 10.3 19.8 3.5 17.0 1952 100.0 30.0 20.4 10.6 19.1 3.8 16.1 195* 100.0 31.9 19.9 11.2 18.3 3.6 15.3 1954 100.0 33.0 20.0 11.9 17.6 3.1 14.4 1955 100.0 34.0 20.0 12.6 17.1 2.8 13.5 1956 100.0 34.4 20.3 13.1 16.4 2.9 12.9 1957 100.0 35.3 19.9 13.1 15.2 3.5 13.0 1958 100.0 36.5 19.0 13.3 15.0 3 .0 13.2 1959 100.0 37.9 18.0 12.8 14.7 3.8 12.8 SOURCE: Derived from Table XXHI 112 life Insurance companies owned a smaller but an increasing share, ranging from 12.2 per cent total mortgage debt in 1945 to 18.0 per cent in 1959 and averaging about 13.2 per cent during 1945-1949, 19.8 per cent during 1950-1954, and 1982 per cent in the period 1955- 1959. The per cent of debt held by mutual savings banks was even smaller, but increased from 10.2 per cent in 1945 to 12.8 per cent in 1959, averaging about 9.0 per cent during 1945-1949, 10.7 per cent during 1950-1954, and 12.9 percent in the period 1955-1959. The share of mortgage debt owned by commercial banks rose from 15.5 per cent in 1945 to a high of 22.4 per cent in 1947 and gradually declined to 14.7 per cent in 1959, a low for the period. Banks averaged about 20.2 per cent during 1945-1949, 19.1 per cent during 1950-1954 and 15.6 per cent in the period 1955-1959. The ownership of mortgage debt by individuals declined continually from a high of 29.6 per cent in 1945 to a low of 12.8 per cent in 1959. Thus, the absolute and rela tive position of the associations of the nation in mortgage debt was greater in 1959 than 1945. Mortgage Debt^ Ninth District Savinas and loan Associations The breakdown of member association's holdings of mortgage debt by FHLB districts, 1945-1959, is shown in Table XXV. First mortgage loans outstanding held by the Ninth District associations increased more rapidly than those for all associations of the nation in the period being studied. Mortgage debt held by Ninth District associations rose TABLE XXV MORTGAGE DEBT HELD BY FHLB DISTRICT SAVINGS AND LOAN ASSOCIATIONS, 1945-1959 ($000,000 omitted) Total* D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. Year Total1 S&L |1 «2 #3 #4 f s #6 #7 #8 #9 *10 *11 1945 18,591 4,823 529 527 338 599 812 257 489 266 234 182 588 1946 23,034 6,487 635 722 446 854 1,049 361 674 370 324 255 798 1947 28,199 8,073 736 894 539 1,120 1,269 456 864 44t 405 313 1,029 1948 33,279 9,439 854 1,082 610 1,278 1,442 533 1,028 518 482 371 1,239 1949 37,619 10,683 947 1,239 680 1,417 1,585 597 1,181 590 560 525 1,461 1950 45,170 12,660 1,047 1,514 811 1,669 1,810 709 1,432 716 669 500 1,785 1951 51,711 14,600 1,141 1,835 915 1,961 2,050 819 1,659 868 764 558 2,030 1952 58,500 17,410 1,279 2,194 1,083 2,401 2,368 956 1,968 1,033 912 676 2,540 1953 66,094 20,859 1,464 2,546 1,288 2,951 2,721 1,144 2,426 1,268 1,113 823 3,115 1954 75,677 24,955 1,669 2,965 1,508 3,550 3,135 1,346 2,957 1,549 1,375 1,011 3,891 1955 88,250 30,201 1,877 3,597 1,808 4,317 3,714 1,586 3,625 1,888 1,712 1,257 4,820 1956 99,037 34,495 2,046 4,068 2,074 4,964 4,156 1,794 4,223 2,143 1,949 1,403 5,676 1957 107,617 38,686 2,173 4,482 2,299 5,560 4,582 2,004 4,750 2,385 2,231 1,545 6,674 1958 117,686 44,130 2,327 5,029 2,550 6,358 5,111 2,252 5,469 2,775 2,625 1,759 7,876 1959 131,144 51,528 2,537 5,746 2,900 7,475 5,746 2,594 6,373 3,240 3,103 2,042 9,771 PER CENT INCREASE 1945-49 102.4 95.7 79.0 135.1 101.2 136.6 95.2 132.3 141.5 121.8 139.3 188.5 148.5 1949-54 101.2 164.4 76.2 139.3 121.8 150.5 97.8 125.5 150.4 162.5 145.5 92.6 166.3 1954-59 41.2 110.5 52.0 93.8 92.3 110.6 83.3 92.7 115.5 109.2 125.7 102.0 151.1 1945-59 605.4 968.4 379.6 990.3 758.0 1,147.9 607.6 626.6 1,203.3 1,118.0 1,226.1 1,022.0 1^61.7 * Total mortgage debt, 1-4 family nonfarm homes all mortgages. 2First mortgage loans outstanding as of December 31st of each year, FHLB members. 113 SOURCE: Federal Home Loan Bank Board. 114 from $234 million in 1945 to $560 million in 1949, an increase of 139.3 per cent. This percentage Increase was greater than for all associa tions of the nation (95.7 per cent) or for any of the other FHLB districts, exdept Chicago (141.5 per cent), Topeka (188.5 per cent), and San Francisco (148.5 per cent). From 1949 to 1954, mortgage debt owned by Ninth District associations grew from $560 million to $1,375 million, or 145.5 per cent. For the same period, the percentage increase in mortgage debt held by the nation's associations (164.4 per cent) was greater than in Little Rock, but the 145.5 per cent increase in Little Rock was greater than any of the other FHLB districts except Greensboro (150.5 per cent), Chicago (150.4 per cent), Des Moines (162.5 per cent), and San Francisco (166.3 per cent). In the final five years, 1954-1959, of the period being analyzed, mortgage debt outstanding held by Ninth District associations rose from $1,375 million to $3,103 million, or 125.7 per cent, a rate of growth greater than for all associations of the nation (110.5 per cent), and greater than any of the other FHIB districts except San Francisco (151.1 per cent). During the entire period, 1945-1959, mortgage debt owned by Ninth District savings and loan associations increased by approximately $2,869 million, or 1,226.1 per cent. This percentage increase sub stantially surpassed the national increase (968.4 per cent) and each of the other FHLB districts except San Francisco (1,561.7 per cent). In dollar volume of mortgage debt held, the Ninth District associations ranked tenth in 1945 and seventh in 1959 among the eleven FHLB districts. Table XXVI shows the percentage distribution of first mortgage loans held by FHIB member savings and loan associations, 1945-1959. Ninth District associations owned only 4.8 per cent of total mortgage loans outstanding in 1945, but accounted for 6.0 per cent in 1959. Only three other FHIB districts appreciably increased their relative position in the ownership of mortgage debt in the period 1949 to 1959: Greensboro, from 12.4 to 14.8 per cent; Chicago from 10.1 to 12.4 per cent; and San Francisco, from 12.2 to 19.0 per cent. Three FHIB districts suffered a diminution of their relative position in mortgage loans outstanding: Boston, from 11.0 per cent in 1945 to 4.9 per cent in 1959; Pittsburgh, from 7.0 per cent in 1945 to 5.6 per cent in 1959; and Cincinnati, from 16.8 per cent in 1945 to 11.2 per cent in 1959. Three districts—New York, Indianapolis, and Topeka—substantially maintained their relative positions. Growth of Savings Capital The growth in savings and loan assets and home mortgage financing would not have been possible without a similar increase in new savings capital. Therefore, the final section of this chapter will examine and record the growth of savings capital in savings and loan associations. The behavior of savings capital will be shown in both its absolute and relative magnitudes, and changes in savings capital of the Little Rock District associations will be compared with the trend In savings capital in the associations of other districts. TABLE XXVI PERCENTAGE DISTRIBUTION FIRST MORTGAGE LOANS OUTSTANDING BY FHIB MEMBER SAVINGS AND LOAN ASSOCIATIONS, 1945-1959 Member S and L D ist. Dist. Dist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. Year Assns #1 *2 #3 #4 *5 *« #7 #8 _M _ _ . #10 #11 1945 100.0 11.0 10.9 7 .0 12.4 16.8 5.3 10.1 5.5 4.8 3.8 12.2 1946 100.0 9.8 11.1 6.9 13.2 16.2 5.6 10.4 5.7 5 .0 3.9 12.2 1947 100.0 9.1 11.1 6.7 13.9 15.7 5 .6 10.7 5.5 5 .0 3.9 12.7 1948 100.0 9 .0 11.5 6.5 13.5 15.3 5 .6 10.9 5.5 5.1 3.9 12.9 1949 100.0 8.9 11.6 6.4 13.3 14.8 5.6 11.1 5 .5 5.2 4.9 13.7 1950 100.0 8.3 12.0 6.4 13.2 14.3 5.6 11.3 5.6 5.3 3.9 14.1 1951 100.0 7.8 12.6 6.3 13.4 14.0 5 .6 11.4 5.9 5.2 3.8 13.9 1952 100.0 7 .3 12.6 6.2 13.8 13.6 5.5 11.3 5 .9 5 .2 3.9 14.6 1953 100.0 7 .0 12.0 6.2 14.1 13.0 5.5 11.6 6.1 5.3 3.9 14.9 1954 100.0 6.7 11.9 6 .0 14.2 12.6 5 .4 11.8 6 .2 5.5 4.1 15.6 1955 100.0 6.2 11.9 6 .0 14.3 12.3 5.2 12.0 6.2 5.7 4.2 16.0 1956 100.0 5.9 11.8 6.0 14.4 12.0 5.2 12.2 6.2 5 .6 4.1 16.4 1957 100.0 5.6 11.6 5.9 14.4 11.8 5.2 12.3 6.2 5.8 4 .0 17.2 1958 100.0 5 .3 11.4 5.8 14.4 11.6 5.1 12.4 6.3 5.9 4 .0 17.8 1959 100.0 4.9 11.2 5.6 14.8 11.2 5 .0 12.4 6.3 6 .0 4 .0 19.0 SOURCE: Federal Home Loan Bank Board 117 The investments of individuals in savings accounts, United States Bonds and life insurance reserves for the period 1945-1959 are recorded in Table XXVII. Savings at savings and loan associations rose from $7.4 billion in 1945 to a level of $54.7 billion in 1959, an increase of 639.1 per cent. This compares with the increase of $19.7 billion or 128.7 per cent, for mutual savings bonks; the $32.8 billion, or 109.6 per cent, increase for commercial banks; the $4.1 billion, or 1,025.0 per cent, increase for credit unions; the $15.2 billion, or 660.8 per cent, increase for mutual funds; the $2.9 billion, or 6.7 per cent, increase for United States Savings Bonds; the $2 billion, or 66.6 per cent, decrease for postal savings; and the $53.5 billion, or 142.6 per cent, increase in life Insurance reserves. Thus all listed media, except postal savings, participated in the vast accumulation of savings in the period 1945-1959. The Increase in savings at savings and loan associations was surpassed in absolute magnitude only by the increase in life insurance reserves, and only credit unions and mutual funds had percentage growth rates in savings capital exceeding that of savings and loan associations. The percentage distribution of savings among the media listed above for the period 1945-1959 is contained in Table XXVIII. The per centage of total savings accounted for by savings and loan associations approximately tripled, rising from 5.3 per cent in 1945 to 17.5 per cent in 1959. Only two other media Increased their share among the various TABLE XXVII INVESTMENTS OF INDIVIDUALS IN SAVINGS ACCOUNTS, UNITED STATES SAVINGS BONDS, LIFE INSURANCE RESERVES, U . S . , 1945-1959 (In billions of dollars) Total Mutual U. S. Life Selected S and L Savings Comm'l Credit Mutual Savings Postal Ins. Year Media A ssns.1 Banks2 Banks1 Unions4 Funds Bond^ Savings Reserves 1945 138.7 7.4 15.3 29.9 0.4 2.3 42.9 3.0 37.5 1946 149.7 8.5 16.8 33.4 0.5 2.2 44.2 3.4 40.7 1947 158.4 9.8 17.7 34,7 0.5 2.2 46.2 3.5 43.8 1948 165.6 11.0 18.4 35.0 0.6 2.3 47.8 3.4 47.1 1949 173.2 12.5 19.3 35.1 0.7 2.8 49.3 3.3 50.2 1950 179.7 14.0 20.0 35.2 0.9 3.4 49.6 3.0 53.6 1951 187.8 16.1 20.9 36.6 1.1 4.1 49.1 2.8 57.1 1952 200.4 19.2 22.6 39.3 1.4 4.9 49.2 2.7 61.1 1953 212.9 22.8 24.3 42.0 1.7 5.1 49.4 2.5 65.1 1954 229.0 27.3 26.3 44.7 2.0 7.3 50.0 2.2 69.2 1955 243.9 32.2 28.1 46.3 2.4 9 .0 50.2 2.0 73.7 1956 258.6 37.1 30.0 48.5 2.9 10.3 50.1 1.7 78.0 1957 272.3 49.1 31.7 53.7 3.4 9.9 48.2 1.4 82.1 1958 296.2 48.0 34.0 60.0 3.9 14.8 47.7 1.2 86.6 1959 312.2 54.7 35.0 62.7 4.5 17.5 45.8 1.0 91.0 PER CENT INCREASE 1945-59 125.0 639.1 128.7 109.6 1,025.0 660.8 6.7 -66.6 142.6 ^Savings accounts, deposits, investment certificates. ^Current redemption value of bonds held by individuals. ^Regular and special savings accounts. 2 Outstanding and accrued interest on certificates of ^im e deposits of individuals, partnerships, corporations. deposits. ^Shares and members' deposits. ®Sum of estimated reserves plus dividends accumu- 118 5Net assets of closed- and open-end investment companies, iated, less premium notes and policy loans. SOURCE: Federal Home Loan Bank Board TABLE XXVIII PERCENTAGE DISTRIBUTION INVESTMENTS OF INDIVIDUALS IN SAVINGS ACCOUNTS, UNITED STATES SAVINGS BONDS, LIFE INSURANCE RESERVES, U.S. 1945-1959 Mutual U . S. life S and L Savings Comm'l Credit Mutual Savings Postal In s. Year Total Assns Banks Banks Unions Funds Bonds Savinas Reserves 1945 100.O1 5 .3 11.0 21.5 0.2 1.6 30.9 2.1 27.0 1946 100.0 5 £6 11.2 22.3 0.3 1.4 29.5 2.2 27.1 1947 100.0 6.1 11.1 21.9 0.3 1.3 29.9 2.2 27.6 1948 100.0 6.6 11.1 21.1 0.3 1.3 28.8 2.0 28.4 1949 100.0 7 .2 11.1 20.2 0.5 1.6 28.4 1.9 28.9 1950 i to .o 7.7 11.1 19.5 0.5 1.8 27.6 1.6 29.8 1951 100.0 8.5 11.1 19.4 0.5 2.1 26.1 1.4 30.4 1952 100.0 9.5 11.2 19.6 0.6 2.4 24.5 1.3 30.7 1953 100.0 10.7 11.4 19.7 0.7 2.3 22.4 1.1 30.5 1954 100.0 11.9 11.4 19.5 0.8 3.1 21.8 0.9 30.2 1955 100.0 13.2 11.5 18.9 0.9 3.6 20.5 0.8 30.2 1956 100.0 14.3 11.6 18.7 1.1 3.9 19.3 0.6 30.1 1957 100.0 18.0 11.6 19.7 1.2 3.6 17.7 0.5 30.1 1958 100.0 16.2 11.4 20.2 1.3 4.9 16.1 0 .4 29.2 1959 100.0 17.5 11.2 20.0 1.4 5.6 14.6 0.3 29.1 AVERAGE 1945-49 100.0 6.1 11.1 21.4 0.3 1.4 29.5 2 .0 27.8 1950-54 100.0 9.6 11.2 19.5 0.6 2.3 24.4 1.3 30.3 1955-59 100.0 15.8 11.4 19.5 1.1 4.3 17.6 0.5 29.7 *The total may not equal 100 per cent because of rounding error. 119 SOURCE: Federal Home Loan Bank Board; United States Saving and Loan League. media. Credit unions Increased their share from 0.2 per cent of total savings among the listed media in 194S to 1.4 per cent In 1959; and mutual funds' share rose from 1.6 per cent in 1945 to 5.6 per cent In 1959. The percentage accounted for by postal savings and United States Savings Bonds declined from 2.1 and 30.9 per cent, respec tively, in 1945 to 0.3 and 14.6 per cent, respectively, in 1959, while commercial banks and mutual savings banks substantially maintained their relative positions. Commercial banks and life insurance re serves still accounted for the largest shares in 1959, but savings and loan associations held third rank in that year, as compared with fifth rank in 1945. Growth in District Savings Capital7 The behavior of savings capital for Insured associations in the period 1945-1959 is shown by FHLB districts in Table XXIX. During the period 1945-1949, savings capital in the Ninth District associations rose from $269 million to $564 million, an increase of 109.7 per cent, a percentage much greater than for all associations of the nation (86.2 per cent) and greater than for any of the other Federal Home Loan Bank districts. In the next five years, 1949-1954, savings capital In the Little Rock associations, growing more rapidly. Increased from $564 million to $1,428 million, an Increase of 153.2 per cent. The latter 7 The discussion of the growth of savings capital in this section will be limited to that in "insured associations." TABLE XXIX GROWTH IN SAVINGS CAPITAL, INSURED ASSOCIATIONS, BY FHIB DISTRICTS, 1945-1959 D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. D ist. Year U.S. t l #2 *3 #4 #5 #6 #7 ♦8 _ #9 #10 ♦11 1945 5,210 267 650 342 552 965 357 548 303 269 202 750 1946 6,184 306 816 409 672 1,099 416 660 360 323 242 876 1947 7,177 342 949 472 813 1,223 477“ 784 420 390 284 l , t l 7 1948 8,255 394 1,146 529 949 1,345 528 919 473 460 330 1,180 1949 9,699 454 1,359 615 1,147 1,519 595 1,103 556 564 382 1,407 1950 11,359 565 1,568 715 1,535 1,656 671 1,290 643 650 434 1,625 1951 13,653 659 1,912 830 1,904 1,914 788 1,582 840 763 524 1,937 1952 16,732 766 2,305 984 2,398 2,259 1,008 1,980 1,020 937 674 2,402 1953 20,252 907 2,690 1,172 2,926 2,611 1,226 2,435 1,244 1,156 834 3,051 1954 24,529 1,060 3,205 1,421 3,620 3,039 1,431 2,987 1,549 1,428 1,016 3,782 1955 29,241 1,206 3,745 1,672 4,357 3,535 1,669 3,607 1,857 1,718 1,216 4,658 1956 34,152 1,333 4,245 1,930 5,132 4,054 1,943 4,258 2,181 2,004 1,424 5,649 1957 38,773 1,463 4,711 2,148 5,824 4,557 2,232 4,871 2,450 2,346 1,586 6,586 1958 44,670/ 1,608 5,298-- 2,427 6,712 5,056 2,522 5,664 2,859 2,752 1,828 7,945 1959 5 1 ,1 6 0 ^ 1,743 5,918 2,712 7,776 5,697 2,837 6,423 3,273 3,231 2,086 9,466 PER CENT INCREASE 1945-49 86.2 70.0 109.1 79.8 107.8 57.4 66.7 101.3 83.5 109.7 89.1 87.6 1949-54 152.9 133.5 135.8 131.1 215.6 100.1 140.5 170.8 178.6 153.2 166.0 168.8 1954-59 108.6 64.4 84.6 90.8 114.8 87.5 98.2 115.0 111.3 126.3 105.3 150.3 1945-59 882.0 552.8 810.5 693.0 1,308.7 490.4 694.7 1,072.1 980.2 1,101.1 932.7 1,162.1 ^Summation of districts may not equal U. S. total because of rounding error. SOURCE: Federal Home Loan Bank Board. 122 rate of growth exceeded the national rate (152.9) and the rate for each of the other FHIB districts except San Francisco (168.8 per cent), Greensboro (215.6 per cent), Chicago (170.8 per cent), and Des Moines (178.6 per cent). Savings capital In the Little Rock District continued to grow but at a decreasing rate In the next five years, rising from $1,443 million in 1954 to $3,231 million in 1959, or 126.3 per cent. The rate of growth In the Little Rock District again surpassed the national rate (108.6 per cent); and it again exceeded the growth rate of each of the other FHLB districts except San Francisco (150.3 per cent). Over the whole period 1945-1959, savings capital in Little Rock Increased by $2,976 million, or 1,101.1 per cent, greatly surpassing the rate of growth of savings capital in all associations of the nation (882.0). Little Rock's rate of growth in savings capital was exceeded in only two of the other FHLB Districts—Greensboro (1,308.7 per cent), and San Francisco (1,162.1 per cent)—over the period 1945-1959, and was ex ceeded only in the Greensboro and San Francisco districts in the 1950s. Although Little Rock ranked seventh in absolute terms in 1959—two ranks higher than in 1945—the difference between it and the sixth ranked Des Moines District was Insignificant. The relative shares of savings capital for Insured savings and loan associations are given by FHLB districts for the period 1945-1959 in Table XXX. The relative position of the Little Rock District was only 1.1 peioentage points greater in 1959 than in 1945. The district's share rose from 5.2 per cent of the savings capital of insured associations in TABLE XXX PERCENTAGE DISTRIBUTION GROWTH IN SAVING CAPITAL, INSURED ASSOCIATIONS, BY FHIB DISTRICTS, 1945-1959 D ist. D ist. D ist. D ist. D ist. D is t. D ist. D ist. D ist. D ist. D ist. Year U .S . _ *1 *2 #3 *4 *5 ..i6 _ _ #7 _ *8 #9 #10 #11 1945 100.0 5.1 12.5 6.6 10.6 18.5 6.8 10.5 5.8 5.2 3.9 14.4 1946 100.0 4.9 13.2 6.6 10.9 17.8 6.7 10.7 5.8 5 .2 3.9 14.2 1947 100.0 4.8 13.2 6.6 11.3 17.0 6.6 10.9 5.8 5.4 4 .0 14.2 1948 100.0 4.8 13.9 6.4 11.5 16.3 6.4 11.1 5.7 5 .6 4 .0 14.3 1949 100.0 4.7 14.0 6.3 11.8 15.7 6.1 11.4 5.7 5.8 3.9 14.5 1950 100.0 5 .0 13.8 6.3 13.5 14.6 5 .9 11.4 5.7 5 .7 3.8 14.3 1951 100.0 4.8 14.0 6.1 13.9 14.0 5.8 11.6 6.2 5.6 3.8 14.2 1952 100.0 4.6 13.8 5.9 14.3 13.5 6 .0 11.8 6.1 5 .6 4 .0 14.4 1953 100.0 4.5 13.3 5.8 14.4 12.9 6.1 12.0 6.1 5.7 4.1 15.1 1954 100.0 4 .3 13.1 5.8 14.8 12.4 5 .8 11.8 6.3 5.8 4.1 15.4 1955 100.0 4.1 12.8 5.7 14.9 12.1 5 .7 12.3 6.4 5 .9 4.2 15.9 1956 100.0 3.9 12.4 5.6 15.0 11.9 5 .7 12.5 6.4 5.9 4.2 16.5 1957 100.0 3.8 12.2 5.5 15.0 11.8 5.8 12.6 6.3 6.1 4.1 17.0 1958 100.0 3 .6 11.9 5.4 15.0 11.3 5 .6 12.7 6.4 6 .2 4.1 17.8 1959 100.o i / 3.4 11.6 5.3 15.2 11.1 5.5 12.6 6.4 6.3 4.1 18.5 ^Summation of districts may not equal 100% because of rounding error. SOURCE: Federal Home Loan Bank Board. 1945 to 6.3 per cent In 1959. It It interesting to note that five of the eleven FHIB districts (Boston, New York, Pittsburgh, Cincinnati, and Indianapolis) tend to maintain or increase their relative position in the immediate postwar period through 1949, but each of these five districts accounted for a declining share of total savings capital for the remainder of the period under consideration. Only four FHLB dis tricts, Little Rock, Greensboro, Chicago, and San Francisco, Increased their relative position after 1950. The associations of the Little Rock District accounted for 5.7 per cent of total savings at savings and loan associations in 1950 and 6.3 per cent in 1959, while the San Francisco District accounted for 14.3 per cent in 1950 and 18.5 per cent in 1959. Most of the growth in the latter district took place in the last five years, 1955-1959. The comparative growth of savings capital for the associations of the nation and the Ninth Federal Home Loan Bank District, 1945-1959, is depicted on semilog scale in Figure 6. Two observations about Figure 6 are warranted. First, there was a remarkably steady rate of growth in savings capital throughout the period 1945-1959, both for the nation and the Ninth District. Second, the slope of the line representing savings capital of the Ninth District is steeper throughout the period than for the nation, indicating a higher rate of growth for savings capital of the Ninth District. BILLIONS OF DOLLARS H • • o n I 8 £ 3 i o > H i 2 588" tILLIOMS O f DOLLARS 125 126 It Is interesting to examine the growth of savings capital in savings and loan associations within the states comprising the Little Rock District. Table XXXII shows the growth in savings capital of in sured associations for the states of the Ninth District for the period 1945-1959. These data are presented in condensed form below: TABLE XXXI SAVINGS CAPITAL INSURED ASSOCIATIONS NINTH DISTRICT, 1945-1959 Amount in millions Per cent Increase 1945- 1949- 1954- 1945- Region 1949 1954 1959 1949 W 4 1959 1959 Ark. $ 19 $ 48 $ 112 $ 237 152.6 133.4 111.6 1 ,1 4 7 .4 La. 96 175 365 743 82.3 108.6 103.6 674.0 M iss. 12 33 98 223 175.0 197.0 127.6 1 ,8 1 6 .7 N . M . 