Savings and Loan Associations:
Changes Needed in the Regulation of Their Service Corporations
FOD-78-4: Published: Jun 14, 1978. Publicly Released: Jun 14, 1978.
- Full Report:
Federally chartered savings and loan associations were authorized to invest in service corporations by the Congress in 1964. Service corporations provide savings and loan associations with numerous ways of increasing revenues and profits from investments related to housing or complementary to the operations of associations. The Federal Home Loan Bank Board (FHLBB) regulates and supervises federal savings and loan associations' investments in service corporations.
The savings and loan industry contends that service corporations have greatly increased association profits, but analyses indicate that associations with service corporations are not doing better than associations without service corporations, and service corporations are being increasingly cited as contributing to association problems. Although associations have expanded their financial and housing services through service corporations, this expansion has not emphasized low- and moderate-income housing. A close relationship between associations and their service corporations has given associations opportunities to engage in insider dealings for personal gain, manipulate the service corporation for tax advantages, and make biased investment decisions. Fundamental issues facing the savings and loan associations involve the competitive relationship with commerical banks, the competitive relationship with other industries, and the kind of competition that should be allowed.
Matter for Congressional Consideration
Comments: Please call 202/512-6100 for additional information.
Matter: Congress should: (1) clarify FHLBB authority to regulate investments in service corporations; (2) determine whether FHLBB regulations on service corporation subsidiary location, ownership restrictions, and investment limitations comply with congressional intent; (3) strengthen FHLBB enforcement authority to deal with insider transactions; (4) abolish the 1-percent assets limitation on investments in service corporations; and (5) establish penalties against associations that fail to receive FHLBB approval before investing more than the legal or regulatory limit in service corporations. The Chairman, FHLBB, should establish a second investment limitation based on an association's net worth position until Congress acts on the recommendation to abolish the current investment limitation and establish a reporting system to allow FHLBB to become involved in land-development projects before the land is purchased.