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AMENDMENTS TO FEDERAL HOME LOAN BANK ACT,
HOME OWNERS' LOAN ACT OF 1933, AND
NATIONAL HOUSING ACT
HEARINGS
BEFORE THE
COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
EIGHTIETH CONGRESS
FIRST SESSION
ON
H. R. 2798, H. R. 2799, H. R. 2800, and H. R. 3448
BILLS TO AMEND SECTION 5 OF ROME OWNERS' LOAN
ACT OF 1933, THE FEDERAL HOME LOAN BANK ACT,
TITLE IV OF THE NATIONAL HOUSING ACT,
AND FOR OTHER PURPOSES
MAY 13 AND 16, 1947
Printed for the use of the Committee on Banking and Currency
61862
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UNITED ST.A.TES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1947
CO:\lMITTI<JE ON BANKING AND OURRJ<JNCY
JESSE P. WOLCOTT, Michigan, Chairman
RALPH A. GAMBLE, New York
BRENT SPENCE, Kentueky
FREDERICK C. SMITH, Ohio
PAUL BROWN, Georgia
JOHN C. KUNKEL, Pennsylvania
WRIGHT PATMAN, Texas
HENRY 0. TALLE, Iowa
A. S. MIKE MONRONEY, Oklahoma
FRANKL. SUNDSTROM, New Jersey
.TORN H. FOLGER, North Carolina
BROOKS HAYS, Arkansas
ROLLA C. MCMILLEN, Illinois
CLARENCE E. KILBURN, New York
JOHN J. RILEY, South Carolina
ALBERT RAINS, Alabama
HOWARD H. BUFFETT, Nebraska
DONALD L. O'TOOLE, New ·York
ALBERT M. COLE, Kansas
FRANK
BUCHANAN, Pen'tisy~I&
MERLIN HULL, Wisconsin
WILLIAM G. STRATTON, Illinois
HALE BOGGS, Louisiana
HARDIE SCOTT, Pennsylvania
PARKE M. BANTA, Missouri
CHARLES K. FLETCHER, California
ELLSWORTH B. FOOTE, Connecticut
WILLIAM J. HALLAHAN, Olet•k
ORlIAN S. FIXK, Tecl!11lcal ,9taf! Director
II
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CONTENTS
Statement ofBodfish, Morton, chairman, executive committee, United States
Savings and Loan League ____________________________________ _
Fahey, John H., Commissioner, Federal Home Loan Bank Administra, tion _______________________________________________________ _
Krentz,
R., executive manager, National Savings and Loan_
LeagueOscar
____________________________________________________
Letters, statements, and tabulations si1bmitted for the record byAmerican Bankers Association:
Letter to Hon. Jesse P. Wolcott of May 19, 1947 ______________ _
Statement on H. R. 2800 __________________________________ _
Bodfish, Morton, matter submitted by:
Annual losses, net additions to reserves, and unpaid uividends of
the Federal Savings and Loan Insurance Corporation from
beginning through June 30, 1946 _________________________ _
Data covering all insured institutions as of December 31, 1944,
1945, and 1946 ____________________________,_____________ _
Data covering all savings and loan members of the Federal home
loan bank system, as of December 31, 1944, 1945, and 1946 __
Federal Savings and Loan Insurance Corporation, s-,atement, of
condition items as of December 31, 1944, 1945, and 1946 _____ _
Number and assets of savings and loan associations and cooperative banks as of December 31, .1946 _______________________ _
Operations of the Federal home loan banks from beginning
through June 30, 1945 ___________________________________ _
Operations of the Federal Savings and Loan Insurance Corporation from beginning thr,;mgh December 31, 1946 ___________ _
Ratios of insured institutions to all savings and loan associations
and cooperative banks __________________________________ _
Ratios of members to all savings and loan associations and cooperative banks ________________________________________ _
Selected points of comparison between the Federal Savings and
Loan
Insurance
Corporation and the Federal Deposit Insurance_
Corporation
___________________________________________
Statement of condition items of Federal home loan banks, as of
December 31, 1944, 1945, and 1946 _______________________ _
Statement of condition items of all savings and loan associations
and cooperative banks as of December 31, 1946 ____________ _
States in which law authorizes conversion of State savings and
loan associations to FederaL _____________________________ _
Testimony regarding capital stock ownership of the Federal·home
loan banks in 1932---- ______________ -- _- ______ -- - _- - - ___ _
Fletcher, Hon. Charles K'.: Davis, Neill, letter from~-----------c---
i: fi: ~lg!: ~~!;
National Association
Mutual
Savings
statement
~t=of==
== ==== ==
== == ==Banks,
== == ====
==== ====from
== ==_____
====:.
National Association of State Savings, Building and Loan Supervisors,
statement from _____________________________________________ _
Sundstrom, Hon. Frank L.:
·
Carey, L. B., letter from __________________________________ _
Memorandum in support of H. R. 2798, by L. B.Carey _______ _
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AMENDMENTS TO FEDERAL HOME LO.AN BANK AOT,
HOME OWNERS' LOAN ACT OF 1933, AND NATIONAL
HOUSING ACT
TUESDAY, MAY 13, 1947
HOUSE OF REPRESENTATIVES,
CoMMI'.l'TEE ON BANKING AND CURRENCY,
Washington, D. 0.
The committee convened at 10 a. m., pursuant to call, the Honorable
Jesse Wolcott (chairman) presiding.
_
Also present: Mr. Gamble, Mr. Smith, Mr. Kunkel, Mr. Talle, Mr.
McMillen, Mr. Cole, Mr. Stratton, Mr. Banta, Mr. Fletcher, Mr. Foote,
Mr. Spence, Mr. Brown, Mr. Patman, Mr. Monroney, Mr. Folger, Mr.
Riley, Mr. Buchanan, and Mr. Boggs.
The CHAIRMAN. The committee will come to order.
We will consider this morning H. R. 2798, 2799, and 2800.
(The bills referred to are as follows:)
[H. R. 2798; 80th Cong., 1st sess.]