6 23 63 137 187.5 173.9 117.5 1 ,758.3 Tex. 132 275 790 1,891 108.0 187.3 139.8 1 ,3 3 2 .6 D iet. 269 564 1,428 3,231 109.4- 153.2 126.3 1 ,1 0 1 .1 SOURCE: Derived from Table XXXH. The associations in each state of the Ninth District except Louisiana exhibited a more rapid growth in savings capital than the total for the district. The associations in Mississippi showed the greastest per centage Increase in savings capital for the entire period, 1945-1959. As in the case of growth in savings capital for the nation's asso ciations , Ninth District savings capital gsew at an accelerated rate from 1945 to 1954, increasing less rapidly thereafter to 1959. However, only two states—Texas and Louisiana—exhibited the same pattern of growth 127 TABLE XXXII GROWTH IN SAVINGS CAPITAL, INSURED ASSOCIATION, NINTH DISTRICT, 1945-1959 (In millions of dollars) YW D is t. 9 A rk. L a. M iss . N . M . T exas 1945 269 19 96 12 8 132 1946 323 26 109 16 11 161 1947 390 33 128 20 14 194 1946 460 40 147 25 18 230 1949 564 48 175 33 23 275 1950 650 56 201 41 28 324 1951 763 66 227 49 33 388 1952 937 80 267 61 41 488 1953 1,156 96 311 76 51 622 1954 1,428 112 365 98 63 790 1955 1,718 133 425 123 76 961 1956 2 ,0 0 4 154 489 149 90 1 ,122 1957 2 ,3 4 6 180 558 170 102 1,336 1958 2 ' 7 52i / 210 655 194 121 1,572 1959 33231-=' 237 743 223 137 1,891 PER CENT INCREASE 1945- •49 109.7 152.6 8 2 .3 1 7 5 .0 187.5 108.3 1949-54 1 53.2 133.3 1 08.6 1 97.0 173.9 187.3 1954-59 126.3 1 11.6 1 03.6 1 27.6 117.5 139.4 1945* -59 1,101.1 1,147.4 674.0 1,758.3 1 ,612.5 1 ,3 3 2 .6 *A disparity of district total and summation of parts is due to rounding aeror« SOURCE: Federal Home Loan Bank Board. 128 as the District. The slower rate of Increase In savings capital in the associa tions of Louisiana altered the percentage distribution for the various states (see Table XXXIII). Texas, occupying the predominant position In the District, increased its relative share from 49.1 per cent of district savings capital in 1945 to 58.5 per cent in 1959. Louisiana, still occupying second place, experienced a diminution of its relative posi tion. In 1945, Louisiana accounted for 35.7 per cent of district savings, a figure which declined speedily to a low of 23.0 per cent In 1959. Savings capital held by Arkansas associations rose from 7.1 per cent J.n 1945 to 8.6 per cent in 1949, but declined thereafter to 7.3 per cent In 1959. M ississippi enhanced her relative position in the period, rising from 4.5 per cent in 1945 to 6.9 per cent in 1959. New Mexico increased her relative share from 3.0 per cent in 1945 to 4.2 per cent in 1959. In terms of the dollar value of savings capital, the states ranked in the following order as of 1959: Texas, Louisiana, Arkansas, M ississippi, and New Mexico. In terms of the rate of growth in savings capital for the period 1945-1959, they ranked: M ississippi, New Mexico, Texas, Arkansas, and Louisiana. Both sets of rankings are Identical with those for assets. (See p. 84 above). Figure 7 (a ratio chart) shows some interesting facts about the comparative rates of growth of savings capital for the states comprising the Ninth District, 1945-1959. M ississippi, of course, showed the 129 TABLE XXXIII PERCENTAGE DISTRIBUTION SAVINGS CAPITAL, INSURED ASSOCIATIONS, NINTH DISTRICT, 1945-1959 Y ear D is t. Ark. L a. M ISS. N . M . T exas 1945 1 0 0 .0 7 .1 3 5 .7 4 .5 3 .0 4 9 .1 1946 1 0 0 .0 8 .0 3 3 .7 5 .0 3 .4 4 9 .8 1947 1 00.0 8 .5 35 .5 5 .1 3 .6 4 9 .6 1948 100.0 8 .7 3 2 .0 5 .4 3 .9 5 0 .0 1949 100.0 8 .5 3 1 .0 5 .8 4 .1 4 8 .8 1950 100.0 8.6 3 0 .9 6 .3 4 .3 4 9 .8 1951 100.0 8 .7 2 9 .8 6 .4 4 .3 5 0 .8 1952 100.0 8 .5 28 .5 6 .5 4 .4 5 2 .1 1953 100.0 8.3 26.9 6 .6 4 .4 5 3 .8 1954 1 0 0 .0 7 .8 2 5 .6 6 .9 4 .4 5 5 .8 1955 100.0 7.7 24.7 7 .2 4 .4 5 5 .9 1956 1 00.0 7 .7 24 .4 7 .4 4 .5 5 6 .0 1957 1 0 0 .0 7 .7 2 3 .8 7 .2 4 .3 5 6 .9 1958 1 00.0 7 .6 2 3 .8 7 .0 4 .4 5 7 .1 1959 loo.oM 7 .3 2 3 .0 6 .9 4 .2 5 8 .5 1 Failure of parts to equal 100 per cent is due to rounding error. SOURCE: Federal Home Loan Bank Board. MILLIONS OF DOLLARS % & * 01 • ** • • r g 8 8 8 888 130 MILLIONS OF DOLLARS 131 most rapid rate of growth considering the whole period * Except for Louisiana, the pattern of growth was fairly uniform. A high rate of growth characterized the period 1945-1949. There followed a diminished rate of increase from 1949 through 1951, but the rate Increased again from 1951 to 1954. Then, there ensued generally a diminished rate of growth for the remainder of the period, with Texas and Louisiana tending to run counter to this trend during the 1954-1959 period. Louisiana, growing at almost a constant rate through the entire period, grew at a much slower rate than the other states, except in the period after 1955. New Mexico showed the greatest decline In the rate of increase after 1955, while Texas and Louisiana showed the greatest tendency to main tain their rates of growth In the latter period. A somewhat better perspective on the behavior of savings In savings and loan associations of the Ninth District can be acquired by comparing the Increase in savings among the various financial Inter mediaries competing for the passbook type of accounts, such as savings and loan associations, time departments of commercial banks and credit unions. TableXUEVgives such a comparison by showing the investments of individuals In selected media for selected years in the 1950s. Total savings at savings and loan associations increased by $2,780 million, or 474.3 per cent. In the decade of the 1950s, a rate of growth more than four times greater than that of time departments of commercial banks (101.8 per cent), but less than the 519.2 per cent increase of investments in credit unions. The associations in each of 132 TABLE XXXIV INVESTMENTS OF INDIVIDUALS IN SELECTED MEDIA, SELECTED YEARS, 1950-1959, LITTLE ROCK DISTRICT (In millions of dollars) Time D ep. S and L Com m 'l C red it P o stal Year A s s n s . Banks U nions Savinas Total 1950 A rkansas 4 8 .0 9 8 .0 1 .0 na L ouisiana 177.0 275.0 9.0 na Mississippi 36.0 1 3 2 .0 1 .0 na Now M exico 2 4 .0 4 4 .0 1 .0 na Texas —28 0 .0 5 5 5 .0 3 8 .0 na D istric t 565.0 1,104.0 5 0 .0 na 1955 Arkansas 1 13.0 1 58.7 3 .2 3 3 .3 3 0 8 .2 Louisiana 365.1 377.9 2 7 .4 1 2 .3 7 8 2 .7 M ississippi 103.1 170.8 5 .3 4 .8 2 8 4 .0 New Mexico 65.0 8 8 .7 3 .4 5 .1 162.2 Texas 796.6 1.083.3 103.2 6 8 .8 D istric t 1 ,4 4 2 .8 1 ,8 7 9 .4 142.5 124.3 3 ,5 8 9 .0 1956 A rkansas 133.5 172.9 3.2 2 9 .6 3 3 9 .2 L ouisiana 4 2 5 .6 4 0 2 .1 3 3 .0 10.7 8 7 1 .4 M ississippi 130.1 177.1 6 .3 4 .2 3 1 7 .7 New Mexico 75.4 9 4 .4 5 .8 4 .6 180.2 Texas 370.0 1,173.4 13*f 5 6 0 .6 2*3.3?,$ District 1,734.6 2,019.9 179.8 109.7 4 ,0 4 4 .0 1957 A rkansas 174.4 198.3 3 .5 2 4 .8 4 0 1 .0 Louisiana 554.4 4 7 7 .8 40.6 8.6 1,081.4 Mississippi 178.8 2 1 0 .3 7 .7 3 .5 4 0 0 .3 New M exico 104.2 107.9 1 0 .7 4 .0 2 2 6 .8 Texas 1.282.0 1 .3 5 3 .1 1 68.7 J f t i l 2 .8 5 1 .2 D istric t 2 ,2 9 3 .8 2,347.4 299.2 9 0 .3 4 ,9 6 0 .7 1958 Arkansas 206.7 2 3 0 .6 6 .6 2 0 .7 4 6 4 .6 L ouisiana 6 4 0 .7 5 6 5 .8 4 2 .0 6 .8 1 ,2 5 5 .3 Mississippi 201.2 2 5 9 .7 9 .4 2 .9 4 7 3 .1 New M exico 1 19.2 121.9 7 .6 3 .5 2 5 2 .2 T exas 1 .7 3 9 .8 W t« 4 0 t fc 3 ,5 7 4 .7 District 2,709.6 2,977.8 258.4 74.1 6 ,0 1 9 .9 133 TABLE XXIV (Continued) Time Dep e S and L Comm’l C redit P ostal Year A ssn s. Banks Unions Savinas Total 1959 Arkansas 237.3 248.3 8 .1 17.5 511.2 Louisiana 741.8 616.6 5 1.8 6 .0 1 ,4 7 0 .2 Mississippi 230.3 293.7 12.1 2 .7 538.8 New Mexico 139.6 136.1 11.9 2 .8 290.4 Texas 1.896.3 2 .0 2 7 .6 225.7 34.6 4 .1 8 4 .2 District 3,245.3 3,322.3 309.6 63.6 6 ,9 9 4 .8 PER CENT INCREASE 1950 to 1959 Arkansas 393.8 153.3 710.0 Louisiana 319.2 124.2 475.5 Mississippi 538.9 122.5 1,110.0 New M exico 483.3 109.3 1,090.0 Texas § 77,1 l£§.t3 D istrict 474.3 101.8 519.2 SOURCE: United States Saving and Loan League. 134 the states composing the District showed a much greater percentage increase in savings than did time departments of commercial banks, but the growth of savings in credit unions in each state exceeded the Increase in associations, except in Texas. Statistics are not avail able for all years for postal savings; therefore a full comparison is not feasible. However, it can be observed that in each year from 1955 to 1959 total savings in this medium declined in every state of the district. The percentage distribution of investment of Individuals in selected media, 1955-1959, for the little Rock District is contained in Table XXXV. The share of total listed Ninth District savings held by associations rose from 40.2 per cent to 46.4 per cent in the period 1955- 1959. Time departments of commercial banks experienced a decline in their relative position from 52.4 per cent to 47.5 per cent in the same period. Credit unions increased their relative share in total district savings in listed media from 4.0 per cent in 1955 to 6.0 per cent in 1957, but then declined to 4.4 per cent in 1959. The relative position of postal savings declined steadily from 3.4 per cent of district savings in listed media In 1955 to 1.7 per cent in 1959. Personal Savings. Financial Savings, and Savings Capital at Savings and Loan Associations It may be instructive to show the net inflow of savings in insured associations as a percentage of total personal savings and total finan cial savings. Perhaps an explanation of these concepts is desirable. 135 TABLE XXXV PERCENTAGE DISTRIBUTION INVESTMENTS OF INDIVIDUALS IN SELECTED MEDIA, SELECTED YEARS, 1950-1959, LITTLE ROCK DISTRICT Time D ep. S and L Comm’l C red it P o sta l Year A ssn s. Banks U nions S av in as T otal 1950 A rkansas L ouisiana M ississippi New M exico T exas D istric t 3 2 .9 6 4 .2 2 .9 1955 Arkansas 36.7 5 1 .5 1 .0 1 0.8 1 0 0 .0 L ouisiana 4 6 .6 4 8 .3 3 .5 1 .6 1 0 0 .0 M ississippi 3 6 .3 60 .1 1 .9 1 .6 1 0 0 .0 New M exico 4 0 .1 5 4 .7 2 .1 3 .1 1 0 0 .0 Texas 3 8 .8 5 2 .7 5 .1 3 .4 1 0 0 .0 D istric t 4 0 .2 5 2 .4 4 .0 3 .4 1 0 0 .0 1956 A rkansas 3 9 .4 5 1 .0 .9 8 .7 1 0 0 .0 L ouisiana 4 8 .8 4 6 .1 3 .8 1 .2 1 0 0 .0 M ississippi 4 1 .0 5 5 .7 2 .0 1 .3 1 0 0 .0 New M exico 4 1 .8 5 2 .4 3 .2 2 .6 1 0 0 .0 Texas 4 1 .5 5 0 .2 5 .6 2 .5 1 0 0 .0 D istric t 4 2 .8 4 9 .9 4 .4 2 .7 1 0 0 .0 1957 A rkansas 4 3 .5 4 9 .4 .9 6 .2 1 0 0 .0 L ouisiana 5 1 .3 4 4 .2 3 .7 .8 1 0 0 .0 M ississippi 4 4 .7 5 2 .5 1 .9 .9 1 0 0 .0 New M exico 4 5 .9 4 7 .6 4 .7 1 .8 1 0 0 .0 T exas 4 5 .0 4 7 .4 5 .8 1 .8 D istric t 4 6 .2 4 7 .3 6 .0 1 .8 1958 A rkansas 4 4 .5 4 9 .6 1 .4 4 .4 1 0 0 .0 L o u isian a 5 1 .0 4 5 .6 1 .4 4 .4 1 0 0 .0 M ississippi 4 2 .5 5 4 .8 2 .0 .6 1 0 0 .0 New M exico 4 7 .3 4 8 .3 3 .0 1 .4 1 0 0 .0 T exas 4 3 .1 5 0 .3 5 .4 1 .1 1 0 0 .0 D istric t 4 5 .0 4 9 .5 4 .3 1 .2 1 0 0 .0 136 TABLE XXXV (C ontinued) Time D ep. S and L Com m 'l C red it P o sta l Year A ssn s. Banks U nions Savinas Total 1959 Arkansas 46.4 4 8 .6 1 .6 3 .4 1 0 0 .0 Louisiana 50.4 41.9 3 .5 4 .8 1 0 0 .0 Mississippi 42.7 5 4 .5 2 .2 .5 1 0 0 .0 New Mexico 48.0 46.8 4.0 1 .0 1 0 0 .0 T exas 4 5 .3 4 8 .4 5 .4 .8 1 0 0 .0 District 46.4 4 7 .5 4 .4 1.7 1 0 0 .0 SOURCE: Derived from Table XXXIV* 137 The concept "total financial savings" as used here is the one employed 8 by the Securities and Exchange Commission. The following items are included In the aggregate financial saving of individuals, unincorporated enterprises, trust funds, and nonprofit Institutions: increases in hold ings of (1) currency and bank deposits, (2) savings shares In savings and loan associations and credit unions, (3) federal, state, and corporate securities, (4) private Insurance reserves, including Insured pension reserves, (5) noninsured pension funds, and (6) government in surance and pension reserves, Including Social Security funds and state and local retirement systems. "Personal savings" as used here Is the concept employed by the Department of Commerce, being the difference between disposable personal income and consumption expenditure. The Department of Commerce concept includes the following items not included in the Securities and Exchange Commission concept of financial savings: increases in equity in homes, farms, and unincorporated businesses, g and increases in government Insurance reserves. The behavior of total personal savings, total financial savings, 8Economlc Report of the President (Washington: U. S. Government Printing Office, 1960), p. 172. 9See Statistical Bulletin and Survey of Current Business, July 1959, for a reconciliation of the two series; see also p. 172 Economic Report of the President, January, 1960. 138 and the net inflow of savings at insured associations, 1945-1959, is shown in Table XXXVI. Both personal savings and financial savings were abnormally high during WW n . Both declined substantially in the immediate postwar years, but Increased significantly thereafter to 1959. Financial savings exceeded $20 billion every year after 1951, rising to $33.7 billion in 1959. Personal savings-exceeded $20 billion every year after 1955, amounting to over $23 billion in 1959. Savings at savings and loan associations tended to grow faster than either personal savings or financial savings; consequently, savings and loan associations accounted for a progressively higher percentage of both. Savings at savings and loan associations were 3.C per cent of personal savings in 1945 and 27.5 per cent in 1959—an all-time high. The trend over the period was rather steadily upward. A similar pattern was apparent in the relation of savings at savings and loan associations to financial savings. Savings at savings and loan associations were 2.2 per cent of financial savings in 1945 and reached a peak of 22.1 per cent in 1958, declining to 18.8 per cent in 1959. A similar relative Increase is discernible when the savings of the Little Rock District are compared with both personal and financial savings for the United States.Net savings In the Little Rock Associations were 0.4 per cent of national personal savings in 1945 and 2.0 per cent in ^Personal savings and financial savings are not available by FHLB D istricts. fc I TABLE XXXVI TOTAL PERSONAL SAVINGS, TOTAL FINANCIAL SAVINGS, NET INFLOW SAVINGS INSURED ASSOCIATIONS, 1945-1959 All S & L Assns. District Nine U .S. Total U .S. Total (In fpUHons of dollars) fin mil^ny ef Per Saving Fin. Savings % of Per. % of Fin. % of Per. % of Fin. Year (In billions of dollars) Net Flow Savinas Savinas Net Flow Savinas Savinas 1945 28.7 39.5 871.0 3.0 2.2 * 1946 12.6 17.6 956.0 7.5 f . 4 54.0 0.4 0.3 1947 4 .0 13.1 971.0 24.2 7.4 77.0 1.9 0.6 1948 11.0 10.3 976.0 8.8 9.4 71.0 0.6 0.7 1949 8.5 9.3 1,263.0 14.8 13.5 95.0 1.1 1.0 1950 12.6 11.9 1,332.0 10.5 11.1 96.0 0.7 0.8 1951 17.7 18.3 1,897.0 10.7 10.3 115.0 0.6 0.6 1952 18.9 24.6 2,836.0 15.0 11.5 176.0 0.9 0.7 1953 19.8 22.2 3,384.0 17.0 15.2 217.0 1.0 .9 1954 18.9 20.3 4,152.0 21.9 20.4 273.0 1.4 1.3 1955 17,5 25.6 4 ,549.0 25.9 17.7 294.0 1.6 1.0 1956 23.0 25.9 4,708.0 20.4 18.1 287.0 1.2 1.0 1957 23.1 27.8 4,535.0 19.6 16.3 339.0 1.4 1.2 1958 23.5 26.0 5,767.0 24.5 22.1 409.0 1.7 1.5 1959 23.1 33.7 6,361.0 27.5 18.8 473.0 2.0 1.4 SOURCE: Federal Home Loan Bank Board; U.S. Department Commerce; Saving and Loan League; Economic Report of the President, 1960. 140 1959— a new peak. These same net savings were 0.3 per cent of national financial savings in 1945 and reached a high of 1.5 per cent in 1958, declining to 1.4 per cent in 1959. Sum m ary In Chapter IV the overall growth pattern of savings and loan associations was shown for the nation, and the growth of the associa tions of the Little Rock District was related to the national pattern. In assets, the Little Rock District associations grew faster than their counterparts in any of the other FHLB districts. Little Rock associa tions ranked eleventh among the districts in dollar value of assets in 1945 and eighth in 1959. Moreover, the growth in assets of'Ninth District associations greatly exceeded the national rate of growth in a s s e ts . In the volume of mortgage debt held, the rate of growth of Little Rock associations exceeded that of both aggregate debt held by all mortgagees and total mortgage debt held by all savings and loan associations. The Little Rock associations were exceeded among the FHIiJ districts only by San Francisco In the growth of mortgage debt held. In the absolute volume of annual mortgage recordings Little Rock ranked tenth in 1945 and sixth in 1959. The rate of growth in mortgage recordings by the Little Rock associations, 1945-1959, surpassed that for all mortgagees and for all associations of the nation. Among the districts. Little Rock was exceeded only by San Francisco and Greensboro 141 in recordings growth. A very similar pattern is discernible In the growth of savings capital. In absolute terms, the Little Rock associations ranked ninth among the districts in savings capital In 1945 and seventh In 1959. The rate of increase in savings capital in the little Rock associations, 1945-1959, exceeded that for the total of all associations of the nation but was exceeded by two of the FHLB districts. Thus, the savings and loan associations of the little Rock District In the period 1945-1959 exhibited a rate of growth generally surpassing that for the nation's associations as a whole. Their over all growth either exceeds or approximately equals that of the other districts, with the possible exception of San Francisco. Particularly during the 1950s, the Little Rock associations grew more rapidly than their competitors, such as. insurance companies and commercial banks, in the savings and home financing business. The identification and discussion of the causal factors involved In this relative growth will be discussed In the following chapter. CHAPTER V CAUSAL FACTORS AND SIGNIFICANCE OF THE GROWTH OF SAVINGS AND LOAN ASSOCIATIONS The emergence of savings and loan associations as one of the most important kinds of financial intermediaries is one of the signifi cant economic developments of the post WW II world. Perhaps the significance of the impact of savings and loan associations is yet to be fully comprehended. This chapter, however, is not primarily con cerned with the significance of their growth, but with the identification and analysis of the causal factors in the growth, both absolute and relative, of savings and loan associations in the period 1945-1959. The identification and analysis of the causal factors in the growth of savings and loan associations will be treated under two overlapping and Interdependent divisions. Section I, the Exogenous or Environmental Factors, will analyze the growth of population and urbanization, especially metropolitan development; the growth of resi dential home construction, home ownership, household formation, and government housing activities; and the growth and regional distribution of personal income. The foregoing factors, all of which are essentially external to savings and loan associations, have behaved in such a manner as to give rise to a demand for the home financing services of savings and loan associations In the period under study. The demand 142 143 for the home financing services of savings and loan associations has impelled them to tailor their shares so as to induce an Inflow of savings. Moreover, the merchandising techniques of savings and loan associations have further Increased their home financing activities. Section II, the Endogenous Factors, will analyze the response of savings and loan associations to the favorable environment created by the emerging trends identified in Section I. The two basic foci will be on (1) the efforts of savings and loan associations to make their shares more attractive, especial attention being given to dividend policies; and (2) their efforts to expand their home financing services. The approach outlined above is consistent with the direction of cause and effect relations in the growth of savings and loan activity. The fundamental moving force in the growth of savings and loan asso ciations in the period 1945-1959 was the demand for home mortgage financing. It is contended here that the unprecedented growth in savings capital at savings and loan associations would not have oc- • curred without the presence of a vast home mortgage financing market in the period 1945-1959. The preceding does not deny, of course, that preferences for shares and the inflow of savings made possible savings and loan lending on better terms, hence the growth of mortgage financ ing from that direction. Causality is recognized here as being subtle and complex. Therefore, it is assumed that any consequence such as the growth of 144 savings and loan associations/ is a function of the subtle Interaction of a large number of causal Influences. The Exogenous or Environ mental Factors, although recognizably conducive to the growth of savings and loan associations/ are not causal in a direct and im mediate sense. For example, the growth of population, urbanization, personal income, residential construction, and home ownership are factors which constitute the necessary prerequisites for the growth of savings and loan associations. Yet their growth is not necessitated by the existence of these environmental factors. There are more Immediate factors in the growth of savings and loan associations, such as savers' preferences for savings and loan shares and home financing services relative to those of others. Thase Endogenous Factors, essentially dividend and loan policies, combine in a subtle fashion with the Exogenous Factors to provide the funda mental explanation of the growth of savings and loan associations. The combination and Interaction of these factors will be dis cussed: (1) as the basis for explaining the growth of savings and loan associations in the period 1945-1959; (2) as a basis for explaining the relative growth pattern of the various regions; and (3) as a basis for explaining the accelerated growth of these associations relative to that % of their immediate competitors. X45 I. THE EXOGENOUS OR ENVIRONMENTAL FACTORS Growth of Population The growth of population In the United States and the continuing trend toward urbanization, especially metropolitan development, in the two decades from 1940 to 1960 provided a condition conducive to the growth of savings and loan business. Furthermore, the changes in population and In aggregate Income are at least somewhat mutually Interdependent; therefore, a summary examination of the shifts In population and urbanization is necessitated. A consideration of regional shifts In Income will be examined in subsequent sections. Table XXXVII shows the growth of population in the various regions, 1940-1960. It Is apparent that all regions participated in the vast growth In population. Population in the Little Rock District rose from 13.4 million in 1940 to 17.6 million in 1960, or 31.0 per cent, as compared with the 36.1 per cent Increase for the nation in the same period. Apparently, the rate of growth in population in the United States exceeded that of the District throughout the period. The Increase In absolute numbers as well as the rate of growth for the Little Rock District was not characteristic of all states In the Little Rock District. Arkansas and M ississippi experienced a rela tively stable population in the two decades, while Texas' population grew 39.1 per cent and New Mexico's 78.7 per cent, both greater than the growth rate of the nation and the District In the period 1940-1960. 