Changing Ownership of Mutual Savings and Loan Associations:

An Evaluation

FOD-77-10: Published: May 26, 1977. Publicly Released: May 26, 1977.

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In 1974, the Federal Home Loan Bank Board was permitted to approve 41 savings and loan association conversions from a mutual to stock form of ownership. The sale-of-stock method of conversion has provided opportunities for an association to raise additional capital, expand operations, and increase earnings. In eight associations reviewed by GAO, the primary reason given for converting from a mutual to a stock association was the need to obtain additional equity capital to meet or increase net worth requirements.

The Board needs to increase its monitoring of associations to determine whether they are complying with conversion regulations and whether additional regulations or revisions to existing regulations are required to assure equitable conversions. In the review, it was noted that: (1) members of management and their associates significantly increased their holdings through stock transfer soon after conversion; (2) management and its associates at some associations increased their savings account balances before the eligibility record date of conversion; and (3) Board regulations on rights under subsequent stock issues, stock transfer agents, and acquisitions of converted associations need revision because they conflict with the objective of conversion--broad participation with little or no benefit to insiders. Additional time is needed to monitor the conversion process, refine regulations, and assess further the impact of conversions on the savings and loan industry.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Federal Home Loan Bank Board should: develop and implement monitoring procedures so that existing regulations are adhered to; identify and seek legislative changes in the law relating to penalties and enforcement authority; and strengthen existing regulations.

    Agency Affected:


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