A BILL To amend section 5, Home Owners' Loan Act of 19,33, and for other purposes
Be it enacted by the Senate and House of Representatives of the United States
of America ·in Congress assembled, That subsection (i) of section 5 of Home
Owners' Loan Act of 1933, as amended, is hereby amended by striking out the
period at the end thereof and inserting a colon and the addition of the following:
"Provided, however, That said conversion shall not be in contravention of the
State law. Any association chartered as a Federal savings and loan association may convert itself into a savin~ and loan, building and loan, or homestead
association, or a cooperative bank, incorporated under the laws of the -State,
district, or Territory in which the principal office of such association is located
(hereinafter referred to as the State institution), upon the vote, cast at a legal
·meeting specified by the law of such State, district, or Territory as required for
such a conversion, but in no event less than 51 per centum of all the votes
cast at such meeting, voting in person or by proxy: Provided further, That legal
titles are protected by ·such conversion: Provided further, That conveyances of
legal titles are made. If none of the outstanding shares of the converting Federal
association are held by the Secretary of the Treasury or the Home Owners' Ldan
Corporation, and if such conversion is to a State institution, which is mutual in
character and of a ty'pe which has been insured by the Federal Savings and Loan
Insurance Corporation, no approval of such conversion by the Federal Home Loan
Bank Board or the Federal Home Loan Bank Administration shall be required
and such converted institution shall continue to be an insured institution and
bound under all of the agreements contained in the original application -for
insurance of accounts, and by such conversion shall accept and be bound by ·an
agreements required by section 403 of title IV of the National Housing Act and
such insured institution shall upon such conversion and thereafter be authorized
to issue securities in the form theretofore approved by Federal Savings and Loan
Insurance Corporation for issuance by similar insured institutions in such State,
district, or Territory. Such conversion shall be effective upon approval by tlie
duly constituted authorities of the State, district, or Territory which have supervision over such institutions where such institution is located, _and the filing of a
certified copy of ·the resolution authorizing such conv;ersion and the approval of
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HOUSING ACT AMENDMENTS
such State, district, or Territory authority with the Federal Home Loan Bank
Administration or the Federal Home Loan Bank Board.
"In addition to the foregoing provision for conversion upon a vote of the
members only any association chartered as a Federal savings and loan association including any having outstanding shares held by the Secretary of the 'freasury ~r Home Owners' Loan Corporation, may convert itself into a State institution
upon an equitable basis, subject to approval, by regulations or otherwise, by the
Federal Home Loan Bank Board or the Felleral Home Loan Bank Administration
and by the Federal Savings and Loan Insurance Corporation: Provided, That
· if the insurarrce of accounts is terminated in connection with such conversion,
the notice and other action shall be taken as provided by law and regulations for
the termination of insurance of accounts."
[H. R. 2799, 80th Cong., 1st sess.]
A BILL To amend the Federal Home Loan Bank Act, title IV of the National Housing
Act, and for other purposes
Be it enacted by the Senate and House of Representafrves of the· Un,ited States
of America in Congress assembled, That section 6 of the Federal Home Loan
Bank Act, as amended, is amended by the addition of a new subsection as follows:
"(l) At the option of each member but within two years after the enactment
of this amendment, each member of each Federal home-loan bank shall acquire
and hold and thereafter maintain its stock holding in an amount equal to at
least 2 per centum of the aggregate of the unpaid principal of such members'
mortgage loans, home-purchase contracts, and similar obligations, but not less
than $500. Such Rtock in excess of the amount required may be purchased from
time to time by members and may be retired from time to time as heretofore.
From time to time and at least annually after the enactment of this amendment,
each Federal home-loan bank shall retire and pay off at par an amount of its
stock held by the Reconstruction Finance Cor11oration or assigns for the Government equivalent to the amount of its stock held by its members in excess of
the amount required to be held by them immediately prior to the enactment of
this amendment: Provided, That none of such Government capital shall at any
time be retired so as to reduce the aggregate capital, reserves, surplus, and undivided profits of the Federal home-loan hanks to less than $150,000,000. Funds
arising from the retirement of said stock held by or for the Government shall
remain in the 'l'reasury of the United States and be available for subscription
to stock in the Federal home-loan hanks in tht> future. Upon a determination
by the Board that the proper functioning of the Federal home-loan banks at
any time requires additional capital, the Board shall request the Secretary of
the Treasury to subscribe to the stock of the Federal home-loan banks as determined by the Board in an amount not in excess of the stock retired under
tliis arnen:lnwnt and the Secretary of the Treasm·y <:hall subscribe for !'!Uch stock
and pay therefor from the funds in the Treasury as a result of this amendment."
SEC. 2. Subsection (g) of section li of the Federal Home Loan Bank Act, a,;
amended, is amended by inserting the words "one-half" before the words "the
sums paid in on outstanding capital."
SEO. 3. Subsection (h) of section 402 of the National Housing Act, is ame11ded
by the addition of the following:
"After the effective date of this amendment the Corporation is authorized and
directed to pay off and retire its capital stock in units of $1,000, from time to time,
from its assets which are in excess of $li'i0,000,000. Such retirement and payment shall be to Home Owners' Loan Corporation or its successor and for the
full amount paid for such stock less any amount paid as dividends thereon. Such
payments shall he continued from time to time as such funds are available from
assets in excess of $150,000,000 until the entire capital stock is retired and the
Corporation shall continue to operate with its insurance reserve, undivided profits,
and other funds. Whenever, in the judgment of the Board of Trustees of the
Corporation. funds are required for insurance purposes, the Secretary of the
Treasury is authorized and directed to purchase obligations of the Corporation
in an amount equal to the amount of capital stock of the Corporation previously
retired, in accordance with the pro,·isions of this paragraph in addition to the
amounts of such obligations which he is otherwise authorized to purchase."
SEC. 4. (a) Subsections (a) and (b) of section 404 of the National Housing
Act, as amended (U. S. 0., 1940 edition, title 12, sec. 1727 (a) and (b) ), are
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HOUSING AC'l' AMENDMENTS
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amended by striking out the word "one-eighth" wherever it appears therein and
inserting in lien thereof the word "one-twelfth".