146 TABLE XXXVII POPULATION BY STATES, REGIONS, 1940-1960 (thousands) Per c e n t S tate and In c re a se R ealon 1940 1950 1960 1940-1960 United States 131,669 150,697 179,245 36.1 FHLB DISTRICTS Boston 8,245 9 ,3 1 8 na New York 17,639 19,766 na P ittsburgh 12,068 12,851 na G reensboro 17,479 21,963 na Cincinnati 12,669 14,259 na Indianapolis 8 ,6 8 4 10,377 na Chicago 11,045 12,209 na D es M oines 10,400 10,831 na Little Rock 13,444 15,220 17,605 3 1 .0 Ark. 1,758 1,912 1,771 0 .7 L a. 2,413 2 ,6 9 7 3 ,2 3 4 3 4 .0 M is s . 2,079 2,180 2,165 4 .0 N . M . 530 686 947 7 8 ,7 Texas 6,822 7,745 9,489 39.1 Topeka 6,577 6,786 San Francisco 12,729 1 8,306 N o rth east 3 5,977 3 9 ,4 7 8 4 4 ,2 5 8 2 3 .0 North Central 40,143 44,161 51,275 27,7 South 41,665 47,197 54,450 30.9 W est 13,883 20,190 27,750 9 9 .9 SOURCE: United States Bureau of the Census. 147 Louisiana's population growth (34.0 per cent), exceeding the District, closely approximated the national growth rate in the decade of the 1940s and exceeded it in the decade of the 1950s. Population growth was more rapid In the South, the Southwest, and the W est, than In the Northeast and the North Central regions. The West grew more than three times as rapidly as the other sections combined. The South and West had 42.1 per cent of the nation's total population in 1940, 44.5 per cent in 1950, and 46.2 per cent in 1960. The growth of population in all regions was accompanied by an in creasing urbanization trend.* Urbanization. The trend toward industrialization and urbanization has been a characteristic feature of the American scene since the Civil War, with the United States becoming a predominantly urban nation In the decade of the 1920s. Perhaps urbanization is a more significant factor In the growth of savings and loan business than mere increases In population. It is not coincidence that the greatest decade of expan sion of savings and loan associations prior to WW II was the 1920s. M ississippi and Arkansas had a decline in population in the 1940s and 1950s, but both, especially M ississippi, experienced rapid and exten sive growth in savings and loan activity where urbanization trends were 1The data on population, urbanization, and metropolitan popula tion have been secured either from the 1940, 1950, or 1960 Census Reports of the Bureau of the Census or from tables contained In this c h a p te r. 148 stro n g . In Jackson, M ississippi, for example, one association, the First Federal of Jackson, Increased its assets from $5.2 million in June, 1945 to over $83 million in June, 1960, the latter representing over one-third of the assets in the state.^ Moreover, it has already been shown that M ississippi had the most rapid growth of savings and loan activity of any state in the Ninth District. The high rate of growth in savings and loan activity occurred in the state of lowest per capita income and a relatively stable population. Although population was relatively stable for the state, metropolitan Jackson grew by approxi mately 112 per cent in the period 1940-1960. Apparently the urbaniza tion factor is crucial, especially since it is usually a part of a growth complex of housing and income. Urbanization in 1940s. The population of the United States grew from 131.7 million in 1940 to 150.7 million in 1950, a 14.5 per cent In c re a s e . Among the states of the Ninth District, two lost population: M ississippi (-0.2 per cent) and Arkansas (-2.0 per cent). Louisiana's rate of increase was 13.5 per cent, approximately that of the nation. New Mexico and Texas were among the rapid growth areas, with rates of increase of 28.1 and 20.2 per cent, respectively. ^"Statement of Condition," First Federal of Jackson, June 15, 1960. There was a continuation of the urban shift In population for all of the regions as well as for the nation as follows: Per cent of population In urban areas 1940 1950 Nation 5 9 .0 6 4.0 N ortheast 76.6 79.5 North Central 58.4 64.1 South 36.7 48.6 West 41.5 69.8 Ninth District 36.7 52.0 Arkansas 22.2 33.0 Louisiana 41.5 54.8 Mississippi 19.8 27.9 New M exico 33.2 50.2 Texas 45.4 62.7 The South saw substantial growth In urban areas and net losses In rural areas during the 1940s. Within the Ninth District, the per cent increase in urban population ranged from 20.0 to 34.9 per cent in M ississippi, Louisiana, and Arkansas, and to over 50.0 per cent In New Mexico and Texas. Thus, it is apparent that in 1950 all of the states in the Ninth District were less urban than the nation. The urban shift in the South during the decade of the 1940s was greater in absolute numbers than 150 elsewhere. The relative shift was second only to that of the W est. The Ninth District was only 36.7 per cent urban in 1940 as compared to 52.0 per cent in 1950. This change represents a greater urban trend for the Ninth District than for the nation as a whole, vastly surpassing the four census regions listed above, except the West. Metropolitan Growth. Complete data on urbanization in the 3 decade of the 1950s are not yet available. However, statistics on the 189 Standard Metropolitan Statistical Areas for the 1950s are avail able; and metropolitan statistics are especially pertinent, since the growth of such urbanized places is conducive to the growth of activities on which savings and loan associations thrive. As of 1959 more than 41 per cent of all savings and loan assets were found in ten metropolitan a re a s. 4 The population of the 189 Standard Metropolitan Statistical Areas of the United States totaled about 108.9 million In 1960, according to a 5 preliminary report by the Bureau of the Census. This represents more than 60 per cent of the total population of the 50 states. Among the 189 Howard G. Bruns man, Chief of the Population Division, Bureau of the Census, Informed the writer that such data will not be available until later, possibly mid 1961. ^Savings and Loan Fact Book (Chicago: United States Savings and Loan League, 1959), p. 77. ®A11 data herein are derived from a preliminary report—CB60-37--, Bureau of the Census. 151 C Standard Metropolitan Statistical Areas, 180 gained population and nine lost population in the period 1950-1960. None of the losses were in the South or W est. The preliminary population figures showed an 7 Increase of 26.4 million over 1950 for the 50 states, of which 21.3 million, or 80 per cent, occurred within the Metropolitan areas. The combined population of Standard Metropolitan Areas Increased by 21,293,522, or 24.3 per cent. In the 1950s. Among the 225 central cities of Standard Metropolitan Statistical Areas, 153 gained and 72 lost population. None of the losses were In the South. The population out side central cities increased by only 8.0 per cent. These rates compare with the increase of 18.5 per cent In total population for the 50 states from 1950 to 1960. Table XXXVIII contrasts the Metropolitan population in the Ninth District with that of the other broad census regions of the nation for the period 1940-1960. Only five of the twenty-one Standard Metropolitan Statistical areas In the Ninth District had a smaller percentage increase in population than the nation in the 1950s. The per cent Increase for the little Rock District was 153.9 for the period 1940-1960, considerably e wExcept in New England where SMSA have been defined on a town rather than a county basis, a Standard Metropolitan Statistical Area Is a county or group of contiguous counties which contains at least one city of 50,000 inhabitants or more, which tends to socially and economically Integrate the contiguous areas. 7 Now shown at 28.5 million. 152 TABLE XXXVIII UNITED STATES AND NINTH DISTRICT METROPOLITAN POPULATION, 1940, 1950, 1960 Per cent in crease Area 1940 1950 1960 1940-1960 United States 63,339,893 87 ,579,138 108,872,743 71.9 Ninth District 2,795,922 5 ,244,566 7,099,693 153.9 Albuquerque 145,673 260,138 78.6* Amarillo 53,463 87,140 148>505 177.8 Austin 106,193 160,980 211,292 99.0 Baton Rouge 158,236 228,095 44.1* Beaumont- Port Arthur 138,608 235,650 304,194 119.5 Corpus Chrlstl 70,677 165,471 219,002 209.5 D allas 376,548 743,501 1,073,661 285.1 El Paso 115,801 194,698 310,690 168.3 Port Worth 207,677 392,643 568,484 173.7 G alveston 71,677 113,066 138,196 92.8 Houston 510,397 706,701 1,234,868 141.9 Jackson 88,003 142,164 186,572 112.0 Laredo 56,141 64,847 15.5* Little Rock- ■ N. Little Rock 126,724 196,185 239,480 89.8 Lubbock 101,048 155,485 53.9* New Orleans 540,030 685,405 860,205 59.3 San Angelo 58,929 63,415 7.6* San Antonio 319,010 500,460 683,262 114.2 Shreveport 216,286 280,232 29.6* W aco 130,194 148,336 13,9* Wichita Falls 71,114 105,309 124,783 75.5 Northeast 27,tt3,JSl 30 ,948,747 34,407,196 26.4 North Central 18,242,582 25 ,089,345 30,782,392 68.7 South 10,095,433 18 ,437,344 24,547,303 143.2 West 8,320,988 13 ,067,702 19,135,769 130.0 ♦These areas did not become a SM8A until 1950; therefore 1960 population Is shown as a per cent of 1950 population. SOURCE; United States Bureau of the Census. 153 higher than the 71.9 per cent for the nation; and, it is In marked contrast to the 31.0 per cent increase in total population for the District, which was less than the 36.1 per cent Increase for the nation. The 153.9 per cent increase in Ninth District metropolitan population is higher than the 143.2 per cent increase for the entire Sototh; and it is substantially higher than the 26.4 per cent for the Northeast, 68.7 per cent for the North Central, and 130.0 per cent in the W est. Although the Increase in population in the Ninth District during the 1940s and 1950s was somewhat less than for the nation, the in crease in the population in SMSA was greater than that for the nation. It is contended here that the growth of SMSA is more significant for the growth of savings and loan associations. Accelerated growth in the metropolitan population is believed to be a major factor in the accelerated growth of savings and loan business in the Ninth District. It Is this phenomenon just described that is associated with Increasing Income and the-growth in demand for urban housing, both of which constitute the bases of savings and loan activity. The growth of population in rural areas is of little consequence for savings and loan associations. Perhaps a most significant factor in the regional growth of savings and loan associations emerges when metropolitan population for the 1940s and 1950s is broken down by FHLB districts in Table XXXIX. It is apparent that the trend toward metropolitan development does not closely parallel the rate of growth of total population in the various FHLB districts. TABLE XXXIX METROPOLITAN POPULATION BY REGIONS AND FHLB DISTRICTS, 1940-1960 % increase in Metropolitan as % % increase In Metropolitan metropolitan of total total copulation population population population Region 1940 1950 1960 194060 195060 1940 1950 1960 194060 19S060 Boston #1 6,104,930 6,312,566 7,038,915 3.4 11.5 4.6 4.2 4 .0 9.8 10.2 New York #2 14,481,618 16,278,932 18,428,426 12.4 13.2 11.0 10.8 10.4 13.1 18.0 Pittsburgh #3 7,153,389 9,201,157 10,146,446 42.4 10.3 5.4 6.1 5.7 10.2 12.7 Greensboro $3 5,471,227 9,353,726 13,067,036 70.9 39.7 4 .2 6.2 7.4 17.9 20.0 Cincinnati 45 4,992,855 6,880,292 8,411,183 37.8 22.2 3.8 4.5 4.7 8.1 10.0 Indianapolis 46 4,624,622 7,214,968 8,976,319 56.0 24.4 3.5 4.8 5.1 18.0 20.0 Chicago 47 6,258,052 7,813,677 9,144,766 24.4 17.0 4.8 5.2 5.2 9.9 14.5 Des Moines 48 3,136,290 4,115,279 4,978,758 31.2 21.0 2.4 2.7 2.8 2.5 6.4 Little Rode 49 2,795,922 5,244,566 7,099,693 87.6 35.4 2.1 3.5 4 .0 12.0 14.6 Topeka 410 1,783,543 2,684,462 3,621,626 50.5 34.9 1.4 1.8 2.0 4.8 13.2 San francisco 411 6,537,445 12,224,713 17,834,743 87.0 45.9 5.0 8.1 10.0 31.5 35.7 United States 63,339,893 87,579,138 108,872,743 38.3 24.3 48.1 57.9 61.3 14.5 18.5 Northeast 27,218,291 30,948,747 34,407,196 13.7 11.0 75.6 78.4 77.7 9.6 12.1 North Central 18,242,582 25,089,345 30,782,392 37.5 22.7 45.4 56.4 60.0 10.8 15.3 South 10,095,433 18,437,344 24,547,303 82.6 33.1 22.4 39.1 45.1 13.3 15.4 West 8,320,9B8 13,067,702 19,135,769 57.0 46.4 59.9 64.7 69.0 45.4 37.4 SOURCE: Derived from data of the Bureau of the C ensus, U.S. Department Commerce 155 In the period 1940-1960, the greatest percentage Increases In metropolitan population among the FHLB districts occurred in Little Rock (87.6 per cent in the 1940s and 35.4 per cent in the 1950s), Greensboro (70.9 per cent in the 1940s and 39.7 per cent in the 1950s), and San Francisco (87.0 per cent in the 1940s and 45.9 per cent in the 1950s). Metropolitan population in these three districts grew almost twice as rapidly as in any of the other districts. Although an increasing propor tion of total population in all districts from 1940 to 1960, metropolitan population In these three districts showed the greatest change, rising from 2.1 to 4.0 per cent in Little Rock, from 4.2 to 7.4 per cent in Greensboro, and from 5.0 to 10.0 per cent in San Francisco. Table XL ranks the districts in metropolitan population growth according to both absolute and relative increase. The San Francisco, Greensboro and Little Rock Districts had both the greatest absolute and relative increases In metropolitan population. The relevant implication for savings and loan associations of a rapidly increasing population, growth in urbanization, and more especially increasing metropolitan growth. Is the demand for housing created by these developments. Moreover, the demand for urban housing was greater in all areas in the postwar era because of the very 11 mltedcfcmount of home construction In the 1930s and the war years of 1941-45. The Growth of Residential Construction The factors enumerated in the preceding paragraphs generated a tremendous demand for residential housing in the postwar years. These 156 TABLE XL METROPOLITAN POPULATION BY FHLB DISTRICT, 1940-1960 Per cent Per cent Absolute A bsolute D istrict rank in crease rank Increase Boston 11 15.3 11 933,985 New York 10 27.2 5 3 ,9 4 6 ,8 0 8 Pittsburgh 9 41.8 7 2,993,057 G reensboro 3 138.8 2 7 ,5 9 5 ,8 0 9 Cincinnati 6 70.8 6 3 ,1 4 8 ,3 2 8 Indianapolis 5 94.1 3 4,3 5 1 ,6 9 7 C hicago I 46.1 8 2,8 8 6 ,7 1 4 Des M oines 7 58.7 9 1,842,468 Little Rock 2 153.9 4 4,3 3 0 ,7 7 1 Topeka 4 103.1 10 1,838,298 San Francisco 1 172.8 1 11,297,298 SOURCE: Derived from preceding tables. 157 factors were augmented by other factors which tended to swell the demand for urban housing, such as the increasing marriage rate, the growing size of the average family, and the exodus to "Suburbia." Home Ownership and Household Formation. There was an in creasing trend toward home ownership and an Increase in the rate of household formation in urban areas, especially in the period 1945-1959. The proportion of families owning their own homes tended upward over o time as shown below: Year Omifid. Rented 1890 36.9 63.1 1930 45.3 57.7 1940 41.4 58 .9 1950 5 3 .4 46.6 1959 61 .0 3 9 .0 The trend in home owning is a basic economic development of this century. Moreover, home ownership is found in all income quintiles but more commonly among the higher quintiles. The per cent of ownership among the lowest and highest quintiles was 46 per cent and 79 per cent, respec tively, in 1959. The third and highest quintiles made significant gains in Q the proportion of home ownership after 1954. 8Data first collected in 1890 by U. S. Department of Commerce, Bureau of Census Data. ® "Survey of Consumer Finances,11 Federal Reserve Bulletin (Washington: Board of Governors of the Federal Reserve System, September, 1959), pp. 1097-1114. 158 Closely allied with the growth of population, urbanization, and Increasing home ownership is the increasing rate of household forma tion in urban areas. The number of households in the United States rose from 15,992,000 in July, 1900, to 51,302,000 In March, 1 9 5 9 .In th e 1950s, nonfarm households Increased at an average rate of about 1,000,000 per year, wMle the number of farm households declined at an annual rate of about 100,000. Government and Housing. Many factors Interact in subtle combina tions to promote the growth of savings and loan associations. Certainly the factors affecting the growth of housing vitally influence the growth of savings and loan associations. Government policies in the field of housing constitute a case in point. Prior to the 1930s state governments concerned themselves essentially with regulating certain types of mort gages and lenders, and the Federal government largely Ignored the housing field. Beginning in the 1930s, however, the Federal government lnstl- •# tuted major pieces of legislation effecting the following: creation of the Federal Home Loan Banking System, the insurance of savings and loan ac counts, FHA mortgage Insurance, and the Federal National Mortgage Asso ciation; and after WW n the VA program, expansion of the functions of the FNMA, and tire establishment of the Housing and Home Finance Agency.11 10See Economic Report of the President (Washington: United States Government Printing Office, 1960), pp. 88-91. 1 * Arthur S . Link. American Enoch (New York: Alfred A. Knopf, 1958), see Chapters 18, 19, 20, 25, and 27. 159 The Federal Housing Administration, created by the National Housing Act of 1934, functions primarily to provide a system of mutual mortgage Insurance. Contrary to conventional notions, the FHA does not loan money. Essentially, the FHA Is an agency for placing the credit of the federal government behind the Individuals who borrow from private lending institutions. Government insurance was designed to make more credit available for the financing of homes. The lower down payments and longer maturities pioneered by the FHA made It possible for more people to buy and build homes. 4 The National Housing Act of 1934 had other objectives which In conjunction with the foregoing have substantially changed home mortgage financing. The other purposes were: The accomplishment of certain reforms In mortgage lending practice, the encouragement of Improvement of housing standards and conditions, the provisions of a system of mutual mortgage Insurance, the development of a national market for mortgages, and an Increase In liquidity o f m o rtg a g e s. 12 The programs of the National Housing Act brought changes and reforms in the home mortgage financing business and as a consequence brought more capital into the mortgage market, especially from commercial banks. The guaranty of loans by government has brought generally lower interest rates on home mortgages. Moreover, a measure of unity in Interest rates and requirements for acceptable mortgages has been brought Into the home 12Erwin W . Boehmler. Financial Institutions (Homewood: Richard D. Irwin, Inc., 1956), pp. 457-458. 160 mortgage market. More standardization ef mortgage loan terms, lending plans, and borrower requirements exist now than at any time in the past. In consequence of the FHA, the home mortgage market has more liquidity, and the resources of Insurance companies and commercial banking have been brought Into the home mortgage market. "The com mercial banks and life Insurance companies hold In their portfolios 1 1 approximately 60 per cent of all FHA loans outstanding." In recogni tion of the salutary influence of the FHA on the mortgage market, a speaker at a meeting of the American Bankers Association observed: Much of this excellent record (mortgage experience) is due to the pattern set up by FHA when It started In the mortgage business. . . . It changed a great many of the old practices. First, It Initiated Into general use the single monthly payment which Included Interest, amortization, taxes, fire insurance, and even water payments. . . . Second, it taught us to check the credit of the purchaser. . . . Third, It taught us to review the area In which a development was to be constructed. Today, we do not approve high priced houses In an area committed to substantially lower- priced houses.14 It would be difficult to overstate the revolutionizing Impact of th e FHA upon the home mortgage financing market. Various other governmental programs were designed to make avail able mortgage credit to potential home owners on easy credit term s, for 1 3 n> id. . p . 