(b) Subsection (c) of section 404 of the National Housing Act, as amended
(U. S. C., 1940 edition, title 12, sec. 1727 (c)), is amended to read as follows:
"(c) If an insured institution has paid a premium at a rate in excess of onetwelfth of 1 per centum of the total amount of the accounts of its insured mem•bers and its creditor obligations for any period of time after June 30, 1946, it
shall receive a credit upon its future premiums in an amount equal to the exces,;
premium so paid for the period beyond such date."
SEO. 5. Notwithstanding any other evidence of the intention of Congress, it is
hereby declared to be the controlling intent of Congress that if any provision of
this Act, or the application of sucli provisions to persons or circumstances other
than those as to which it is held invalid, shall not be affected thereby.
[H. R. 2800, 80th Cong., 1st sess.]
A BILL '.l'o amend section 5 of Home Owners' Loan Act of 1933, and for other pnrposes
Be it enacted by f!.h-e Senate and House of Reprf!sentatives of tlte Un-ited States
of America in <Jongress assembled, That subsection (c) of section 5 of the Home
Owners' Loan Act of 1933, as amended, is hereby amended by adding at the end
thereof the following:
'"Notwithstanding an,y other provision of this subsection except the area
restriction such associations may invest their funds in title I, Federal Housing
Administration loans, loans guaranteed or insured as provided in the Servicemen's Readjustment Act of 1944, as amemled, or in other loans for property
alteration, repair, or improvement: Provided, That no such loan shall be made
in excess of $1,500 except in conformity to the other provisions of this subsection, and that the total amount of loans so made without regard to the other
provisions of this subsection shall not, at any time, exceed 15 per centum of the
association's assets."
The CHAmMAN. We will consider these three bills during the first
hour and if it is agreeable to the committee, we will go into executive
session at about a quarter after 11 on the matter of the Lanham
permanents.
There is a general debate on the floor of the State-Commerce-Judiciary appropriation bill, and we will try to be through in time to be
there.
Mr. Bodfish is 0ur first witness this morning.
'
Mr. Bodfish is chairman of the executive committee of the United
States Savings and Loan League.
Mr. Bodfish, would you care to discuss these bills~ I believe it
would be helpful to the committee if you would give the committee
a little of the history of the Home Loan Bank Act, and so forth.
STATEMENT OF MORTON BODFISH, CHAIRMAN OF THE EXECUi'IVE
COMMITTEE, UNITED STATES SAVINGS AND LOAN LEAGUE
Mr. BooFISH. Mr. Chairman, should we start with H. R. 2798, the
conversion question, or the Home Loan Bank capital question, which
is H. R. 2799, or the property improvement amendment, which is H. R.
28OO~
The CHAIRMAN. It does not make too much difference. You may
proceed as you wish on the discussion of them, so long as you keep the
subjects separated.
Mr. BODFISH. Suppose we start, then, Mr. Chairman, in numerical
order with H. R. 2798.
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HOUSING ACT AMENDMENTS
First, I might identify myself for the record. I am the executive
officer of the United. States Savings and Loan League, a 55-year-old
organization of some 3,600 savings and loan associations, some. 49
cooperating State leagues.
w·e have been interested in these legislative matters for some time,
and we are most appreciative that the chairman and members of this
committee, with the tremendous things pressing for your attention,
have found it possible to give some attention to them.
I might say that these three bills were all reproduced in somewhat
miniature form, a little smaller than the Government prints, by planograph, in our headquarters in Chicago, and some 10,000 copies of each
of the three bills have been distributed to the executive officers of all
our member institutions so that the executive officer could go over
them with his associates and with his lawyer or counsel.
In the course of the testimony I will make one or two suggestions
of perfecting amendments which have to do with language rather
than policy which have grown out of that distribution.
These has been no dissent in our group with regard to the policies
involved in the bills.
H. R. 2798 is a little different from the other two in this respect:
The supervisors of savings and loan associations, in their respectiv~
States, have an association called the National Association of Building
and Loan Supervisors. They have been very interested in this question of the right of federally chartered institutions to return or to
take State charters and operate under State supervision if their owners
or savings account holders and their managements chose.
H. R. 2798 is, therefore, a measure that is jointly supported by our
United States Savings and Loan League and by the organization of
State supervisors.
_
Mr. BROWN. The right of federally chartered institutions to take
State charters should be allowed.
Mr. BODFISH. Mr. Chairman, it looks as though we have one member
of the jury already.
Again, this is a bill which is jointly sponsored by our organization
and all the State supervisors. The history of this is interesting, and
will only take a moment or two.
In the Home Owners Loan Act of 1933, in section 5, there was a
provision for the Federal Government to charter savings and loan associations. The principal parts of the Home Owners Loan Corpora,tion Act dealt, as you know, with the refunding of existing mortgages
held. by individuals, banks, insurance companies, building and loan~,
and the like, putting them on an amortized basis, liquidating closed
banks, liquefying the assets in the financial depression, and the like.
But section 5 provided that the Federal Home Loan Bank Board might
issue charters, following the best practices ()f local mutual thrift and
home financing institutions, and that these institutions, so chartered,
following somewhat the national bank pattern, would operate under
Federal supervision.
.
That was considered highly desirable by all qf us at that time for
the reason that we had had a tremendous financial crisis in the country,
we had lost 10,000 banks in the years preceding 1933, and, frankly, we
had lost some two or three thousand savings and loan associations, and
the balance of them were not in a liquid condition, but many were
frozen, so it seemed desirable to get a uniform and standard and mod-
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HOUSING ACT AMENDMENTS
ern charter just as'in the 1~64 period immediately following the War
hetween the States, the nat10nal bank charters .were provided supple-·
menting the then existing State banking systems.
·
-_
In that piece of legislation a section provided that if a State-chartered institution wanted to become a· federally chartered institution
and an existing State institution wanted to become a federally chartered institution, the Federal authorities were authorized to issue it a
charter and accept it. Obviously, by Congressional legislation, you
could not give a State-chartered institution the power to take a Fede;n1.l cluirter. So tl:ie Federal officials, and those of us in the leadership in trying to modernize and improve the savings and loan business-and it included the general counsel of the Federal Home Loan
Banks System, Mr. Horace Russell, who is now with me in Chicago
and is our general counsel, Commissioner Fahey and others-we went
to the State Legislatures and asked the States to enact legislation giving the State-chartered institutions the right, if they cared to, by action
of their members at a duly called meeting, to take a Federal charter
and relinquish their State charter. About 35 States enacted such legislation. There were 10 or 15 States-I have them listed and I
have given the clerk a list of the States-in which the law was silent
on the matter, and in that case the general corporate practice or policy
prevails, namely, that the owners of a corporation can relinquish its
charter and take another if they see fit.
But in the course of obtaining this State legislation, statements were
made by Federal officials and by the savings and loan leaders of the
country that if this legislation was enacted, that, without any qualification whatsoever, we would stand for the policy that once an institution became a federally chartered institution, the association, the
institution alone should have the right to determine if it wanted to
resume a State charter and to convert to a State-chartered association
if acceptable to the State.
Those representations are made, so there is an element in this
matter not just of general reciprocity between the Federal Government and the States, but there is a question of keeping promises that
were made by Federal officials then in office and still in office and by
spme of us who took a part in developing the modern savings and loan
system.
- In 1938 we asked the Federal Home Loan Bank Board to include in
their regulations or administrative law provisions for conversion from
F.ederal to State. This they did. There was some question in the
minds of some people. The strict constructionists among the lawyers
d,id not feel tliat the power for reorganization given in section 5 (D)
in the statute was broad enough to authorize a conversion. However,
the regulation was placed into the administrative law of the system,
and in 1940-we were not satisfied with that because that could be
changed by what was then a board of five men-we came to this committee of Congress and asked that the matter be established by amending the statute and in H. R. 6971, which passed the House of
Representatives in 1940-The CHAIRMAN. In modified form 1
Mr. BooFrsH. Yes, in modified form, the chairman modified it considerably, as I recall-but it included a provision for the unrestrained
and unqualified right of a federally chartered institution to take a
State charter if it saw fit, and I think those of you who were here
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HOUSING ACT AMENDMENTS
then and participated in that legislative work will recall that there
was no controversy over this particular provision of H. R. 6971 which
passed the House, there was no objection upon the part of the _public
officials-as a matter of fact, I have the hearings here, both the Senate
hearings and the House hearings, in which Commissioner Fahey, who
now strongly opposes the idea of institutions returning to State jurisdiction without his permission, testified in unqualified terms in support
of a conversion from Federal to State.
Mr. Fahey in his statement said:
If a savings and loan association which has a Federal charter wlshes to
abandon it and reconvert to a State charter, it cannot do so under_ tl).e provi•
si.<ms of the present law. Many State statutes authorize Feder.al savings and
loan associations to obtain State charters by reconversion bnt such associations
are now unable to make such change. The provision here presented would represent reciprocity between the respective Federal aml State gm·ernments in the
matter of chartered Federal home Juan institutions.
And this testimony in support of that provision, in H. R. 6971, which
did not pass the Senate, not for reasons that had to do with the merits
of the bill, but, as you may recall, in late 194:0, the Senate became
deeply engaged in matters having to do with defense and preparation
for the international crisis that was then developing, and time just
could not be given to this legislation.
The CHAIRMAN. If I may add to what is my understanding of the
history of that legislation the objection to the legislation was not to
this particular subject that you are discussing. The charge was
successfully made that it, in effect, compelled all savings banks to
convert to Federal savings and loan associations or go out of business and some thought they saw in it an attempt to socialize credit,
and the bill was held up in the Rules Committee for almost a year,
that is, the Rules Committee of the House, and · came out with
reasonable assurance finally that the objectionable features of the
bill would be removed, and they were, and the section you are now
discussing stayed in the bill. But when it went to the Senate, it
was so close to the end of that Congress that the Senate did not get
around to acting on it during that Congress.
Mr. BODFISH. That is entirely accurate, and the changes that were
made on the floor which made the bill acceptable, as you recall, were
worked out by yourself and the late Representative Robert Luce,
who always took such a tremendous interest in this type of legislation.
It was not only the lateness of the session, but in that fall, Mr.
Chairman, it was the -beginning of defense legislation and the prewar era which completely occupied the time and attention of the
Senators serving on the Banking and Currency Committee.
Mr. BROWN. I think that if a savings and loan association which has
a Federal charter, wishes to abandon it and reconvert to a State charter, this should be done.
Mr. BODFISH. Well, we feel very strongly about it. I do not
think there will be any great number to convert back to their State
charters. There may be 25 or 50 out of the 1,500, but it certainly
should be their privilege, and it is a matter of keeping faith with
these State legislatures ancl the State supervisory authorities.
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HOUSING ACT AMENDMENTS
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The section was section 7 in H. R. 6971, and it provided-and I
want to restate this-for the discretion in the matter to be entirely
in the hands o:f the shareholders and the management of the insti- .
tution desiring to convert.
This passed the House in 1940, and, as the chairman pointed out, it
did not pass the Senate because it was so long delayed, and we got
into the defense era, but on July 25, 1944, without any hearing, without any notice to anyone, and on account of knowledge that some
several Federal associations were planning to resume their State
charters, using the vehicle of the provision in the administrative law
that is in the regulations, the regulation was repealed by a stroke of
the peii. The five-man Federal Home Owners' Loan Bank Board had
then been abolished through Executive Order 9070, February 26, 1942,
and Mr. Fahey was in complete and sole charge o:f the whole operation, acting on behalf o:f the five men, and he indicated that this was
merely a minor and procedural matter and on that basis, without the
usual publication and hearings, eliminated from the administrative
law the right to convert. I think some argument can be made that
possibly the legal :foundations o:f the regulation were not as solid as
one would desire. I do not hold that view myself. They had be.en
enacted after a great deal o:f study and a great deal of thought, and
it seemed rather significant that when some institutions started to
avail themselves o:f the regulation, the Federal authorities would
wipe it right off the books, and close that vehicle of conversion.
I might say that it is still possible :for an institution to liquid.ate
and sell its assets to a State-chartered institution, but that is a somewhat delicate and dangerous procedure for a going financial institution, to liquidate and sell its assets, and we do not think it is the ideal
way to change :from Federal to Stnte, and we also have the situation
that if we use that method, which is possible now, the Federal officials
are in charge of the matter and in a position to stop jt at any point
along the way .