4 6 0 . *4John Adlkes, "How Much Danger in Mortgage C redit,11 Proceedings Tenth National Credit Conference (New York: American Bankers Association, 1958), pp. 45-46. 161 example the VA program. Moreover, the Federal National Mortgage Association was established by Congress in 1938 to provide secondary market facilities for FHA mortgages; and, since 1944, VA mortgages. In 1954 the operations of the FNMA were revised. It now has three functions: (1) to engage In secondary mortgage market operations, (2) to engage In special assistance programs at the direction of the President and Congress, and (3) to engage in management and liquida tion functions for VA guaranteed mortgages. Perhaps the most significant development In governmental promo* tion of housing, and hence the growth and development of savings and loan associations, was the establishment of a secondary reservoir of credit for home mortgage financing Institutions. A discussiondf the circumstances of origin and the purposes and functions of the FHLB System will serve to Illustrate this point. Origin. The economic crisis of the 1930s exposed many weak nesses in the nation's financial and credit structure. The supply of long term credit for home mortgage financing was one of the critical areas. During the financial crisis of the 1930s, savings institutions had a poor performance for two principal reasons: (1) they were forced to defer payment of withdrawal requests on a large scale, and (2) there was a severe curtailment of the volume of credit going into the home mortgage market. An attempt to ameliorate these conditions brought the Federal Home Loan Bank System into being. 162 Purposes and Functions of the FHLR S vifm . The Federal Home Loan Bank Act of 1932 tst&blished the first national reserve credit system for savings Institutions specialising in home mortgage financing. The Federal Home Loan Bank System provides a permanent system of reserve banks for eligible thrift institutions, such as the savings and loan type, savings banks, and Insurance companies, engaged in long term home mortgage financing. Prior to 1932 savings institutions were without a dependable source of reserve credit available to meet local demands for financing mortgage loans or withdrawal demands in excess of their own Immediate financial resources. When the Federal Reserve System was organized in 1913, one of its main objectives was to provide an elastic short term credit supply for American Industry, agriculture, and commerce. No provision was made in the Federal Reserve System for providing an elastic supply of home mortgage credit. Thus, the Federal Home Loan Bank System was the first major action by the Federal Government to fill th is n e e d . Although there was no specific statement of the purpose of the Federal Home Loan Banks in the Federal Home Loan Bank Act of 1932, the Federal Home Loan Bank authorities have from time to time set forth the purposes of the System .15 The following three quotations will 15First Annual Report (Washington: Housing and Home Financing Agency, 1947), part III, p. 6. 163 establish the central purposes of the System. The first duty of the banks is to provide additional liquidity to the home financing institutions by advances available to them when an unusual demand for savers' funds occurs. . . . The second duty of the Federal Home Loan Banks is to meet the recurring needs of members for more lendable funds than the immediate inflow of savings can supply. As a result of . . . studies and conferences, the Board • (FHLBB)* has clarified some basic concepts relating to the System's operations: 1. The Federal Home Loan Banks are central banking Institutions and must be operated as such. 2. The primary responsibility of the Banks is to provide funds to assist their members in meeting withdrawal requests. 3. A supplemental or secondary function is to stabilize the needs of members for funds with which to make home mort gages when the flow of savings and mortgage repayments are Insufficient. 4. The amount of net earnings of a Bank and the ability to pay competitive dividends on capital stock are secondary to the obligation to serve the needs of the members.17 The Federal Home Loan Bank System was created to provide a permanent system of reserve banks for eligible thrift institutions of the savings and loan type, savings banks, and insurance companies engaged in sound and economical home financing. The Banks provide advances to these institutions for the purpose of meeting withdrawal demands and to ^ e t seasonal needs for additional home mortgage funds. Another Important function of the Federal Home Loan Banks is the transfer of funds from areas in which there is a surplus to areas I6The Federal Home Loan Bank System 1932-1952 (Washington: The Federal Home Loan Bank Board, 1952), p. 3. 17 News and ViewB. Federal Home Loan Bank Board, December 13, 1955. 1 ^Annual Report (Washington: Federal Home Loan Bank Board, 1956), p. 11. 164 experiencing a dearth of funds, thereby facilitating the flow of credit. This is accomplished by utilizing interbank deposits to transfer funds from one Federal Home Loan Bank to another. A more basic reason for the creation of the FHLB System was to provide a means through which home mortgage lending institutions might have access to supplemental funds in the capital markets. To obtain funds from the capital markets, when they are needed, the Board issues consolidated obligations of all 19 th e B anks. Through the utilization of interbank balances and tapping the capital markets by selling consolidated obligations, the FHLB System facilitates the growth of savings and loan associations in the more rapidly growing districts. Associations in the Ninth District (a dis trict where the rapid growth in income and urbanizations have given rise to a heavy demand for home mortgage financing) have made extensive utilization of funds available through the FHLB System. Where the demand for home mortgage financing exceeds the supply of savings in savings and loan associations, either on a seasonal or cyclical basis, the FHLB System makes funds available. Thus, the more rapid growth in home mortgage financing by Ninth District associations was made possible, at least in part, by the funds made available from the FHLB System. From their establishment in 1932 to 1959, the eleven Federal *9Annual Report (Washington: Federal Home Loan Bank Board, 1959), p. 15. 165 Home Loan Banks advanced nearly $13 billion to their member institutions, of which over $2 billion was outstanding at the close of 1959. Member institutions received $2 billion In advances during 1959, representing the largest dollar volume of advances in any year in their history. Ten issues of consolidated obligations, totaling $1.8 billion, were offered by the Federal Home Loan Bank Board during 1959, each of which was over subscribed. Con solidated Federal Home Loan Bank obligations aggregating $11.3 billion have been marketed since the first issue in 1 9 3 8 .20 Figure 8 summarizes the lending and borrowing operations of the Federal Home Loan Banks, 1945-1959. The trend in both borrowing and lending has been rather consistently upward. There were periods of accelerated borrowing, especially in 1948, 1950, 1955, and 1959. The decided spurts in lending and borrowing more or less coincidi with the beginnings of pronounced inflationary movements in the economy during the postwar period. Deposits of member institutions tended to decline during periods of monetary restraint and tended to increase during easy money periods. It is apparent that the Federal Home Loan Bank System has been a basic factor in the credit expansion by savings and loan associations in the period 1945-1959. Significantly, there is a total absence of any direction by law for the Federal Home Loan Bank System to function as an agency of economic stabilization. The System was designed as a source 20Ibld.. p. 1. 166 2500 ADVANCES OUTSTANDING O0UGATIONS OUTSTANDING MEMBER DEPOSITS ------ 2000 1500 1000 500 SOURCE: FEDERAL HOME LOAN 1545 1550 1555 1550 FIGURE 5 - FEDERAL HOME LOAN BANKS TRENOS IN ADVANCES, CONSOLIDATED OBLIGATIONS AND MEMBER DEPOSITS 167 of funds to assist members to meet their withdrawal and loan expansion needs. The Federal Home Loan Bank Board, however, has from time to time prescribed regulations governing both the quantity and quality of credit available to member institutions. Subsequent paragraphs will outline the credit policy of the Federal Home Loan Bank Board. Resume of Federal Home Loan Bank Board Credit Policy. The ability of a member institution to borrow from its district Federal Home Loan Bank is limited by the Bank's board of directors within the limits prescribed by law and regulations. Borrowing for liquidity is subject to different regulations than borrowing for loan expansion. We shall first consider borrowing for liquidity. Section 10(a) 4(c) of the Home Loan Bank Act provides in part that a member's borrowing shall not exceed twelve times its holdings of 21 Federal Home Loan Bank stock. The FSLIC Rules and Regulations for 22 Insurance of Accounts and the FHLB Board's Rules and Regulations for 23 the Federal Savinas and Loan System** enjoins borrowing by an associa tion from its district FHL Bank in amounts exceeding 50 per cent of its savings capital ^*Each member institution must own stock in an amount at least equal to 2 per cent of the aggregate unpaid principal of its home mortgage loans and similar obligations, but not less than $500; also a borrowing member must own stock in an amount equal to at least 1/12 of one per cent of the balance owed its FHL Bank. See Annual Report (1959), o p . clt., p. 27. 22see Section 563.8. Z^See Section 544.1-9. 168 . . . except that with prior approval of the Federal Home Loan Bank Board, any such (FSLIC Insured) association may borrow from a Federal Home Loan Bank or from any Federal agency or Instrumentality without limitation upon such terms and conditions as may be required by such bank or agency. 4 Other than those enumerated above, there are no restrictions placed upon the ability of a member association to borrow from the Federal Home Loan Bank of Its District for liquidity purposes. The preceding regulations apply specifically to borrowing for liquidity purposes. Borrowing for loan expansion is a different matter and is subject to different regulations. The Federal Home Loan Bank Board has been more and more concerned about economic stabilization in the 1950s; therefore, the Board has attempted, since 195|, to circum scribe borrowing from the Federal Home Loan Banks when the purpose of the borrowing Is to Increase home mortgage lending • On September 8, 1955, in an apparent concern over price inflation, the Federal Home Loan Bank Board directed savings and loan associations (1) to confine all new home mortgage lending to the sum of the volume of mortgage loan repayments and net savings, and (2) to restrict any additional borrowing from the Federal Home Loan Banks to emergencies and prior commitments 25 only. Immediately, the Federal Home Loan Bank Board Inaugurated the 24 Federal Savings and Loan Insurance Corporation Rules and Regulations for Insurance of Accounts (Washington: Federal Home Loan Bank Board, March 15, 1960), pp. 6-7. 25 Annual Report (Washington: Federal Home Loan Bank Board, 1955), p. 20. 169 following policy: a. new loan demands upon member institutions should be met out of savings and loan repayments; b. no Federal Home Loan Bank advances should be made for the purchase of Government securities or for the purchase of loans; and c . a reasonable reduction on outstanding advances should be made at the time of renewal. Three months later, December 13, 1955, the FHLB Board relaxed its September restrictions to the extent of allowing a stand-by credit not to exceed 5 per cent of savings capital for associations that made new commitments in excess of their estimated receipts from loan repayments and net savings, and had not received advances amounting to 10 per cent of their withdrawable accounts. The Board illustrated its policy as follows: A member association fhrdebt to its FHL Bank in an amount equal to 3 per cent of its savings capital could borrow an additional amount equal to 5 per cent of its savings capital for additional mortgage lending; an association in debt in an amount equal to 5 per cent of its savings capital could borrow an additional 5 per cent of its savings capital for expanded mortgage lending; an association in debt to 7 per cent of its savings capital could borrow an additional 3 per cent for In creased mortgage lending; and an association that was already in debt to its FHL Bank in an amount of 10 per cent of its savings capital, having already reached the celling on borrowing, could obtain no additional ad vances for loan expansion. In May, 1956, the 10 per cent celling was raised to 12 1/2 per cent 170 for "emergency cases.'1 Four months later. In September, 1956, the celling was again raised. The general limit was made 12 1/2 per cent, with a 15 per cent emergency limit. Credit restraints Imposed by the Board In 1955 and modified In 1956 remained In effect throughout 1959, except for one additional factor which was adopted In April, 1958. On April 15, 1958, the Board authorized additional advances to be made up to 5 per cent of a member's withdrawable accounts on a 5-year nonamor tized basis out of the proceeds from sale of 5-year consolidated Federal Home Loan Bank bonds. The maximum total advances for other than with drawal purposes, according to current Federal Home Loan Bank Board policy, cannot exceed 20 per cent of a members' withdrawable accounts. Thus, It Is apparent that savings and loan associations, unless restrained, will use Federal Home Loan Bank credit as a means of exten sive loan expansion. Clearly, the volume of home building in the 1945-1959 period was greater than it would have been without government action in the field. Government thus helped to create a larger potential market for savings and home financing institutions, and has provided the home financing institutions with the agencies to facilitate the mobilization of credit for them . It was shown in the preceding sections of this chapter that there ^Annual Report (Washington: Federal Home Loan Bank Board, 1959), p. 20. 171 was a rapid growth of population, a shift of population to the W est, Southwest and Southeast, and a continuing urban trend. Moreover, most of the population growth occurred in metropolitan areas; and even more significant for the demand for housing, there was a shift to the outlying areas of large metropolitan centers. In 1959 the metropolitan areas, where the increasing demand for housing resulted hot only from shifts in population from the central cities to the suburbs but also from the influx of people from outside the areas, accounted for 68 per cent of the nation's nonfarm dwellings. The five leading states in new dwelling construction—California, New York, Texas, Florida, Illinois—accounted for 46 per cent of all new residential construction in 1959. Three of V these states—California, Texas and Florida—had a large influx of population; the other two contained the largest metropolitan centers in which a large suburban movement occurred. An analysis of the growth of residential construction and of the financing of that construction will contribute to the understanding of the growth pattern of savings and loan associations. Housing Starts. Table XLI shows that total nonfarm dwelling starts rose from 209,000 in 1945 to a peak annual rate of 1,396,00027 in 1950. 27This figure (which probably understates the 1950 starts) is based on the old method of calculating housing starts, which was discontinued as of April, 1960. The new method of calculating starts begins with January, 1960. The new method probably gives a more accurate estimate of housing starts. For example, the new method (retroactive for 1959) shows 1,530,900 starts in 1959. For more information on the new series, see the technical notes in the Bureau of the Census May, 1960 Construction Report on Housing Starts, Series 20-11 (Supplement). 172 TABLE XU PERMANENT NONFARM DWELUNG UNITS STARTED, BY REGION, 1945-1959 (BOB omitted) Total North North- Metro- Non Metro- Year starts east central South West politan poUten 1945 209 na na na na ** 1946 671 na na na na 1947 849 na na na na 1948 932 198 205 316 213 1949 1,025 248 226 356 195 1950 *1/396 *323 *337 449 287 1,022 374 1951 1/091 249 263 362 217 777 315 1952 1,127 251 226 367 246 796 332 1953 1/104 255 271 328 251 804 310 1954 1,220 343 325 359 292 897 323 1955 1/329 273 356 389 310 976 353 1956 1/118 229 304 334 252 870 338 1957 978 196 258 346 242 700 342 1958 1,104 211 290 413 295 827 382 1959 1,378 253 318 *459 *348 1,076 455 * Peak **Not available prior to 1950. SOURCE: Bureau of the Census, U. S. Department of Commerce: Housing SW llttgg; Housing Statistics Historical Supplement. Housing and Home Finance Agency. 173 Total starts did not reach the latter annual rate again in the 1950s. Total starts likewise reached a peak in 1950 in the Northeast, the North Central, and the W est. The South, where total starts were at a higher annual rate than the other regions throughout the period 194561959, sur passed the 1950 peak in 1959. The pattern of housing starts in the various regions approximated that of the nation in the postwar period. There are perhaps three observations necessary about Figure 9 28 (Regional Housing Starts, 1948-1959): (1) Housing starts reached a peak in 1950 and fluctuated contracyclically at a somewhat lower rate thereafter. (2) From 1950 to 1956, the other regions gained relatively to the South, especially from 1952 to 1956. (3) The South since 1956, and the West since 1957, have accounted for an increasing proportion of housing starts, especially the W est. Unfortunately, housing starts are not available for all of the states of the Ninth District. However, mortgage recordings, which reflect not only new home building but also the purchase of existing homes and home improvement loans, have been discussed in previous chapters. More over, the reasons why savings and loan associations are getting a greater volume of the potential home financing business are analyzed in subse quent sections of this chapter. The immediate concern in the further elucidation of the growth of savings and loan associations is increasing personal Income. ^Figure 9 is on a ratio scale. 17 4 2000 t— i— r t— r t— i— i— i— r 1500 UNITED STATES 1000 9 0 0 8 0 0 TOO 6 0 0 5 00 SOUTH 4 0 0 WEST NORTH-CENTRAL 500 NORTHEAST 200 150 SOURCE: BUREAU OF CENSUS, a S. DEPARTMENT OF COMMERCE 100 ■■ I I I I— I I I I I J i • * » *______3 1950 1955 I960 rIGURE 9 - PERMANENT NONFARM DWELLING UNITS STARTED 175 Personal Income Growth The rapid growth of population and urbanization in the period 1940-1960 was conducive to the growth of housing, and the demand fez: housing led to increased savings and loan activity. The growing popula tion was accompanied by increasing personal Income. The rise In personal Income was a crucial factor for the accelerated growth of savings and loan business. Perhaps for the purposes of this study, the regional growth pattern of personal income is one of the more significant factors in the explanation of the relative growth rates of savings and loan associations. Geographical Distribution. There were pronounced trends in the geographical distribution of income in the United States from the 1920s to the 1950s. These trends in Income coincide with and help explain the more than proportionate growth of financial intermediaries in certain regions, It can be shown that the regions having the greatest relative growth in Income also have the greatest relative growth in savings and loan associations and other financial Intermediaries. In the period 1930 to 1959, there were large relative gains in personal Income in three regions, the Far W est, the Southwest, and the Southeast, and a significant relative decline in New England ani the Mideast. There was a moderate upward trend in the Rocky Mountain region and a moderate decline In the Plains States. The Great Lakes region maintained a relatively constant proportion of the nation's income. The relative shift, then, was from New England and the Mideast to the 176 South and W est.2® The regional shifts in personal income are readily apparent in Table XLII, which shows personal income by regions as a per cent of total income for the nation in selected years. The South and West out- sttipped New England and the Mideast in growth of aggregate personal income in the period 1929-1959. Although New England and the Mideast still accounted for approximately one-third of the Income of the nation in 1959, their declining relative position was apparent throughout the period, in consequence of industrial and population growth of the newer and less developed regions of the United States. The pattern of relative Income positions for the various regions generally holds for the Individual states composing the regions. Only six states ran counter to the trends of their district in the period 1929- 1959. Only one state, Arkansas, among those comprising the subject of this study, failed to Improve its relative position during the period 1929-1959. Income in the FHLB D istricts. Perhaps the most relevant facts for this study are found in Table XLIII (Personal Income, Selected Years, by FHLB Districts and Selected States, 1945-1959). Personal income, although growing rapidly in all districts, grew more rapidly in Little Rock from 1945 to 1959, rising from $12,387 million to $29,789 million, 29 Personal Income by States (Washington: United States Depart ment of Commerce, 1956), p. 10. 177 TABLE XUI PERSONAL INCOME, BY REGIONS, SELECTED YEARS Personal Personal income In Income In Per cent of Continental 1953-55 1959 S tates and UnitedStates a s % of a s % of Realons 1927-29 1940-41 1953-55 1959 1927-29 1929 United States 100.00 100.00 100.00 100.00 355 344 Arkansas .66 .67 .63 .62 340 320 Louisiana .99 1.14 1.31 1.35 466 497 Mississippi .64 .66 .66 .66 366 344 New M exico .20 .25 .37 .42 676 846 Texas 3 .3 0 3.57 4.64 4.73 499 556 FHLB District Nine 5.79 6.29 7.61 7.82 363 505 New England 8.32 8.11 6.61 6.49 282 247 Mideast 31.84 29.69 25.66 25.19 286 249 Great Lakes 23.45 22.87 23.02 21.85 348 311 Plains 9.01 8.28 8.22 7.96 324 300 Southeast 11.73 13.69 15.20 15.76 460 500 Southw est 5.09 5 .2 0 6.64 6.89 463 517 Rocky Mountain 2.00 2.03 2.16 2.25 385 431 Far W est1 8.55 10.13 12.48 13.59 518 600 152UtbttS£$: A riz ., N. M ., Tex. , Okla.; Southeast: La.. Ark. , M is s ., Ala., Tenn. , N. C., Fla., Ga., S . C ., Va •, Ky. , W. Va.; Great III., W is., Ind., Ohio, Mich..: Mldaast: Pa., N. Y., Del., D. C ., N. J.; New England: Maine. Vt., N. H ., M aas., Conn., R. I.; Plainsi Minn., Iowa, Mo., Kan., Neb., S. D., N. P.: Rockv M ts.: Mont., Idaho, Wyo., Utah, Colo.; Far West: Calif., Nev., Oreg., Wash. SOURCE: U. S. Department of Commerce. i 178 TABLE XLIII PERSONAL INCOME, SELECTED YEARS BY FHLB DISTRICT AND SELECTED STATES, 1945-1959 (m illions) Per cent In crease Realon 1945 1950 1955 1959 1945-1959 Boston #1 11,372 15,180 20,200 24,729 117.4 New York #2 27,157 36,753 48,859 60,539 122.9 Pittsburgh #3 13,591 19,369 24,341 29,099 1 1 4 :i Greensboro #4 19,718 25,331 35,856 46,256 134.9 Cincinnati #5 13,985 19,013 26,718 31,889 128.0 Indianapolis #6 11,486 16,809 24,036 27,205 136.8 C hicago #7 14,699 21,044 27,583 33,992 131.2 Des Moines #8 10,381 15,262 19,022 23,298 124.4 Little Rock #9 12,387 17,239 22,462 29,789 140.5 A rkansas 1,270 1,539 1,933 2,370 8 6 .6 Louisiana 2,153 2,937 3,985 5,169 140.1 Mississippi 1,304 1,590 2,065 2,528 93.9 New Mexico 491 798 1,088 1,681 242.4 Texas 7^169 10,375 13,391 18,041 151.6 Topeka #10 6,674 9,036 11,785 14,910 123.4 San Francisco #11 23,099 30,347 44,676 60,812 163.3 United States 164,549 225,473 306,598 380,664 131.3 oai^M aH aBBBnsH aBaH BseH BaBn SOURCE: United States Department of Commerce. 179 an increase of 140.5 per cent, a percentage which exceeded the national rate (131.3 per cent) and all of the other districts, except San Francisco (163.3 per cent). The rate of growth of personal income in two states in the Ninth District, Texas (151.6 per cent) and New Mexico (242.4 per cent), greatly exceeded the national rate (131.6 per cent) and substantially surpassed the rate for the District (140.5 per cent). Louisiana, with a 140.1 per cent growth, showed a greater rate of growth in personal income than the nation, but equaled the District. The growth rates of Arkansas (86.6 per cent) and M ississippi (93.9 per cent) were sub stantially less than the District and national rates. Table XUV summarizes the preceding discussion by giving a com parison of the rates of growth of metropolitan population, personal income, and savings and loan assets for the United States and each of the FH1B districts. The increase in savings and loan assets in the Little Rock District (1,021.7 per cent) greatly exceeded that for the nation (626.6 per cent) and each of the other FHLB districts. In metropolitan population, Little Rock exhibited a 153.0 per cent increase, substantially higher than the national rate (71.9 per cent) and each of the FHLB districts, except San Francisco (172.8 per cent). The same is true for personal Income, Little Rock showing a greater increase (140.9 per cent) than the nation (131.8 per cent), but being surpassed among the FHLB districts by San Francisco (163.3 per cent). 180 TABLE XUV COMPARISON IN RATE OF GROWTH: METROPOLITAN POPULATION, PERSONAL INCOM E, AND SAVINGS AND LOAN ASSETS aaa«gB«taBm^aaaeaaaai^BaBgg8M a i ■ 'ill, ■ rmaaeaa Metropolitan Personal Income population S and L Assets laisrjdasfl ifl4QriafiO _ l a i y i a s a FHLB Per cent Per cent Per cent Districts Rank increase Rank increase Rank increase Boston 10 117.4 11 15.3 11 258.7 New York 9 122.9 10 27.2 8 547.1 Pittsburgh 11 114.1 9 4 1 .8 9 4 87.5 G reensboro 4 1 3 4 .6 3 138.8 4 7 9 8 .4 Cincinnati 6 128.0 6 6 8.4 10 391.1 Indianapolis 3 136.8 4 94.1 7 5 4 8 .9 C hicago 5 * 31.2 8 4 6 .1 3 848.7 D es M oines 7 124.4 7 5 8 .8 5 6 8 1 .0 Little Rock 2 140.9 2 153.0 1 1,021.7 Topeka 8 123.4 5 9 2 .2 6 642.3 San Francisco 1 163.3 1 172.8 2 974.6 United States 131.3 7 1 .9 625.6 SOURCE: Derived from Tables XXXIX and XLIII, Chapter V and from Table X, Chapter IV. 181 The growth of personal Income, population, urbanization, house hold formation, governmental housing activities, and hence residential construction formed the basis from which the unprecedented demand for the home financing services of savings and loan associations emanated in the period 1945-1959. Savings and loan associations were able to meet the Increasing demand for their home financing services because they were able to attract new savings capital. In successfully meeting the challenge of an Increasing demand for their services, savings and loan associations made possible the rapid growth of assets previously discussed. The conditions and means by which savings and loan associations reacted to the favorable economic environment outlined in Section I will be considered in Section IX. II. THE ENDOGENOUS FACTORS The first part of this section will identify and explain those factors which have given support to the growth of savings capital at savings and loan associations. The final part of this section will focus on the means by which savings and loan associations develop their loan p o te n tia l. Factors in the Growth of Savinas Capital Redistribution of Income. The growth of population, urbanization, and Income, all more in evidence in the South and W est, was accompanied by another fact of significance for the growth of savings and loan 182 associations. There was a downward redistribution of income in the United States after the 1920s, as indicated in Table XLV. Perhaps a more vivid Impression can be gained in Figure 10 which contrasts in come distribution In 1957 with 1929. The distribution of Income underwent change in the 1930s but has not been altered appreciably since 1940. During the 1930s there was a tendency, as shown, toward a downward redistribution of income. The shift during the 1930s was from the highest quintiles to the lower income groups, with the fourth and third quintiles being the principal recipients. Redistribution and Savina. The impact of a downward redistribu tion of income upon savings and savers among the various Income groups is most relevant to this study. A redistribution of Income affects the distribution of personal saving. Beneficiaries of the redistribution of income, the middle and lower income groups, exhibit a stronger pre ference for the debt of financial intermediaries than upper income groups. Middle and lower Income groups place a higher premium upon safety and convenience, whereas the top Income groups, with less concern for safety of principal and certainty of fixed return, tend more toward equities. According to the 1957 "Survey of Consumer Finances" by the Board of Governors of the Federal Reserve System in cooperation with the Survey Research Center, University of Michigan,30 the ownership of 30 See "The Financial Position of Consumers," Federal Reserve Bulletin (Washington: Board of Governors, September, 1958), pp. 1027-1058. 183 TABLE XLV DISTRIBUTION OF INCOME BY QUINTILE, SELECTED YEARS (Before Taxes) Per cent of total money income O ulntlle 1929 1935-36 1941 1944 1957 Low est, 5th 4 .5 4 .1 4 .9 4 .0 13.0 Second, 5th 9.5 9.5 10.9 10.0 Third, 5th 14.0 20.9 22.3 16.2 17.0 Fourth, 5th 19.0 22.3 22.3 22.2 2 4.0 H ig h est, 5th 5 4 .0 48.0 48.0 45.8 45.0 Top 5% 3 0 .0 26.5 2 4.0 20.7 20.1 SOURCE: Selma Goldsmith, "Size Distribution of Income Since Mid 1930's.11 Review Economics and Statistics, February, 1954, p. 9.; U. S. Department Commerce, Income Distribution of United States, 1950-53, p. 8. "The Financial Position of Consumers." Federal Bulletin, September, 1958, p. 1053. 104 100 LOWEST FIFTH, V / / / 71 SECOND FIFTH 80 - THIRD FIFTH 60 - FOURTH FIFTH ui o o: UI £ 0. 40 - HIGHEST FIFTH 20 - SOURCE: DERIVED FROM TA8LE XIV iftr T W f FIGURE 10- INCOME DISTRIBUTION IV OUINTILE corporate stock was more highly concentrated at upper income levels than were liquid assets. The survey shows that only about five per cent of the units in the lowest quintiles reported stock ownership, com-* pared with twenty-nine per cent in the top group. Almost half of the holders in the highest qulntlle reported owning stock valued at $5,000 or more. Moreover, in 1958 approximately half of all spending units reported having checking accounts, about half owned savings accounts or shares, and more than one-quarter United States savings bonds. Each type of liquid asset was held more frequently at higher than lower income levels. At all levels large holdings were more common in the form of savings accounts or shares than in checking accounts or savings bonds. There is a marked tendency for the frequency of large holdings, especially in savings accounts and shares, to Increase with age. One- v half of the savings deposit holders who were 65 or older had deposits of $2,400 or more, compared with a median deposit of $720 for all holders.^ * The trends in the age concentrations (see Table XLVI) of the popu lation tended to favor the growth of savings and loan associations, because the most rapid growth was among those groups, the young and the old, favoring savings and loan activity. 31Ibld. , p. 1033 186 TABLE XLVI PERCENTAGE DISTRIBUTION POPULATION BY AGE Age 1940 1950 _J35£ 0-24 43.3 41.4 4 4 .4 f - 25-44 3 1 .0 30.1 26.4 45-64 20.1 20.2 20.4 65-ov er 5 .6 8 .3 8 .8 SOURCE: Derived from Bureau of the Census Reports for 1940, 1950 and 1959. It Is apparent that the age groups in which savings accounts are most characteristic increased rapidly. The 65 and over age group in- 32 creased by 25.4 per cent in the 1950s. Both savings accounts and 33 home ownership Increase with age for all income quintiles. Decline in Business Savina. Not only was relatively more saving done by the income groups exhibiting a propensity to invest in the shares of savings and loan associations and similar assets, but there has been a trend toward relatively less saving by business and more by individuals 32"Current population reports population characteristics" (Washington: Bureau of the Census, U .S . Department of Commerce, February, 1960), p . 2. 33 **"1959 Survey of Consumer Finances, " Federal Reserve Bulletin (Washington: Board of Governors, Federal Reserve System, September, 1959), pp. 1097-1114. 187 In the period under study. This phenomenon was related not only to the downward redistribution of Income but also tb the distribution of Income among functional shares. 34 Table XLVII shows the distribution of income among the func tional shares for selected years. Considering the distribution of income by shares before taxes, compensation of employees exhibited a remarkably constant proportion. The property share, although rela tively constant before taxes, may be assumed to be affected more by the mild overall progressivity in the tax structure than the wage share. Thus it may be assumed that the distribution of Income after taxes would reduce the property share more than the wage share. Hence the wage share would show a relative increase after taxes. The declining relative share of Income going to property owners •fter taxes, income normally assumed to be going to the high Income groups, suggests that perhaps there was a redistribution of savings in favor of the groups receiving wage and salary type Income, the middle and lower Income groups. A significant result of the functional redistribu tion of Income is shown in Table XLVIII, but made much more apparent in Figure 11. There are two abnormal periods, 1940 to 1945 and 1945 to 1950. The war years, 1940-1945, showed abnormally high personal savings for well known reasons. The Immediate postwar years, 1945-1950, brought abnormally high corporate earnings and high retained earning s. 34 National income. 188 TABLE XLVn FUNCTIONAL DISTRIBUTION OF NATIONAL INCOME (Before taxes, In billions of dollars) 1929 1945 1955 1958 National Income 87.8 181.2 330.2 366.2 Compensation employees 51.1 123.2 223.9 256.8 Property Income 3 6 .7 5 8 .0 108.3 109.4 Proprietors1 income 14.8 30.8 42.1 46.6 Rental income 5 .4 5 .6 10.7 11.8 Corporate profits 10.1 18.4 4 3 .1 36.7 Net interest 6 .4 3 .2 10.4 14.3 PERCENTAGE DISTRIBUTION National Income 100.0 100.0 100.0 100.0 Compensation employees* 58.2 68.0 67.8 70.1 Property Income 41.8 32.0 32.2 2 9 .9 Proprietors' income** 16.8 16.9 12.7 12.7 Rental income 6 .2 3 .1 3*2 3 .7 Corporate profits 11.5 10.1 13.2 10.1 Net interest 7.3 1 .9 3 .1 3 .4 * Includes employee contributions to social Insurance funds. ♦♦Includes noncorporate Inventory valuation adjustment. SOURCE: United States Department of Commerce. 189 TABLE XLVIH SAVINGS BY INDIVIDUAL AND CORPORATIONS* (In billions of dollars) Personal Undistributed Savings as Personal corporate a per cent Year savinas profits Total of to ta l 1929 4 .2 2 .4 6 .6 6 3 .6 1939 2 .9 1.2 4 .1 5 8 .6 1940 4 .2 2 .4 6 .6 63.7 1941 11.1 4 .9 16.0 6 9.4 1942 27.8 5 .2 3 3 .0 8 4 .2 1943 3 3 .0 6 .0 3 9 .0 8 4 .7 1944 36.9 5 .7 4 2 .6 8 6 .6 1945 27.8 3 .6 3 1 .4 88.5 1946 13.5 7 .7 21.2 63.7 1947 4 .7 11.7 16.4 28.7 1948 11.0 13.3 24.3 4 5.3 1949 8 .5 8 .5 17.0 5 0 .0 1950 12.6 13.6 26.2 4 8.1 1951 17.7 10.7 2 8.4 62.2 1952 18.9 8 .3 27.2 69.5 1953 19.8 8 .9 28.7 6 9 .0 1954 18.9 7 .0 25.9 7 3 .0 1955 17.5 11.8 29.3 5 9.7 1956 23.0 11.3 34.3 67.1 1957 23.1 9 .7 3 2.8 70.4 1958 23.5 6 .5 3 0 .0 78.3 1959 23.3 11.4 34.7 6 7.2 •Personal saving includes saving of individual business proprietors and p a rtn e rs. SOURCE: The Economic Report of the President , January, 1960. PERSONAL SAVINOS AS PERCENT 0.T TOTAL SAVMSS100 IUE RN I PROA SVNS IS2S-IGS9 SAVINGS, PERSONAL IN TRCNO - I I FIGURE 191 The trend line in Figure 11 generalizes the relationship of personal savings to total savings (personal plus business savings) since 1939. Relatively more saving is being done by individuals and relatively less e by business. Significantly, Individuals, not businesses, purchase the shares of savings and loan associations. The growth of income and savings in the middle and lower income groups, and the trend toward personal savin gs rather than business savings, facilitates the explana tion of the rapid growth of savings in savings and loan associations. Saver Preferences. The unprecedented growth in savings capital at savings and loan associations for the nation and the FHLB districts was shown in Chapter IV. The growth in savings capital was, in part at least, a function of the relatively pronounced preferences for savings and loan shares among savers. Moreover, it was shown that on a national basis that savers showed a greater relative preference for the shares of savings and loan associations than for the debt of any other financial intermediary, except mutual funds and credit unions. Savers in the Little Rock District also exhibited a pronounced preference for the shares of savings and loan associations in the period under study. Preferences in Ninth District. The pattern of preferences for the debt of financial intermediaries among savers within the Ninth District as compared with that of the nation may be observed in Table XLDC. In the Little Rock District, savers exhibited a greater relative preference for savings and loan shares than for the debt of any other medium. 192 TABLE XLIX PERCENTAGE DISTRIBUTION INVESTMENTS OF INDIVIDUAIS IN SELECTED MEDIA, 1950-59 S an d L C om m ercial C red it P o sta l A s s n s . Banks U nions S av in as Y ear U.S. Dist, 9 U.S. Dist. 9 U.S. D is t. 9 U.S. D is t. 9 1950 27.9 32.9 70.1 6 4 .2 1 .8 2 .9 5 .6 1955 38.8 40.2 55.8 52.4 2 .9 4 .0 2 .4 3 .4 1956 4 1 .1 4 2 .8 5 3 .8 4 9 .9 3 .2 4 .4 1 .9 2 .7 1957 4 1 .7 4 6 .2 53.5 47,3 3.4 4.6 1 .4 1 .8 1958 4 2 .4 4 5 .0 5 3 .1 4 9 .5 3 .4 4 .3 1 .1 1 .2 1959 4 4 .5 4 6 .4 5 1 .0 4 7 .5 3 .7 4 .4 0 .8 1 .7 SOURCE: United States Savings and Loan League. 193 District associations, like the nation's associations, increased their relative position among the various saving media. In 1950, District associations accounted for only 32.9 per cent of total savings in listed media, but their proportion Increased to 46.4 per cent by 1959. When the same media were considered, all associations in the nation ac counted for 27.9 per cent of total savings in 1950 and 44.5 per cent in 1959. Time departments of Ninth District commercial banks experienced a diminution of their relative position among these media. Time depart ments accounted for 64.2 per cent of total savings in 1950 but only 49.5 per cent in 1959. Savings and loan associations and commercial banks were the principal competitors for the passbook type of savings of indi viduals; and among the four media considered, they accounted for 98.1 per cent of all savings In 1950, 92.6 per cent in 1955, and 93.9 per cent in 1959. Although the relative positions of savings and loan associations and time departments of commercial banks were radically altered by changing saver preferences, their combined proportion remained relatively constant, especially after 1955. Credit unions lmpctved their relative position both in the District and the United States, being rela tively constant after 1957. Postal savings suffered a diminution of their relative position. Within the District, the preferences of individual savers for the various financial intermediaries which bid for thrift ac counts tended decidedly in favor of savings and loan associations. 194 Savers and Savinas and Loan Shares. The pattern of preferences for the debt of the various savings intermediaries was very similar for the nation and the Little Rock District. For more detailed data on the various states within the Ninth District see Chapter IV. The debt of savings and loan associations of some of the states was preferred by savers to such an extent that savings and loan associations outstripped commercial banks both absolutely and relatively. Savings and loan associations tailored their debt, i.e ., savings and loan shares, so that It was attractive to that vast market created by the growth in personal Income and the concomitant growth in savings, the redistribution of Income, and the Increase in the volume of savings by individuals relative to business. Irrespective of the motives for saving, the preferences of individuals for financial assets (including the debt of financial intermediaries) Is generally conditioned by the following qualities of an asset: (1) "liquidity" (convenience), i.e ., the property of ready convertibility into cash; (2) "Capital certainty, ” I.e ., the certainty of conversion into cash at or near purchase price; (3) "Income certainty," i.e ., the assurance that a given Income will be realized; and (4) "Lender's risk," I.e ., the risk of non-payment 35 or failure to pay associated with asset. The holders of thrift accounts (rainy-day accounts) are quite 3 3 Joan Robinson, The Rate of Interest and Other Essays (London: Macmillan and Company, 1952), p. 5 ff. 195 willing to hoiU their savings In the form of an asset which offers a high degree of income certainty, liquidity, capital certainty and a minimum of lenders' risk. Savings and loan shares combine these qualities r admirably. The creation of FSLIC virtually eliminated any long-run risk, and the practice of repurchasing shares by associations upon demand has rendered shares highly liquid. When the relatively high "dividend" rate on shares Is considered, they become extremely attractive to the holders of thrift accounts. The Return on Savings. The average annual yields on selected types of investments that may be considered alternatives to savings and loan shares are shown in Table L below. TABLE L AVERAGE ANNUAL YIELD SELECTED TYPES OF INVESTMENT 1945 1950 1955 _____m i S and L A ccounts 2 .5 2 .5 2 .9 3 .7 Mutual Saving Banks 1 .7 2 .0 2 .7 3 .2 Time Depts. Commercial Banks 0 .8 0 .9 1 .4 2 .4 U. S. Bonds 2 .4 2 .3 2 .8 4 .1 Municipal Bonds (HG) 1 .7 2 .0 2 .6 3 .7 C o rp . AAA Bonds 2 .5 2 .6 3 .1 4 .4 SOURCE: United States Savings and Loan League 196 Except in the Northeast, where mutual savings banks are pre valent, savings and loan associations and commercial banks are the only two significant competitors for savers' funds that are destined for the passbook account. The yield on savings and loan accounts consistently averaged higher than the yield on time deposits at com mercial banks. More significantly, in areas where population, urbanisa tion, housing, and Income growth were accelerated, the yield on savings and loan accounts was typically higher than the national average. Little Rock, Greensboro, and San Francisco were such areas, the yield on savings and loan accounts in these areas being typically higher than the national average (See Table II). It is quite apparent that any asset which matched savings and loan shares in liquidity, capital certainty, and lenders' risk did not match them In return on Investment in the postwar period. Moreover, the yield on corporate AAA bonds did not appreciably exceed the return on savings and loan shares. There is little reason to assume that corporate AAA bonds were in serious competition with savings and loan sh a re s . The dividend rate is crucially related to the inflow of savings at savings and loan associations. The dividend rate was a basic reason for the Increasing preference for shares of savings and loan associations. This is essentially true because savings and loan associations in prac tice made their shares convertible into cash upon demand. When people TABLE LI INSURED SAVINGS AND LOAN ASSOCIATIONS AVERAGE ANNUAL DIVIDEND RATES PAID, BY FHLB DISTRICTS, SELECTED YEARS (Weighted average) P m . 