.So H. R. 2798 would then merely establish, as a matter of law, that
a :federally chartered institution can go to a State at its own discretion, on its own motion, as long as it goes to a State mutual association.
We had many conferences with Mr. Fahey and his associates and
we improved the language, and we thought they had agreed to it at
one time-over the languare that was in the old H. R. 6971. We agree
that if a :federally chartered institution is going to a stock type of
company, which is possible in three States in the Nation, and three
States only ,and a proprietary set-up is to be arranged, that, of course,
it is appropriate :for the Federal officials to scrutinize and have discretion as to that particular set-up. This provides that if they go to
a State mutual institution of the type that has been previgusly msured
by the Savings and Loan Insurance Corporation, and there is provision for the continuation of the insurance, the carrying over of the
insnnmce agreements to the State charter including examination and
supervision and conformity to insurance corporation, F. S. L. I. C.,
rules and regulations, so that everything is in proper order, and the
same conditions prevail as if it had been originally insured as a State
institution, that that can be done and the decision on the matter is
in the hands of the management and the share-account holders.
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HOUSING ACT AMENDMENTS
,_ I£ they want to go to a stock type.of institution, which is possible
ill Ohio and California and one other State, the permission of the
Federal authorities is necessary and it is so provided in the bill.
The bill also provides that if the institution has any remaining in~
vestment of Home Owners' Loan Corporation or Treasury funds-you
may recall that funds were invested in the shares of these institutions
in the post-depression era to get mortgage credit flowing-if there is
any remaining Treasury or Home Owners' Loan Corporation investment, then, the Federal officials have the discretion to say yes or no
as to the conversion.
I might say, in connection with that, that investment by the Treasury and Home Owners' Loan Corporation of nearly $300,000,0"00 was
placed in these institutions in the depression period. It has all been
returned ahead of our contract arrangements, except for about $20,000,000. The Treasury or Home Owners' Loan Corporation has not
lost a dollar in connection with those particular investments.
T_hat, Mr. Chairman, is the story with regard to H. R. 2798, with
one exception : In the course of the correspondence, if you look on
page 2, lines 7, 8, and 9, it looks as though, in our drafting, we have
said the same thing twiceProvided further, That legal titles are protected by such conversion: Provided
further, That conveyances of legal title are made.
We thirik that says the same thing and we would like to suggest that
we just condense that down into one proviso which says:
Provided further, That the legal title to all real estate shall be passed by proper
conveyance.
Other than that the bill is in good form, and will do the job, and
unless there are questions I will go on to the other measures.
I might say there is a companion bill in the Senate, by Senator
Bricker, S. 1177.
· Mr. BROWN. There is only one question involved, and that is the
conversion to a State charter?
_· Mr. BoDFISH. That is right, whether they can do it without coming
down here and getting permission from the Federal authorities to get
01:1-t from under their jurisdiction, which, in the main, will not be
given.
Mr. SPENCE. What has been the tendency ·in creating new associations or organizations?
Mr. BODFISH. Well, I would say in the last 5 or 10 years there have
been as many organized under State law as under Federal charter.
_ Mr. SPENCE. How do they now compare as between State and
Federali
· Mr. BODFISH. I have it here. There are 6,000 associations in the
entire country, including Alaska and Hawaii-4,539 are State chartered institutions; 1,471 are Federal institutions. The assets are
roughly equivalent. The State assets are $5,360,000,000, the Federal
assets-and this is at the close of 1946-are $4,672,000,000 or a total
of slightly over $10,000,000,000.
Mr. CoLE. There was objection on the part of Mr. Fahey, but you
did not say what that objection was.
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HOUSING· ACT AMENDMENTS
Mr. BODFISH. He feels that the only reason that anybody would put
any money in one of these institutions is because the Federal Government supervises it, and that the only reason anybody would want to
leave the Federal charter is because it has an incompetent management
that is trying to get out from under his discipline. In our judgment,
that is a complete misrepresentatiQn of the facts, and I speak with
some frankness and some feeling about it because Mr. Fahey testified
before the Senate committee-it is a matter of public record-to the
effect that State laws were inadequate, State supervision was inadequate, and the only people interested in this were some managers
who were being disciplined and wanted to get out from under.
Mr. CoLE. Well, State associations may be federally insured, may
they not?
Mr. BODFISH. That is right. In fact, something over a thousand of
them are. vVhen we started out with this it had a five-man board.
It has tremendous legislative and judicial powers. We find ourselves
now with a one-man operation, which has led to some complications,
with which we are dealing in the Supreme Court now, on the seizure
of an institution which was admittedly solvent, just because an officer
irritated Commissioner Lee and Commissioner Fahey, and some of the
boys frankly want to get back to their State jurisdiction where they
can go down to the State capitol and be a little closer to their public
officials.
The CHAIRMAN. Mr. Bodfish, do you ,vant this schedule which you
have presented to the committee included in the hearings?
Mr. BoDFISH. I think it might be helpful, so that you will know the
aggregate of savings and loan assets and their distribution as between
Federal and State institutions.
The CHAIRMAN. Without objection, that may be admitted and also
this sta~ement with respect to States which do and do not authorize
convers10ns.
(The documents above referred to are as follows:)
Statement of condition items of all savings and loan associations and cooperative
banks, as of Dee. 31, 1946
State-chartered
associations and
cooperative
bauks'
Total
Number of institutions __________________________ _
6,000
Number of savings members _____________________ _
8,750,000
Number of borrowing members __________________ _
2,200,000
Assets ___________________________________________ _ $10, 040, 000, 000
7, 229, 000, 000
Mortgage loans_---------------------------------Cash and Government bonds ____________________ _
2, 480, 000, 000
Share capitaL __________________________________ _
8, 635, 000, 000
Accumulated reserves ________ -------------'-- ____ _
783, 000, 000
1
Federal savings
and loan associations
4,529
4,950,000
1,200,000
$5, 368, 000, 000
3,871,000,000
1, 324, 000, 000
4, 652, 000, 000
,507, 300, 000 .