30 D ec. 31 June 30 D ec. 31 June 30 D ec. 31 June 30 D ec. 31 1956 1956 1957 1957 1958 1958 1959 1959 United States 3.07 3.18 3.31 3.43 3.50 3.48 3.55 3.77 Boston 2.97 3.05 3.10 3.19 3.16 3.24 3.28 3.56 New York 2.84 2.91 3.03 3.15 3.20 3.21 3.27 3.45 Pittsburgh 2.99 3.00 3.04 3.10 3.22 3.25 3.31 3.47 Greensboro 3.21 3.29 3.41 3.55 3.62 3.58 3.61 3.89 Cincinnati 2.95 3.03 3.13 3.30 3.34 3.28 3.41 3.68 Indiana 2.76 2.86 3.00 3.09 3.14 3.16 3.22 3.49 Chicago 3.10 3.16 3.30 3.46 3.60 3.62 3.65 3.77 Des Moines 3.02 3.12 3.24 3.35 3.47 3.40 3.47 3.72 Little Rock 3.14 3.22 3.51 3.56 3.14 3.54 3.65 3.86 Topeka 3.16 3.20 3.36 3.44 3.54 3.43 3.50 3.90 San Francisco 3.30 3.62 3.75 3.84 3.87 3.85 3.90 4.10 SOURCE: Operating Analysis Division, Federal Home Loan Bank Board. 198 believe they can obtain their money any time they desire it, they do not 36 hesitate to shift to the highest yields. A pattern of availability of funds upon demand and generally higher yields than those of other com- 37 petit or s for thrift accounts, are basic factors in the growth of savings at savings and loan associations. Of course, factors other than the return paid to savers by various institutions affect savers' preferences, factors such as geographic location and concentration of institutions, the types of individuals holding accounts, and the difference in mer chandising techniques.One fact must not be overlooked, however. The return paid to savers by savings and loan associations is higher than the return that savers can secure from other deposit-type savings Institutions. The favorable competitive position for thrift accounts is augmented by the tax position of savings and loan associations. Taxation and the Growth of Savings and Loan Associations. Savings and loan associations receive differential tax treatment. This point was 36Paul A. Samuelson, "The Current State of the Theory of Interest Rates, With Special Reference to Mortgage Rates. 11 Conference on Savinas and Residential Financing (Chicago: United States Savings and Loan League, 1960), pp. 11-29; see also W. O. Duvall, "Taxation," Savinas and Loan News. October, 1960, pp. 22-28. The literature is replete with statements to the effect that higher yields on savings and loan shares largely explain their competitive advantage in attracting s a v in g s. ^7See the preceding table on yields. 3®Leon T. Kendall and Frank H. Gane, "The Savings and Loan Business: Its Economic Status and Its Role in the Savings Investment Process," 1960 Proceedings Conference on Savings and Residential Financings (Chicago: United 8tates Savings and Loan League, 1960), pp. 121-148. 199 detailed in Chapter II. The question here is whether or not this differ ential tax treatment has been a factor in the rapid growth of savings and loan associations, I.e ., has made possible a higher dividend rate. Perhaps a comparison of the tax procedures applying to commercial banks and savings and loan associations is appropriate at this juncture. The principal tax difference, since both are subject to the same nominal rates, derives from the definition of taxable Income. Both commercial banks and savings and loan associations are permitted three principal deductions from gross income: 1. Operating expenses are deductible for both. 2. Commercial banks are allowed to deduct Interest paid on time deposits, and savings and loan associations are allowed to deduct dividends. 3. Both are permitted to deduct an allowance for bad debts. The bad debt item is the principal point of difference and of 39 controversy between commercial banks and savings and loan associa tions. Congress has allowed for a bad debt reserve for commercial banks, and th e . . . Treasury has issued regulations permitting a reserve for bad debts based on the average losses on their loans 39See issues of Banking after 1955, e.g ., A. L. Scanlan, "How Banks can Resist the Mushrooming of Federal Savings and Loan Associa tions," Banking. June 1957; see also issues of the Savinas and Loan News after 1955; and see G.E. Lent, "Comparative Tax Treatment of Mutual Savings Institutions and Commercial Banks. 11 Tax Revision Compendium. U. S. Congress, House of Representatives, Committee on Ways and Means (Washington: United States Government Printing Officer 1959), pp. 1767-1782. 200 over any 20-year period beginning with 1927. The exact period used depends on a bank's choice. Each year a deduction for bad debts may be made until a maximum reserve has been established equal to three times the average loss experience factor multiplied by the amount of outstanding loans • The bad debt feature is different for savings and loan associations, as was Indicated in Chapter HI, and in operation it Is more liberal. The law provides that any amount not to exceed net Income may be applied to a reserve for bad debts, provided that such reserves plus surplus do not exceed 12 per cent of withdrawable accounts.*1 Savings and loan associations usually do not pay income taxes, because the additions made to bad debt reserves and surplus are usually equal to the net in- 42 come of an association after dividends. Because of the rapid growth of savings and loan associations, the amount of reserves permitted has naturally increased annually. How significant has the differential tax treatment been in the rapid growth of savings and loan associations? It apparently has been a factor. An illustration, first of how a commercial bank is taxed and then of an application of the same provisions to savings and loan associations, 40 Harold Torgerson, "Three Problems of Concern to Savings and loan Associations," ggnfoffnff? 211 Savings and Residential Financing: 1960 Proceedings (Chicago: United States Savings and Loan League, 1960), p. 166. 41 Jack Cashin. History of Savings and Loan Associations In Texas (Austin: Bureau of Research, The University of Texas, 1956), p. 138. 42Torgerson, on. clt. , p. 166. 201 will provide some Insights. First, the procedure for commercial banks will be shown. Assume that Bank A, with loans outstanding of $9,000,000 at the beginning of 1959 and $10,000,000 as of December 31, 1959 and a twenty-year loss ratio of 0.5 per cent, has at the beginning of 1959 a bad debt reserve of $135,000. Since the ceiling factor for a bank is three times its loss ratio over the 20 years, it may have at the end of 1959 a bad debt reserve of $150,000 (3 x 0.5 per cent of $10,000,000). Therefore, the Bank could have transferred as much as $15,000 to the bad debt reserve and still be within the reserve ceiling permissible in this illustration. The $15,000 transferred to reserves is, of course, deducted for tax purposes. Assume, now, a savings and loan association with savings capital of $9,000,000 and reserves and surplus of $747,000 (9,000,000 x 43 .083) at the beginning of 1959 and $10,000,000 in savings capital at t the end of 1959. If reserves and surplus are maintained at 8.3 per cent ^During the 1950s savings and loan associations maintained reserves and surplus equal to approximately 8.3 per cent of savings capital. Perhaps it should be pointed out that it is conventional to refer to the maintenance of a reserve and surplus account by savings and loan associations as a reserve for bad debts. It is essentially the same as the capital account for commercial banks, and it is perhaps more mean ingful to consider it as such. Moreover, it seems safe to assume that there is some level below which the supervisory authorities would not permit reserves to fall. The ten-year relative constancy of the 8.2 per cent ratio to loans suggests that this may be near the lower limit. Current agitation of this point by the banking community supports this point. 202 pf savings capital, the permissible level would be $830,000 at the end of the year. Thus the savings and loan association could add $83,000 ($830,000 - 747,000) to reserves and surplus and deduct the same from taxable income. However, the maximum reserve ceiling for bad debt is $1,200,000 (12 per cent of withdrawable accounts); therefore it would be possible for the savings and loan association to transfer as much as $453,000 ($1,200,000 - $747,000) to reserves and surplus as of December 31, 1959, deducting the same from taxable Income. Assume further that the commercial bank and the savings and loan association had net earnings in 1959 of $200,000 after dividends, but ^ r before allocations to reserves and taxes. The commercial bank, ac cording to our example could transfer $15,000 tax free to a reserve for bad debts; the other $185,000 of net Income would be subject to the corporate Income tax. The association would be allowed to transfer the entire $200,000 tax free to a reserve — Indeed, any amount not exceed ing $453,000. The tax bill for the commercial bank is $90,700 ($185,000 net income taxed at 30 per cent of first $25,000 and 52 per cent of the remainder). For the association the tax bill would be zero. Thus far the illustration does not take account of the fact that savings and loan associations have been growing more rapidly than commercial banks. The rate of growth vitally affects the amounts that may be allocated tax free to a reserve for bad debts. Once a savings and loan association has accumulated a reserve 203 amounting to 12 per cent of It* withdrawable deposit* (shares), then the amount that may be added tax free to a bad debt reserve is a function of the rate of growth in savings accounts. Assuming a 15 per cent rate of growth in savings deposits, e.g. from $10,000,000 to $11,500,000 for the year (not uncommon for savings and loan associa tions), the association in our example could add, solely as a result of growth, $180,000 tax free to reserves and surplus. Given the same rate of growth in commercial bank loans, e.g ., $10,000,000 to $11,500,000 for the year, it could add only $22,500 tax free to a reserve for bad d e b ts . From 1945 to 1959, actual growth in the factors allowing for tax free additions to reserves would have permitted a total tax free addition of $1,271,235,000 by commercial banks and $5,661,960,000 by savings and loan associations. The total amount that savings and loan associa tions, Individually or In the aggregate, may add tax-free In any year to a reserve for bad debts Is a function of (1) how much has been added In previous years relative to the maximum allowable and (2) the rate of growth In savings capital. The aggregate reserve position of savings and loan associations in 1959 is a case In point. Savings capital of all associa tions rose from $47,976 million on January 1 to $54,548 million as of December 31, an Increase of 13.4 per cent. This rate of growth made possible an addition of $789 million tax-free to a bad debt reserve (550 million was actually added) solely as a result of the 13.4 per cent growth 204 in savings capital. However, because they failed to add the maximum allowable to bad debt reserves in the years previous to 1959, they could have added $2,701 million, or $2,151 million more than was added in 1959. In the period 1945-1959, savings capital growth alone would have permitted addition of $5,6f2 million to reserves, while savings and loan associations added only $3,733 million. It is quite apparent that the rapid rate of growth in savings capital of associations and their propensity to maintain a reserve for bad debts equal to approximately 8.3 per cent of savings capital has given rise to a situation in which a tax-free amount greater than their gross income in 1959 (slightly less than $3 billion) could have been added to reserves. In effect, savings and loan associations have been exempted from corporate income taxation. Perhaps there Is a vital relationship between the ability of savings and loan associations to pay a higher dividend rate than the yield on time deposits and their advantage in calculating "bad debt" reserve allow ances. However, there is a divergence of opinion as to how much the dividend rate would be affected. Professor C. F. Haywood44 asserted that his study4® of this problem suggested that It permitted a higher 44Torgerson, o p . cit.. p. 168. 4%n correspondence with Professor C. F. Haywood concerning the availability of his study, he informed the writer that while employed by the Bank of America and The American Bankers Association he made several studies on the question of equal tax treatment for commercial banks and sav ings and loan associations. However, since these studies are the property of private organisations they are not available. It should be noted here, however, that any analysis of this problem must make certain assumptions about the following: (1) allocations to reserves; (2) dividend policy; (3) the tax rate applicable; (4) the nature of the proposed tax arrangement for sav ings and loan associations; and (5) the nature of savings and loan adjust ment to a lower dividend rate. 205 dividend rate by about 1/4 of 1 per cent per annum. Others, 4® how ever, especially among the banking community, think that it permits a 1 1/2 per cent per annum higher dividend rate. There are also those who argue, although admitting that a higher rate on deposits gives a competitive advantage, that the relatively higher yield on savings and loan shares is primarily a function of the superior earning power of savings and loan associations. Banks seek the preferred risk and they have the lower yields. Associations, It Is argued, earn more because of the nature of their investments, not because of the differences in tax treat ment.47 Subsequent paragraphs, in which commercial bank taxation is applied to actual savings and loan data, may indicate the Impact of dif ferential tax treatment on savings and loan dividend policy. In 1959, savings capital of savings and loan assodlatlons was $47,976 million on January 1 and $54,548 million on December 31, averaging $51,262 million for the year. Based on the average savings capital, the $1,820 million which savings and loan associations actually allocated to dividends in 1959 yields a dividend rate of 3.55 per cent. Loans outstanding for savings and loan associations were $45,627 million on January 1, 1959 and $53,087 million on December 31, 1959. Thus, 4®Scanlan, on. c it., pp. 49-50. No analysis is given. 47 Gaylord A. Freeman, "Competition for savings and Federal Income Taxation," Commercial and Financial Chronicle. February 23, 1956, pp. 31-35; "Effects of Taxation on Competition for Savings." Banking. April 1956, pp. 74-78; see also Lent, on. cit., pp. 1767-1782. 206 commercial bank taxation, assuming a loss ratio factor of 0.5 per cent, would have permitted a maximum tax-free addition to reserves of ap proximately $112 million ^[3 x 0.5 x $53,087,000) - (3 x 0.5 x $45,627,000)7, substantially less than the $550 million actually added to reserves in 1959. Assuming that associations must allocate to other expense items and add to their reserves and surplus each year actually what they did AO add, ° and further assuming that the average loss ratio factor for com mercial banks to be 0.5 per cent,49 then It can be shown that savings and loan associations would have been forced to pay a somewhat lower dividend rate than the 3.55 per cent which was actually paid. The as sumption of associations' being taxed as commercial banks In 1959 necessitates the determination of how much savings and loan associations 4®In the decade of the 1950s, all associations of the nation actually held in reserves and surplus an average of 8.2 per cent of their loans outstanding. The range of this percentage was less than one percentage point for the 1950s. 49This seems to be a realistic figure. From 1927 to 1947, net losses as a per cent of total loans exceeded 0.5 per cent only eight times (0.69 per cent in 1930, 1.23 per cent In 1931, 2.26 per cent In 1932, 3.06 per cent in 1933, 3.27 per cent in 1934, 1.50 per cent in 1935, 0.90 per cent in 1936, and 0.58 per cent in 1938); It should be noted that these are severe depression experience years. The average rate of loan losses was only 0.60 per cent for the period 1929-1947. See Roland I. Robinson, The Management of Bank Funds (McGraw-Hill Book Company, 1951), pp. 400-416; see also reports of the FDIC; and G.E. Lent, "Comparative Tax Treatment of Mutual Savings Institutions and Commercial Banks," Tax Revision Compendium. Vol. 3, pp. 1767- 1782. 207 would have had available for disbursement as dividends before the dividend rate can be ascertained under such circumstances. The relevant savings and loan data for 1959 are: $1,820 billion paid in dividends and $.550 billion actually allocated to reserves. Since virtually no Income tax is paid by savings and loan associations in the aggregate, the sum of these two items ($2,370 million) is an ap proximation of Income before taxes. As previously shown, if savings and loans were taxed as commercial banks, the maximum tax-free reserve allocation possible would be $.112 billion. Assuming a 52 per cent tax rate, the* the amount available for dividends for 1959 can be Obtained as follow s: Taxable income - taxes + $.112 = $.550 billion (amount actually added to reserves) Taxable income - taxes = $.438 billion Net income before taxes - addition to reserves - dividends - taxable income .48 ($2,370 - $.112 - X) - $.438 billion X * $1,346 billion (amount available for dividends) Thus, under the assumptions, the maximum possible dividend rate for savings and loan associations in 1959, if taxed as commercial banks, would have been approximately 2.62 per cent50 (dividends. I.e., $ 1 ,3 4 6 billion, divided by average savings capital, i.e., $51,265 billion) as S^A 40 per cent tax rate would permit a 2.98 per cent dividend rate; a 30 per cent tax rate, a 3.10 per cent dividend rate. 208 compared with the 3.55 per cent dividend rate possible under the bad debt provision for savings and loan associations. As a first approxima tion, then, a commercial bank type of taxation might result in lower savings and loan dividend rates by 0.5 to 1 per cent per annum, de pending on the effective rate of income taxation. After allowance for secondary effects, however, the downward adjustment in dividend rates would probably be smaller. A lower dividend rate by as much as 1 per cent would produce the se consequences: (1) It would seriously retard the rate of growth of sav ings capital at savings and loan associations; (2) as a result, the flow of funds into the home mortgage market would be restricted; (3) the rate on residential mortgages would rise because of the reduced relative supply of mortgage funds; (4) the higher rate on mortgages, the chief form of asset of associations, would mean higher earnings for associa tions per dollar of savings capital; (5) the lower rate of growth of savings capital would mean that smaller amounts would have to be added to re serves to maintain a given reserve/capital ratio; (6) by reason of (4) and (5), the ability to pay dividends in relation to savings capital would be Increased. Thus the actual reduction in dividend rate would lie between zero and the first approximation made above. After conservative allow ances have been made for the adjustments enumerated above, plus the fact that commercial banks typically do not pay an effective 52 per cent tax rate, it is believed that the differential tax treatment probably makes possible a savings and loan dividend rate from 0.3 to 0.5 per cent per annum higher. At the same time, of course, it permits a higher rate of growth of savings and loan assets and lower home mortgage interest rates than otherwise would be possible. The Development of Home Financing Services In Chhpter IV it was shown that savings and loan associations occupy a predominant position among leaders in the home mortgage financing field, accounting for more than 40 per cent of the nation's home mortgage recordings, the largest share for any type lender. In the decade of the 1950s savings and loan associations increased their share of the mortgage market from 31 to 40 per cent. In the Little Rock District for the same period, their share rose from 25.9 to 33.9 per cent. How do savings and loan associations expand their mortgage loan business? Logically, it would be assumed that they would expand by lowering the rate of mortgage Interest, but this is not the usual approach 53 They generally compete for loans on a non-price basis. It is even possible, and indeed sometimes the practice, for savings and loan ®*See Chapter IV. S^Kendall and Gane. o p . clt. . p. 134. 53 '' Interest rates on FHA and VA loans are fixed by law and are typically lower than conventional rates. Savings and loan associations, being specialised institutions and also less encumbered by regulations, typically invest in conventional mortgages. Bank and Insurance com panies, because of their general preference for the loans with less risk and also legal requirements, tend to prefer the FHA and VA type loans. 210 associations to charge loan rates higher than the going rate. The factors making this possible, as well as a summary of the bases for loan expansion, are apparent In the following quotation: A higher than market rate Is possible because associations can make a number of services available to buyers and sellers of real estate that other lenders cannot match • As local lenders, operating In a geographically limited market, asso ciations specialize In offering very rabid service on real estate transactions; loans can be closed in a matter of days. They also provide more complete home financing service. At one Institution they offer the commitment to a builder, a construc tion loan and a take-out of the permanent home loan. Few, If any, other borrowers do the complete Job. Associations are authorized to make mortgage loans for as high as 80 per cent (sometimes 90) of the appraised value of the property, and such loans can be made for up to 25 years. Banks end insurance companies have a legal maximum loan-to-value ratio of 66 2/3 per cent of appraised value and a 20-year maturity In most states. Loans can be readily tailored to meet local demand and the specifications of the property, because local laws and codes are fully understood by these local lenders. Moreover, associations generally are in the local mortgage market on a continuous basis and strive to honor requests for financing from builders or developers at all tim es. Such service is highly Important to the real estate and home building business and to its stability.®4 In the Little Rock District the legal regulations or restrictions on mortgage lending for state-chartered savings and loan associations are less restrictive than for the nation as a whole. Four states—Arkansas, Louisiana, M ississippi, and New Mexico—have no restrictions at all. Texas restricts loans to 80 per cent of appraised value for a maximum maturity of 25 years.55 Moreover, federal savings and loan associations 54 Kendall and Gane, o p . c l t . . p . 134. ^H earings on H. R. 6228: National Bank Residential and Construe tlon Loans. House Committee on Banking and Currency, 84th Congress, First Session, July 15, 1955. 211 are permitted to make loans up to 90 per cent of the appraised value of property under stipulated co n d itio n sT h ese regulations are more liberal than for banks and insurance companies. The foregoing makes it quite apparent that savings and loan asso ciations are specialized institutions. Specialization in home mortgage financing places savings and loan associations in a very favorable com petitive position. Their competitive position has been cultivated and consolidated in the postwar period. Significance of the Growth of Savings and I*>an Associations. Although this is a regional study of savings and loan associations, it is « perhaps necessary to at least recognize the recent developments in monetary theory emanating from an lit erpretatlon of the significance of the rapid growth of nonmonetary intermediaries, especially savings and loan associations. Monetary policy is alleged to have several limita tions , but the most recent allegation derives from the fact that there has been a growth of money substitutes supplied by nonmonetary inter m e d ia rie s. The notion that the influence of monetary policy can be vitiated through an Increased supply of liquid assets and credit expansion by 5®For complete details on restrictions or regulations on loans see Rules and Regulations for the Federal Savings and loan System (Washington: Federal Home Loan Bank Board, January, I960), p p . 2 2 -3 1 . 212 nonmonetary intermediaries Is of recent origin. This57 novel idea derives essentially from the greater relative long-run growth of non commercial bank financial intermediaries and the increasing volume of credit supplied by these institutions, especially the postwar inten sification of this long-run trend by deposit type institutions. The ex pansion of savings and loan associations is of particular concern. Gurley and Shaw, in exploring the theoretical implications of the rapid growth of financial Intermediaries, deduced certain policy implica tions . They interpret the relative decline of commercial banks in financial operations as a serious diminution of the power of the Federal Reserve to control inflation. Essentially, it is held that the central bank authorities, in their efforts to promote a desirable economic environment by manipulating the quantity and quality of money and credit, have found themselves manipulating a relatively declining segment of the total financial structure; therefore. It is argued that the monetary authorities must bring greater pressure on the commercial bank sector to be effective. Such action, it is contended, slows the rate of growth of the commercial bank sector relative to savings and loan associations. Moreover, it is contended that the restraint of credit expansion and higher interest rates, as a result of Federal Reserve policy, creates an environment conducive 57 J. G. Gurley and G. S. Shaw, "Financial Aspects of Economic Development," American Economic Review. XLV, September, 1955, 515-539,' "Financial Intermediaries and the Saving and Investment Process," Toumal of Finance. XI, May, 1956, 557-577. 213 to the further growth of savings and loan associations. It Is argued that the quantitative controls of the Federal Reserve toe becoming increasingly Inadequate for the task at hand.**® There has been a relatively rapid growth of savings and loan asso ciations In the Ninth FHIB District; It may be assumed that there has been an Intensification of the problem of monetary control in the Ninth District. If the above thesis Is correct, the ability of financial Institu tions In the District to create money substitutes and expand credit has been enlarged because of the rapid development of savings and loan associations. Hence, it Is possible that the development of the economy of the Ninth District has been less restrained by restrictive monetary policy than would have been the case if the pattern of economic develop ment had not been so favorable to the growth of savings and loan asso ciatio n s . I ll, SUMMARY The growth of savings and loan associations is related to many factors. The major factors have been Identified and described in this chapter. In the 1945-1959 period there was an almost unprecedented growth in personal Income and population. The growth in personal in come and population was accompanied by a continuing urban trend, and an increasing rate of marriage and of household formations. From these 58Ib ld . 214 factors emanated a tremendous demand for urban housing, and hence the postwar residential housing boom. This boom In home construction and renovation provided expanded opportunities for one of the two major functions of savings and loan associations—home mortgage financing. Savings and loan associations, being highly specialized institu tions and possessing the funds. Increased their relative position In the home mortgage and financing market. Specialization and the legal rules governing their operations were such that savings and loan associations now occupy a position of superiority in home mortgage financing, ac counting for a record volume at present for any mortgagee. CHAPTER VI GENERAL SUMMARY AND CONCLUSIONS I . GENERAL SUMMARY Growing almost without Interruption since their Inception In 1831 at Frankford, Pennsylvania, savings and loan associations, now number ing over 6,000, are found in every major urban center in the United States. The modem association is a highly specialized, privately-owned cor poration operated primarily on a cooperative basis; and, like its pre cursor, confines its operations to urban home mortgage financing and encouraging thrift account accumulation. The savings and loan associa tion is an urban and Industrial phenomenon, and specialization is a basic characteristic. Before the advent of the savings and loan association, the American economy was without a major financial intermediary catering to the emerging urban, wage-earning class in the realm of collecting thrift ac counts and residential home mortgage financing. Thus, the association filled a basic need in our economy—the cooperative financing of home construction and the promotion of thrift among the middle and lower in come groups. The association is still filling that need. Today, one hundred and thirty years since their origin in the United States, savings and loan associations are without a peer in residential home mortgage 215 216 financing; and, in the postwar period, associations have surpassed all deposit type intermediaries in attracting thrift accounts. The ability to adapt and grow are characteristic features of sav ings and loan associations. The first period of exuberant expansion was the decade of the 1920s. While the decade of the 1930s brought the first significant decline, it also brought the FSLIC and the FHLB System, basic factors in their recovery after 1938. The absolute magnitude of savings and loan expansion in the period 1945-1959 sur passed all deposit type intermediaries. Although exuberant growth is common to all savings and loan associations of the nation in the period 1945-1959, five of the eleven Federal Home Loan Bank districts exceeded and six lagged behind the national rate of growth. Measured in terms of assets, the Ninth Federal Home Loan Bank District grew at almost twice the national rate; and it surpassed all of the other Federal Home Loan Bank districts. Only two other districts, San Francisco and Greensboro, greatly exceeded the national rate of savings and loan growth. Within the plinth District, all states except Louisiana grew more rapidly than either the associations of the nation qr the District. Louisiana lagged behind both the District and the national rate. The regional pattern of growth exhibited in assets, a rapid rate of asset growth in all districts and a rate greatly surpassing the national rate in Little Rock, San Francisco, and Greensboro districts, is charac teristic of all aspects of growth, such as in savings capital, mortgage 217 recordings, and mortgage debt held. Causality is complex, and the growth of savings and loan asso ciations in the period 1945-1959 is the consequence of the subtle reciprocity of a large number of causal factors, ranging from the remote to the more Immediate. The Important environmental influences were: 1. the tremendous surge in population growth in the postwar period; e 2. the growth in urbanization. Increased migration, and the exodus to suburbia; 3. the growth of personal income and savings, swelling the ranks of home buyers and savers. 4 . t h e l e a n v Jars of home construction preceding 1945; 5. the more rapid rate of household formation during the period under study; 6. the redistribution of income downward in the 1930s favor ing the groups catered to by savings and loan associations; and 7. the relative decline in business savings also favoring savings and loan expansion. The great boom in residential housing in the period 1945-1959 emanated from the factors enumerated above. The housing boom gave rise to the demand for home mortgage financing. This market was actively entered by savings and loan associations. The demand engendered for the home mortgage financing servldes of savings and loan associations caused associations to aggressively engage in the expansion of their liabilities, essentially through dividend policy. The exogeneous factors enumerated above combine and interact in a reciprocal fashion with the endogenous 216 t factors, essentially policies aimed at loan and share account expansion, so as (1) to provide the fundamental explanation of the growth of savings and loan associations, (2) to explain the relative growth pattern of the various regions, and (3) to explain the growth of associations relative to that of their immediate competitors. The growth of assets (almost wholly first mortgage loans) and savings capital are the two principal criteria of growth. How did savings and loans surpass their competitors in these facets of growth? Given the condition of strong demand for home mortgage financing, savings and loan associations proved to be a superior competitor. Why ? They offered a combination of services that other lenders did not match: - 1. They are a local lender operating in a geographically limited market, specializing in rapid service on real estate transactions. Loans can be closed in a matter of d a y s . 2. They provide a complete home financing service that few, If any, other borrowers can match, e .g ., they offer the commitment to a builder, a construction loan and a take out or the permanent home loan service under a single roof. 3. Associations are permitted to make loans up to 80 and 90 per cent of the appraised value of property with terms up to twenty-five and thirty years. Banks and insurance companies have a legal maximum loan-to-value ratio of 66 2/3 per cent in most states. 4. Being local, specialized institutions, associations are fully aware Of local laws and codesl and loans are tailored to meet local demand and specifications. 5. Associations are in the mortgage market on a continuous basis, and thus they strive to meet request of builders or developers at all times. 219 6. Associations can borrow up to 12 per cent of their savings capital from the Federal Home Loan Bank System for loan expansion. This is an Important source of lending for associations. 7. The ready availability of funds frpm the inflow of savings capital and from the FHL Banks make funds readily avail able for loan throughout the construction cycle. Specialization coupled with the otter advantages placed savings and loan associations in a very favorable competitive position. The realization of the potential demand for home mortgage financing impelled savings and loan associations to tailor their shares so as to induce an inflow of savings. The ready availability of funds eased the terms of financing and promoted their home mortgage financing from that direc tion, hence the reciprocal causality of the availability of funds and the demand for home mortgage financing. The greater growth of savings capital in savings and loan associa tions relative to other deposit institutions has attracted more attention than their asset growth. The placement of the passbook type savings account in deposit type institutions is a function of a combination of interacting factors. Why have savers shown a relative preference for savings and loan shares? Associations have offered a financial asset with the salient features desired by the holders of thrift accounts. 1. The association, under the FSLIC and the FHI3 system, gives safety and liquidity to savings and loan shares on a par with time deposits. 2. Savings and loan practice has made shares as readily con vertible into cash as any competitive asset. Shares are regarded as essentially money. 220 3. Given a parity among financial assets In terms of capital certainty, safety, convenience, and liquidity, savers of thttft type accounts tend toward higher yields. The savings and loan dividend rate exceeded the rate on time deposits by more than 1 per cent throughout the period 1945-1959. Moreover, dividend rates have typically been highest In those regions having the greatest growth In savings and loan activity. The foregoing Is inadequate unless coupled with other considera tions, such as (1) the long run growth in Income; (2) the growth in the volume of savings; 0) the increase In the number of sa/ers resulting from the growth in real Income; (4) the relative decline of business savings and the downward redistribution of income occurring in the 1930s; (5) the residential construction boom; (6) and the shift in saver prefer ences of the public. The changed preference patterns of individuals are in turn related to the increase in real income# Increase in savings, the in crease in liquid assets, and the intensive product competition by savings and loan associations. II. CONCLUSIONS The following fundamental conclusions emerge from the present study of the nature and development of savings and loan associations: 1. Specialization is a basic factor in the success of savings and loan associations. Their ability to survive and grow emanates from their ability to adapt their specialized services to changing saver preferences for financial assets and in meeting home mortgage financing needs of home b u ild e rs. 221 2. Federal legislation has been the fundamental force In shaping the character of savings and loan associations, and associations have established a reputation for financial soundness on a par with that of other financial institutions In the period 1945*1959. Overcoming their record of poor performance during the 1930s has been a crucial factor in their success during the postwar period. 3. Savings and loan associations are filling a basic need in the economy of the Ninth FHLB District—promoting thrift and engaging in the financing of home construction among the middle and lower Income groups that might otherwise be excluded from this service. In the absence of savings and loan associations, home ownership and construction would have been seriously reduced. Moreover, the ability of the economy of the Ninth District to accumulate debt and expand credit has'been vitally affected by the growth of savings and loan associations in the period 1945*1959. The mobilization of funds from outside the District has made possible a more rapid growth of home construction and ownership than would have otherwise been possible. 4. In a sense, the home financing activities of savings and loan associations have been a destabilizing Influence in the economy of the Ninth District, i.e ., they have added to Inflationary pressures during the prosperity phases of the business cycle through the use of Federal Home Loan Bank credit for the expansion of home construction. It is possible that savings and loan associations operate beyond the pale of monetary restraint of the traditional kind. With a view to greater economic stability, 222 it would appear desirable to bring the HLB8 within the scope of monetary policy. 5. Savings and loan associations have grown at the relative expense of other institutional lenders in the home mortgage financing market In the Ninth District. Specialization and a superior legal posi tion are the dominant reasons for this development. No doubt, savings and loan associations will continue to erode the position of other in stitutions in home mortgage financing as long as the present institu tional arrangements prevail. 6. The total savings package offered holders of thrift accounts by Ninth District associations has induced a shift in saver preferences in the District; therefore there has been a basic redistribution of the lodgement of the deposits of the passbook type in the Ninth District during the period 1945-1959. District associations now equal commer cial banks as a holder of thrift accounts. This is not true on a national basis. Commercial banks have maintained their relative position on a national basis but not in the Ninth District. The absence of other deposit- type institutions, such as savings banks, in the district has facilitated the preceding development. 7. The high rate of growth of savings and loan associations, the regional pattern of growth, and the greater growth of associations rela tive to that of other deposit intermediaries cannot be adequately explained in terms of the conventional explanation of savings and loan aggresiveness 223 and higher Interest rates paid on savings. The conventional explana tion is at best an identification of the most Obvious factor, and as a consequence is woefully inadequate. Moreover, it is misleading be cause it does not focus upon the basic motive force in the growth of savings and loan associations. It does not consider the total savings package; and since it does not show the source of the higher dividend rate, it is superficial and incomplete. More basic, however, the conven tional explanation does not consider the demand factor in the growth of home mortgage financing by savings and loan associations. The conven tional explanation makes no attempt to explain the regional pattern of grow th. 8. There is a fundamental direction of cause and effect in the growth of savings and loan associations. The basic motive force in the growth of savings and loan associations in the period 1945-1959 was the unprecedented demand for home mortgage financing. There would not have been the relatively high dividend rate and the record inflow of savings at savings and loan associations in the absence of a vast home mortgage market. The preceding does not deny, of course, the reciprocal influence of the inflow of savings or home financing. The reciprocal causality of the availability of funds and the demand for home mortgage financing is ignored by the conventional explanation. The high rate of growth of savings and loan associations, the regional pattern of growth, and the greater growth relative to commercial banks in the savings field 224 emanates from a complex of factors, not merely advertising and a higher interest rate on savings accounts. 