1,471
3,800,000
1,000,000
$4, 672, 000, ODO
3, 358, 000, 000
1, 156, 000, 000
3, 983, 000, 000
' 275, 700, 000
Partially estimated.
OPERATIONS, CALENDAR YEAR 1946
Net additions to share capita!__ ___________________
Home mortgage loans made_______________________
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I
$1,139,000,000
3,584,000,000
lI
$518, 000, 000
1, 773, 000, 000
I
$621, oco, 01:lO
1, 8ll, 000, OQll
10
HOUSING ACT AMENDMENTS
:-.'·umber and assets of savings a-rid loan assodations and cooperati1,e banks,
Dec. 31, 1946
Number of associations
Assets
State Federal! Total
State
Federal
Total _
,_____
,______
,______
___________ ,___________
Alabama _______ -- -----------Arizona ____ ----- -----------Arkansas _____ -- -----------California ________ ------ -----Colorado _________ -------- ___
Connecticut_ _____ ----------Delaware ______ -- ----- -------District of Columbia__________
Florida______________________
Georgia _____ -----------------Idaho ______ --------- -- ----Illinois______ ---------Indiana ______________ --- ____
Iowa ____ -------- ---- --------Kansas __ ---------- ---- ---Kenturky________
___ ____
Louisiana________
Maine____________________
___ _________
Maryland_
----Massachusetts__
Mirrngan__________ ·--- --------------Minnesota_______
--- -----Mississippi._____
Missouri__ __ ---- ------- --Montana ___ --- -------- ---------- -Nebraska___
Nevada _________ ----- -----New Hampshire ______ ------New Jersey _____________ -----New Mexico _____________ ----New York_________ __ _ ____
North Carolina_
North Dakota _____ --- ___ __
-- __
Ohio______________
Oklahoma_________________
Oregon_____________________
Pennsylvania_______ __ ____
Rhode Island ___________ ---South Carolina ____ -----__
South Dakota______ ___ ___
__ ____
Tennessee__________
Texas_____________
________ ______
Utah______
Vermont_______________ ____
Virginia____________________
____
Washington__ ---- __
___
W ~st Vi~ginia_____ __
W1sconsm __________ -------
8
2
17
2
25
8
33
73
23
41
100
29
32
17
I
37
26
5
20
47
45
4
8
480
171
55
78
71
57
32
340
176
40
41
13
139
l6
44
1
24
470
12
174
145
12
507
32
6
775
8
38
9
4
51
13
10
55
26
22
111
--::::: ___ :: ----- 2_
::~:SE.g::~:::::
Alaska _____________________ . __
3
99
69
32
28
53
13
4
173
52
19
38
29
.i.;2
65
12
579
240
87
106
124
iO
32
37
372
25
201
32
72
71
34
175
19
59
5
:JO
21
36
3
15
1
2
16
7
ti6
25
6
127
~l
22
112
1
30
4
35
2G
48G
19
240 I
170
18
634
63
28
877
9
35
68
13
39
139
19
)2
75
61
41
152
9
11
I
88
6
2
20
22
1
H
$5,000,000
4,000,000
4. 200,000
299, 805, 000
15,000,000
41,000,000
17,750,000
249. 000, 000
5,000.000
21,000.000
5,000,000
330, 000, 000
148,356,000
55,000,000
56,000,000
53,000,000
108. 000, 000
27,000,000
135,000, 000
485, 000, 000
109, 000, 000
65,588,000
5,500,000
103, 000, 000
16,500,000
70,000.000
225,000
18,000,000
370, 000, 000
6,000,000
423, 865,000
109,000,000
18, 700,000
998, 000, 000
29,000,000
31, 000,.000
378,000,000
77,000,000
16,000,000
3. 963,000
600,000
96,000,000
36,000,000
3,200,000
43. 000, 000
78,000,000
10,500,000
155. 659,0DO
2,200,000
21,389,000
$25,000,000
21,000,000
22,800,000
430, 000, 000
50,000,000
83,000,000
850,000
51,000.000
175,000,000
89,000,000
22,000,000
390,000,000
210,000, 000
53,000,000
54,000,000
115,000,000
18,000,000
4,000,000
105,000,000
240, 000, 000
122, 000, 000
159,412,000
13,200,000
90,000,000
2,500, 0/JO
19,000.000
1,549,000
16,000,000
~o. ooo, ooo
6,000,000
435, 000, 000
64,000,000
7,300,000
552,000, 000
92,000.000
49,00_Q,000
290,000,000
5,000.000
40,000,000
3,637,000
71,400,000
98,000.000
25,000,000
9,300,000
.55,000,000
160,000,000
28,000,000
5.3,:341,000
9,800,000
4,611,000
1,300,000
$30, 000. 000
25,000,000
27,000,000
729, 805,000
66,000,000
124, 000, 000
18,600,000
:JOO, 000. 000
180, 000, 000
110,000,000
27,000,000
720,000,000
.358, 356, 000
108. 000, 000
110,000,000
168,000,00
126,000,000
31,000,000
240,000,000
725,000,000
231, 000, 000
225,000,000
18, 700,000
193,000,000
19,000,000
89,000,000
1,774,000
34,000,000
400,000.000
12,000,000
858, 865, 000
173, 000, 000
26.000,000
I, 550. 000, 000
121,000,000
80,000,000
668,000,000
82,000,000
56,000,000
7,500,000
72,000,000
I 94,000,000
61,000,000
12,500,000
98,000,000
238,000,000
38,500,000
209,000, 000
12,000,000
26,000,000
1,300; 000
9 ---- --- ---1------/-------1------
Entire United States____
4, 5.19
1
1,471
6,000
5,360, ooo. 000
4,672,000,000
10,032,000,000
N0TE.-Partially estimated.