9. The greater relative growth of savings and loan associations in the Ninth Federal Home Loan Bank District is largely a consequence of the greater relative economic growth of the region. In the 1945-1959 period, personal income, savings and urbanization grew at a higher rate in the Little Rock District than for the nation; consequently, the boom in residential construction and the demand for savings and loan financing were intensified. Thus, Ninth District associations were more aggressive in expanding their passbook liabilities and the use of Federal Home Loan Bank credit. Moreover, time departments of commercial banks are the only significant competitor for thrift type accounts in the Ninth District. 10. Governmental policies and programs have been the basic factors not only in the recovery of savings and loan activity in the post war period, but also in their ability to outstrip their competitors in home mortgage financing and in attracting passbook type accounts. Savings and loan associations possess a decided tax advantage over commercial banks. The tax advantage is a basic reason why savings and loan asso ciations can pay a dividend rate higher than the interest rate on time deposits. However, even in the absence of the tax advantage, commer cial banks could not pay a return on time deposits equal to the rate on shares for two principal reasons, both legal. (1) The return on time deposits is regulated by law, the current rate maximum being fixed at 225 3 per cent while there is no limit on rate of shares. (2) Current federal and state legal restrictions on home mortgage financing by banks and insurance companies price them out of a large part of the market, especially the higher yields in the conventional sector of the market. As a consequence, savings and loan associations are essen tially without a competitor in the conventional mortgage market. Savings and loan associations, aggressively combining the ad vantages of their specialized nature with a superior legal position, have been more successful in attracting thrift accounts and in home mortgage financing than their competitors in the period 1945-1959. It is probable thht savings and loan associations will continue to erode the position of commercial banks as long as they possess a legally superior com petitive position. SELECTED BIBLIOGRAPHY A. BOOKS Bergengren, R. F. Cooperative Banking. New York: The Macmillan Company, 1923. 398 pp. Bodfish, H. Morton (ed.). History of Building and Loan in the United States. Chicago: United States Building and Loan League, 1931. 792 pp. ------. Money Lending Practices of Building and Loan Associations in Ohio. Columbus: The Ohio State University Press, 1927. 84 pp. ______, and A. D. Theobald. Savinas and Loan Principles. New York: Prentice-Hall, Inc., 1938. 715 pp. Boehmler, Erwin W., and others. Financial Institutions. Homewood: Richard D. Irwin, Inc., 1956. 668 pp. Byrne, William J. Manual of Building and Loan Association Procedure. Elgin, Illinois: Compiled by W. 7. Byrne, 1929. 61 pp. Cashln, Jack W. History of Savinas and Loan in Texas. Austin: Bureau of Business Research, College of Business Administration, Univer sity of T exas, 1956. 171 pp. Chandler, Lester V. The Economics of Money and Banking. Revised edition. New York: Harper and Brothers Publishers, 1953. 549 pp. Clark, Horace F., and Frank A. Chase. Elements of the Modem Building and Loan Associations. New York: The Macmillan Company, 1925* 540 pp. Dexter, Seymour. A Treastise on Co-operative Savinas and Loan Asso ciations . New York: D. Appleton and Company, 1889. 299 pp. Galbraith, John K. The Great Crash. 1929. Boston: Houghton Mifflin, 1955. 212 pp. Goldsmith, Raymond W. A Study of Savina in the United States■ Vol. II. Princeton: Princeton University Press, 1955. 632 pp. 226 227 Goldsmith, Raymond W. Financial Intermediaries in the American Economy Since 1900. Princeton: Princeton University Press, 1958. 415 pp. Grebler, Leo, David M. Blank, and Louis Winnlck. Capital Formation in Residential Real Estate. Princeton: Princeton University Press, 1956. 519 pp. Gurley, John G ., and Edward S. Shaw. Money in a Theory of Finance. Washington: The Brookings Institution, 1960. 371 pp. Hamilton, J. H. Savinas and Savinas Institutions. New York: The Macmillan Company, 1902. 436 pp. Link, Arthur S . American Epoch. New York: Alfred A. Knoph, 1958. 724 p p . Lintner, John. Mutual Savinas Banks in the Savings and Mortgage Markets. Andover, M ass.: The Andover Press, Ltd., 1948. 559 pp. Moulton, Harold G. Financial Organization and the Economic System. First edition. New York: McGraw-Hill Book Company, Inc., 1938. 515 pp. Piquet, Howard S. Building And Loan Associations in New Jersey. Princeton: Princeton University Press, 1930. 341 pp. Prochnow, Herbert V. (ed.). American Financial Institutions. New York: Prentice-Hall, Inc., 1951. 799 pp. Rlegel, Robert, and J. Russell Doubman. The Building and Loan Association. New York: J. Wiley and Sons, Inc., 1927. 320 pp. Robinson, Joan. The Rate of Interest and Other Essavs. London: Macmillan and Company, 1952. 170 pp. Robinson, Roland I. (ed.). Financial Institutions. Third edition. Homewood: Richard D. Irwin, Inc., 1960. 719 pp. ______• The Management of Bank Funds. New York: McGraw-Hill Book Company, Inc., 1951. 425 pp. Rosenthal, Henry S. Cyclopedia of Building. Loan and Savinas Assocla- USBftl How to Organise and Successfully Conduct Them. Fifth edition. Chicago: American Building Association Na«r8 Publishing Company, 1923. 554 pp. 228 Savina* and Loan Principles. Chicago: American Savings and Loan Institute Press, 1957. 308 pp. Schultz, William J., andC. L. Hairlss. American Public Finance. Englewood: Prentice-Hall, Inc., 1959, 631 pp. Sundheim, Joseph Hoffman. Law of Building and Loan Associations. Second edition. Philadelphia: Smlth-Edwards Company, 1922. 376 p p . United States Monetary Policy. The American Assembly. Columbia University. New York: Arden House, 1958. 231 pp. White, Horace H. Louisiana Land Laws and Laws Relating to Building and Loan Associations. New Orleans: F. F. Hansell and Brothers, Ltd., 1926. 644 pp. B. PUBLICATIONS OF THE GOVERNMENT AND OTHER ORGANIZATIONS Adikes, John. "How Much Danger in Mortgage Credit, " Proceedings. Tenth National Credit Conference. New York: The American Bankers Association, 1958, pp. 45*46. Board of Governors of the Federal Reserve System. "1959 Survey of Consumer Finances," Federal Reserve Bulletin. Washington: Board of Governors, Federal Reserve System, September, 1959, pp. 1097*1114. . "The Financial Position of Consumers," Federal Reserve Bulletin. Washington: Board of Governors, Federal Reserve System, September, 1958, pp. 1027*1057. Economic Report of the President. Washington: Government Printing Office, 1960. Eskteln, Otto. "Inflation, the Wage Price Spiral and Economic Growth," Compendium of Papers Submitted by Panelists Appearing before the Joint Economic Committee. Washington: Government Printing Office, March, 1958, pp. 361-365. Federal Home Loan Bank Board. "Assets and Liabilities—All Operating Savings and Loan Associations," Trends in the Savinas and Loan Field. Washington: Federal Home Loan Bank Board, 1959, pp. 7*12. % 229 Federal Home Loan Bank Board. Combined Financial Statements: Members of the Federal Home Loan Bank System. Washington: Federal Home Loan Bank Board, 1945-1959. ------. Federal Savings and Loan Insurance Corporation: Rules and Regulations for Insurance of Accounts. Washington: Federal Home Loan Bank Board, March, 1960. . Savinas and Home Financing Source Book. Washington: Federal Home Loan Bank Board, 1945-1959. ------. Study of All Savings and loan Association Offices., Unllsd- States and Possessions. Washington: Federal Home Loan Bank Board, 1956. . Trends in the Savings and Loan Field. Washington: Federal Home Loan Bank Board, 1948-1958. Federal Reserve Bank of Atlanta. Sources gf Funds for Capital Investment the Southeast. A Report prepared by the Research Department from selected articles from the Monthly Review of the Federal Reserve Bank of Atlanta for the period 1945-1959. Atlanta: Federal Reserve Bank of Atlanta, 1960. Federal Savings and Loan Insurance Corporation. Annual Financial Report. Washington: Federal Savings and Loan Insurance Corporation, 1945-1959. ______. Rules and Regulations for Insurance of Accounts. Washington: Federal Savings and Loan Insurance Corporation, March 15, 1960. First Federal Savings and Loan Association, Jackson, M ississippi. Statement of Condition. June 15, 1960. Goldsmith, Selma. "Preliminary Findings of the 1958 Survey of Consumer Plnances," Federal Reserve Bulletin. Washington: Board of Governors of the Federal Reserve System, March, 1958, pp. 248-251. Housing and Home Financing Agency. Annual Report. Washington: Housing and Home Financing Agency, 1947-1959. Lent, G.E. "Comparative Tax Treatment of Mutual Savings Institutions and Commercial Banks, " Tax Revision Compendium. United States Congress. House of Representatives, Committee on Ways and Means. (Washington: Government Printing Office, 1959), pp. 1767-1782. 230 Louisiana State Bank Commissioner. Reports of the State Banks. Savinas Banks, and Trust Companies In the State of Louisiana. Baton Rouge: State Capitol, 1959. Smith, Warren L. "Monetary Policy and the Structure of M arkets," Compendium of Papers Submitted by Panelists Appearing before the Joint Economic Committee. Washington: Government Printing Office, March, 1958, pp. 493-512. The American Bankers Association. Proceedings. Tenth National Credit Conference. New York: The American Bankers Association, 1958. . Savinas and Loan Associations. A Report Prepared by the Research Council. New York: The American Bankers Association, February, 1958. . Statistics on the Savinas Market. A Report Prepared by the Savings and Mortgage Division in Cooperation with the Research Council. New York: The American Bankers Association, 1960. . The Mortgage Bulletin. A Report Prepared by the Committee on Real Estate Mortgages. New York: The American Bankers Association, Spring and Summer, 1960. United States Bureau of the Census. Current Population Reports Popula tion Characteristics. Washington: Government Printing Office, February, 1960. ______• Fourteenth Census of the United States: 1920. Population. Vol. II. Washington: Government Printing Office, 1921. ______• Historical Statistics of the United States, 1789-1945. Washington: Government Printing Office, 1949. United States Comptroller of the Currency. National Banking Laws and Related Statutes. Washington: Government Printing Office, 1959. United States Congress, House, Committee on Banking and Currency. National Bank Residential and Construction Loans. Hearings on H. R. 6228, 84th Congress, ist Session, July 15, 1955. Washington: Government Printing Office, 1955. United States Department of Commerce. Statistical B u l l e t i n and Survey of Current Business. Washington: Government Printing Office, July, 1959. 231 United States Department of Commerce and United States Department of Labor. Construction Volume and Costs. 1915-1956. Washington: Government Printing Office. 1958. United States Savings and Loan League. Legal Bulletin: The Law Affecting Savings Associations. Vol. XXIV, No. 2. Chicago: United States Savings and Loan League, March, 1958. Quarterly Letter on Savings and Mortgage Lending. Chicago: United States Savings and Loan League, 1950-1960. Report of the Special Committee to Study the Federal Home Loan Bank System. Chicago: United States Savings and Loan League, 1956. . Savings and Loan Fact Book. Chicago: United States Savings and Loan League, 1955-1960. C . UNITED STATES STATUTES Federal Home Loan Bank Act. 47 United States Statutes at Large 726 (1933). Home Owners Loan Act. 48 United States Statutes at T-nma 12Q (1934). Internal Revenue Code of 1954. 68A United States Statutes at Large 205 (1954). National Housing Act. 52 United States Statutes at Large 13 (1939). National Housing Act. 64 United States Statutes at Large 257 (1953). Payne-AIdrich Tariff Act. 36 United 8tates Statutes at Lame 113 (1911). Public Law 576. 64 United States Statuses at Large 257 (1952). Revenue Act of 1913. 38 United States Statutes at Lame 172 (1915). Revenue Act of 1917. 39 United States Statutes at Laroe 1001 (1917). Revenue Act of 1921* 42 United States Statutes at Laroe 253 (1921). Revenue Act of 1934. United States Statutes at Laroe 700 (1934). War Revenue Act of 1898. 30 United States Statutes at Laroe 455 (1897). 232 Wilson Tariff Act. 28 United States Statutes at Large 556 (1895). D. PERIODICALS Alhadeff, D. A. "Credit Controls and Financial Intermediaries, " American Economic Review. L (September, 1960), 655-672. ______, and C. P. Alhadeff. "The Strtpgle for Commercial Bank Savings," Quarterly Toumal of Economics. DOI (February, 1958), 1- 2 2. "Banks are Fighting Back.” Business Week. (August 23, 1958), pp. 39-40. Culbertson, J. M. "Intermediaries and Monetary Theory," American Economic Review. XLVIII (March, 1958), 119-131. Dexter, Seymour. "Cooperative Savings and Loan Association, " Quarterly Toumal of Economics. Ill (April, 1889), 315-335. Freeman, Gaylord A. "Effect of Taxation on Competition for Savings," Banking. XLVII (April, 1956), 94-100. . "Equal Competition for Savings and Federal Income Taxa tio n , " C om m ercial and F in an cial C h ro n ic le . CLXXXIII (February, 1956), 946-950. Goldsmith, Selma. "Size Distribution of Income Since Mid 1930's," Review of Economics and Statistics, XXXVI (February, 1954), 1-33. . "Size Distribution of Personal Income, " Survey of Current Business. XXXVIII (February, 1958), 10-19. Grebler, Leo. "The Housing Inventory; Analytic Concept and Quantitative Change," American Economic Review. XU, No. 2 (May, 1951), 5 5 5 -5 6 8 . Gurley, J. G ., andG . S. Shaw. "Financial Aspects of Economic Development." American Economic Review. XLV (September, 1955), 5 1 5 -5 3 2 . ■ "Financial Intermediaries and the Savings Investment Process. ” Toumal of Finance. XI (May, 1956), 257-276. 233 Haywood, C. F. "A Comment on the Federal Home Loan Bank System and the Control of Credit.H Toumal gf Finance. XIII (December, 1958), 542-544. Henderson, J. M. "Monetary Reserves and Credit Controls, " American Economic Review. L (June, I960), 348-369, McDonald, Stephen L. "Term Structure of Yields, Financial Intermediaries and Contracycllcal Monetary Policy," Southwestern Social Science Quarterly. XL (September, 1959 Supplement), 49-60. McKinldy, Gordon W. "FHIB System and the Control of Credit," Toumal of Finance, XII (September, 1957), 319-332. Minsky, Hyman P. "Central Banking and Money Market Changes," The Quarterly Journal of Economics, LXXI (May, 1957), 171-187. Morgan, J. B. "Cooperative Credit Institution In the U. S.," Annals of American Academy of Political and Social Science, LXXXV, LXXXVni (January, 1920), 172-183. Packard, F. E. "Tax Limitation—Key to Greater Savings," The Southern Banker. CVII (May, 1957), 44-46. Ritter, L. S. "Income Velocity and Anti-Inflation Monetary Policy," American Economic Review. XUX (March, 1959), 120-129. "Savings and Loans are the Fast Gainers." Business Week. (July 21, 1956), p. 15-18. "Savings and Loan Association Boom." Business Week, (May 17, 1952), p. 142-152. "Savings and Loan Associations in the Mortgage Money Market," Federal Reserve Bank of New York, Monthly Review of Credit and Business Conditions, XXXVIII (July, 1956), 94-97. "Savings and Loans Get Edge in 1959 Race," Business Week. (August 25, 1959), pp. 115-116. Scanlan, A. L. "How Banks Can Resist the Mushrooming of Federal 8avlngs and Loan Associations." Banking. XUV (June, 1957), 49-59. Shelby, Donald# "Some Implications of the Growth of Financial Inter mediaries, " JbsJ& ya£ia2££l2£Q£2, XH1 (December, 1958), 527-541. 234 "Slide Presentation Telle Facte of Savings, Loan Tax Story, ” Savinas and Loan News. LXXXI (November, 1960), 34-35. Smith, Warren L. "Financial Intermediaries and Monetary Controls," Quarterly Journal of Economics, XXUII (November, 1959), 533*553. ______. "On the Effectiveness of Monetary Policy," American Economic Review. XLVI (September, 1956), 588-606. Torgarson, Harold W. "Developments In Savings and Loan Associations," Toumal of Finance. IX (September, 1954), 376-378. E. ARTICLES IN COLLECTIONS Cole, Albert M. "Housing Credit and the Nation's Economy," Savinas and Loan Annals 1955. Chicago: United States Savings and Loan League, 1956. pp. 46-55. Dlstelhorst, Carl F* "Savings and Loan Associations and Mutual Savings Banks," American Financial Institutions. Herbert V. Prochnow, editor. New York: Prentice-Hall, Inc., 1951. pp. 126-155. Grebler, Leo. "The Role of Residential Capital Formation In Postwar Business C ycles," 4859 Proceedings. Conference on Savings and Residential Financing. Chicago: United States Savings and Loan League, 1959. p. 62. Humphrey, George M. "Savings Play an Essential Role In the Economy," Saving* and Loan Annals 1953. Chicago" United States Savings and Loan League, 1954. pp. 12-14. Kendall, Leon T., and Frank H. Gane. "The Savings and Loan Business: Its Economic Status and Its Role in the Savings Investment Process," I960 Proceedings. Conference on Savings and Residential Financing. Chicago: United States Savings and Loan League, 1960. pp. 121-148. McKinley, Gordon W. "The Impact of Monetary and Fiscal Policy on Resldentall Capital Formation." 1959 Proceedings. Conference on Savings and Residential Financing. Chicago: United States Savings and Loan League, 1959. pp. 114-134. O'Levry, James J. "Postwar Trends In the Sources and Uses of Capital Funds," 1958 Proceedings. Conference on Savings and Residential Financing. Chicago: United States Savings and Loan League, 1958. pp. 11-39. i 235 Prather, William. "Savings Accounts, 11 Savinas and Loan Principles. Chicago: American Savings and Loan Institute Press, 1957. pp. 77-102. j Robinson, Roland I. "The Impact of Monetary and Fiscal Policy on Residential Financing." 1958 Proceedings. Conference on Savings and Residential Financing • Chicago: United States Savings and Loan League, 1958. pp. 125-139. Russell, Horace. "The Characteristics of Savings Associations," Savinas and Loan Principles. Chicago: American Savings and Loan Institute Press, 1957. pp. 39-50. Samuelson, Paul A. "Th» Current State of the Theory of Interest Rates, with Special Reference on Mortgage Rates, M 1960 Proceedings. Conference on Savings and Residential Financing. Chicago: United States Savings and Loan League, 1960. pp. 11-27. Strunk, Norman. "Why Savers Act the Way They D o," Savinas and Loan Annals 1953. Chicago: United States Savings and Loan League, 1954. pp. 45-53. Torgerson, Harold. "Three Problems of Concern to the Savings and Loan Business," 1960 Proceedings. Conference on Savings and Residen tial Financing. Chicago: United States Savings and Loan League, 1960. pp. 165-173. Welmer, Arthur M. "Business and Real Estate Trends." Savings and Loan Annals 1957. Chicago: United States Savings and Loan League, 1958. pp. 61-65. Wool worth, G. W. "The Impact of Monetary Policy on Residential Capital Formation," 1960 Proceedings, Conference on Savings and Residen tial Financing. Chicago: United States Savings and Loan League, 1960. pp. 58-81. F . ENCYCLOPEDIA ARTICLES "BuiMlng Societies," Encyclopedia Brltannlca filth ed.), IV, 766, VITA James Robert Bobo, the son of Robert Lee and Lenora Bobo, was bom on the sixteenth day of August, 1923, in Marion County, Alabama. He is married to the former Margaret Seretha Nipper. They have one daughter, Harriett Seretha. He attended the public elementary school in Hodges, Alabama and high school in Vina, Alabama. After serving as an enlisted man and an officer in the Army of the United States for three years and eight months, he entered Florence State College, Florence, Alabama as a freshman in the Summer Session, 1947, and graduated in May, 1950. After a one-year appointment as principal of Oakland Junior High School, Florence, Alabama, he entered Graduate School at George Peabody College, Nashville, Tennessee. He graduated in 1952 and took a teaching position in economics at East Central Junior College, Decatur, M ississippi. He was awarded a Fellowship In Far Eastern Studies, Harvard University, during the 1956 Summer Session. In September 1958, he accepted an Asslstantship in the Department of Economics, Louisiana State University. He was awarded the Earhart Fellowship in Economics for the 1959-60 school year. He is at present an Instructor in the Department of Economics, Louisiana State University, and is a candidate for the degree of Doctor of Philosophy. 236 EXAMINATION AND C andidate: Ja— Robert Bobo Major flatd: le o M B le i T ttk a f Tharia: An Analyala of tho Growth of Savlnce and Loan Aaaociationa In tho Iflnth Tadaral H obm Loan Bank D iatrict, 19*»5-1959 Approvad prof—i or ind Chairman to School EXAMINING COMMITTEE D ate o f ? A p r il 2 7t ^ 961 T