STATES IN WHICH THE LAW AUTHORIZES C02"VF.RSION OF STAT~; SAVINGS AND LoAN
ASSOCIATIONS TO FEDERAL
Our records indicate no provision for such conversion, therefore, many have
converted to Federal charters in the following States:
New Mexico
Maryland
Delaware
Tennessee
Mississippi
District of Columbia
Wyoming
Montana
Idaho
Nevada
l,ouisiana
New Hampshire
Maine
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HOUSING ACT AMENDMENTS
11
States having statutes specifically authorizing such conversion:
Alabama
Kentucky
Oregon
Arizona
Massachusetts
Pennsylvania
Arkansas
Michigan
Rhode Island
California
Minnesota
South Carolina
Co~rado
Missouri
South Dakota
Connecticut
Nebraska
Texas
Florida
New Jersey
Utah
Georgia
New York
Vermont
Illinois
North Carolina
Virginia
Indiana
North Dakota
Washington
Iowa
Ohio
West Virginia
Kansas
Oklahoma
Wisconsin
Mr. BODFISH. I might say, Mr. Chairman, that there are two things
there. It really is not a "do not." In some States the statutes are
si]ent. And where the States are silent on the question, the procedure
has been that the shareholders could relinqmsh their charter and
take a Federal charter. So in all those States listed there, conversion
from State to Federal has occurred and is practical and is possible.
The CHA:w,MAN. Do you mean these States in the category "no
pr.ovision for such conversion," the act· is silent on it and they may
converU
Mr. BomnsH. That is right, and there have been a number of conversions in those States. For example, one converted here in the
District of Columbia the other day. Yon may have noticed the announcement in the paper, and the District of Columbia statutes are
~i]ent on that point. The same is true in Delaware, Idaho, Maine,
Maryland, Tennessee, Mississippi, and so forth.
The principal and larger States have all passed legislation authorizing conversion.
Mr. STRATTON. Mr. Bodfish, aside from the principle involved here,
which I agree with, is there any particular advantage in going back
t.o a State charter?
Mr. BODFISH. Well, I do not think there is any tremendous advantage other than that these are institutions which operate under
public supervision, and it is sometimes a little easier to understand
and cooperate with the folks in your State capital than it is to deal
with folks in your Nation's Capital.
There are a few States where the State charter institutions have
privileges that have not been granted'to federally chartered institu·tions. For example, one of the things that one of Chairman Wolcott's
bills deals with. Practically all the State-chartered institutions can
make title I Federal Housing Administration loans, a perfectly natural part of our business. But due to matters that are not the fault of
the House of Representatives at all, such as the press of other things
and the controversies in which our agency found itself in with other
~gencies, the federally ~bartered institutions have never _been authorized_ to _make a repair improvement loan on a home without costly
title s(!'arching, mortgage recording, and so forth.
Mr. BROWN. I think a good answer is that all your State charters
are not alike.
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HOUSING ACT AMENDMENTS
Mr. BODFISH. Yes; but there are some privileges like that; also,
some of the State statutes are very modern. One of the things we have
done is to develop a model State statute. There most probably is no
better statute £or this type of institution anywhere than exist now in
the State of Washington and the State of Missouri, which recently
completely· reworked their statute. There are some privileges therenone that have any bearing on the solvency or the proper conduct of
these institutions-but in Michigan and in Missouri, for instance, the
institutions can build homes to a very limited portion of their assets,
and that is attractive in these days of advancing prices and the problems
of dealing with contractors.
That is all I have on this bill, Mr. Chairman.
Shall I go to the next one?
Mr. FoLGER. Mr. Chairman.
The CHAIRMAN. Mr. Folger.
Mr. FOLGER. ·what about the insurance on these converted institutions?
Mr. BODFISH. Mr. Folger, we feel that the insurance should continue
unless the association decides.to drop its insurance, and then there is a
regular procedure in which they pay premiums for 3 years. and the
savings-account holders continue to be protected, and so on. And in
here, very specifically, we say that if such a conversion takes place,
from Federal to State charter, such converted institutions shall continue to be an insured institution and bound under all the agrtiements
contained in the original application for insurance of accounts, and
by such conversion shall accept and be bound by all the agreements
required by section 403 of title IV of the National Housing Act-that
is the section under which State-chartered institutions get insuranceand such insured institution shall, upon conversion and thereafter, be
authorized to issue securities in the form theretofore approved by the
Federal Savings and Loan Insurance Corporation for issuance by
similar institutions in such State, district, or Territory.
Mr. FOLGER. Is that for 3 years?
Mr. BODFISH. No; but it is under a different statute, that an institution terminates its insurance, and if an institution terminates its insurance, it has to pay premiums for 3 years, it has to give notice to all
its members, and the like, or if the insurance is taken away from it, as
a disciplinary action, it has to pay premiums for 5 years. I hope some
day when the committee is not so pressed we will put that down to
2 years for both types of termination and follow the Federal Deposit
Insurance Corporation 2-year pattern in that connection. But it is
not a major matter with us now. It is something we would like to
have done at some time.
.
Mr. FoWER. Mr. Bodfish, I notice on the first page[reading]:
Any association chartered as a Federal Savings and Loan Association inay
convert into a savings and loan, building and loan, or homestead association, or
a cooperative bank.
What are those institutions?
Mr. BoDFrsH. Mr. Folger, ln the State of Massachusetts entirely-,
and in the State of New Hampshire in part, and in Rhode Island, our
old-fashiontid savings and loan associations are known legally by the
name "cooperative·bank." That is what you call a North Carolina
building and loan up in Massachusetts, a cooperative bank.
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HOUSING ACT AMENDME.NTS
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The CHAIRMAN. Pardon me, Mr. Folger. I recall, when I was a
youngster in Massachusetts, the cooperative banks. Are the cooperative banks still-Mr. BODFISH. Originally in Massachusetts we had old-fashioned
building and loan associations, and I think it was in 1880 that the
Massachusetts General Court, as they call their legislature, passed a
statute and authorized them to use the name "cooperative bank," and
all 0£ the then sav:ings and loan associations changed their name.
All except 4; there are still 4 actually in existence in Massachusetts
which have never changed their name, but there are some 200 0£ them
now in existence as cooperative banks. They are very excellent institutions and we didn't have any trouble up there in the depression and
most are members 0£ our United States League and the Home Loan
Bank System.
They took the name 0£ cooperative banks. The second largest
association is in Providence, R. I.-the largest being here in Washington-called the Perpetual Building Association"-and it is known
as the Old Colony Cooperative Bank. The second part 0£ the title is
"A Building and Loan Association."
.
We have cooperative banks in New Hampshire as well as building
and loan associations. They are the same thing.
Mr. SPENCE. Will there be a greater tendency to convert in some
States than in others because 0£ favorable local statutes?
Mr. BoDFISH. I would think so. There are some States in which
the statutes are extremely restrictive, and that is the reason that some
0£ these institutions took Federal charters.
Up in New Hampshire, £or example, no man could save more than
$4,000 no matter ~£ he saved all his life, and they couldn't make a
loan except under the old share and sinking fund loan plan. And
under no conditions could they make a loan of more than $8,000. It
was too rigid. That is why some of the State-chartered institutions
there moved over to F'ederal charter, where they had a little more
flexibility.
Yes, I think the State statutes will attract some institutions. There
is only one State-we are always very frank with each· other herewhich does not have a State law. The free State of Maryland still
says they are not going to pass a savings and loan supervisory statute.
But that presents no embarrassment to the Congress, in my judgment,
in acting on this because any institution that continues its insurance
over there is and agrees to be inspected and supervised by the Federal
authorities.
So insofar as there. is a continuation of the insurance of accounts
in Maryland, even though there is no State supervision, there will be
Federal supervision because they have insurance of accounts.
Mr. BROWN. Under present law you can convert from a National
bank to a State bank and vice versa; is that not right?
Mr. BODFISH. Well, that is 75 percent right. I would like to tell
you about that for just a minqte.
Representative Brown, that was done by a sale of assets, and within
the· next few weeks or months this committee will have before it the
.proposal similar. to this regarding banks, whereby you will be asked
Jor similar legislation.
61862-47-2
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HOVSING ACT AMENDMEN'l'S
The American Bankers' Association have agreed upon it and are
working on the draft whereby as a matter of simple corporate action
a national bank can surrender its national charter and take a State
charter. It is done now by a sale of assets and exchange of securities
rather than merely having a corporate meeting, sending out notice, and
passing the proper resolutions and obtaining and receiving a State
eharter. So even there the thing needs improvement, and it is under
discussion by the banking people. And I know they plan to bring a
legislative suggestion to you.
Mr. FoLGER. One more question, Mr. Chairman.
Mr. Bodfish, under this act could a corporation which is operating
in North Carolina incorporate under the laws of the State of Delaware, or some other State, naming the State as its home office 1
Mr. BooFISH. No; because, Mr. Folger, practically all of our State
]a ws control the use of names, and, furthermore, we prohibit foreign
corporations from engaging in the savings and loan or building and
loan business unless they come under the supervision of the State. It
would not be possible for them to come under State supervision. I do
not see how, under this, a Federal building and loan assocation could
move into just an ordinary privately owned mortgage company with
a Delaware charter. I do not think that would be possible at all. I
have our able general counsel here, :Mr. Russell, who knows more about
that particular thing than I do. Let us put the question to him.
You gentlemen all know Horace Russell.
Mr. RussELL. The bill provides expressly for conversion to a type
of institution insured by the Federal Government. That would elimjnate all except a savings and loan corporation or a cooperative bank.
They have no power to insure mortgage associations.
Mr. F'oLGER. How does that interfere with the insurance 1 If you
get a Delaware corporation and want to operate in North Carolina l
Mr. RussELL. This bill would authorize conversion from a Federal
to a State savings and loan association, or cooperative bank, of the
type which the insurance corporation has insured. Now, an ordinary
Delaware corporation is not a corporation of that type. Therefore
this bill would not authorize conversion to that type of a corporation.
Mr. FoLGER. I was thinking of Delaware because most of the corporations that I know of which we call foreign corporations are incorporated under the laws of Delaware, even though they operate
down in North Carolina or in New York or Michigan, or any other
State.
Mr. RussELL. Under the express provisions of this bill the converf:ion would have to be to a type of a savings and loan association which
the Insurance Corporation has insured, and therefore it could not
convert from a Federal savings and loan association to a corporation
operating under an ordinary business corporation charter such as you
referred to.
Mr: ~ONRONEY. Mr. Bodfi~h, how ma~.y States permit the calling
of bmldmg and loan compames cooperiltive banks f
Mr. Boi>FISH. I think it is three: New Hampshire, Rhode Island,
and Massachusetts.
Mr. MoNRONEY. And only in States which now permit the calling
of these cooperative banks could they permit the exchanging of their
charters to cooperative banks. The reason I was asking is that in
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Federal Reserve Bank of St. Louis
HOTJSING ACT AMENDMENTS
15
many towns in most States you have to have the unanimous approval
of the Control of Currency, the FDIC and Federal Reserve inspection to prevent the overbanking of some of these small towns, such
as in the banking system we had in 1931 and 1932.
I was wondering if it was properly restricted so that you could
not open up under the name of a bank and bnilding and loan association in other States which had never used that t~·pe of terminology
on such an association.
Mr. BODFISH. I think there is only one exception to that. The
State of Washington provides that a savings and loan association, a
State savings and loan association, may convert to a mutual savings
bank. As a matter of fact, the very large mutual savings bank out
there was the Washington Mutual Savings and Loan Association
years ago.
I might sa.y that quite a few of our people-although we do not
present it at this time-would see no objection to these institutions,
if they so desired, becoming mutual savings banks in the States where
mutual savings banks are authorized and if the State authorities were
willing to.tissue a charter a11d if the FDIC was willing to insure a
mutual savings bank charter.
Under this bill there is nothing compulsive on the part of the State
of Oklahoma, or Illinois, to charter one of these institutions. When
you come back into the State jurisdiction you come with the permission and with the acceptance or approval of the State authorities,
just the same as when a State association became a Federal institution
it naturally and properly would request that the charter issued and
be processed and approved by the Federal authorities.
But persqfis~lly I know ,many of our people feel that way, that
there is no ,r,eason why they should not go to mutual banks in the
States that have State mutual bank systems.
Mr. MoNRONEY. The only thing I was worried about is that under
the general terminology of a bank, and advertising Federal insurance
on the policies, which these Federal loan corporations would be able
to do under this a-ct, you would set up a competing system and competing insurance system.
Mr. BODFISH. Well, I do not think that could happen.
Mr. FLETCHER. Of course that can only happen in States where
they authorize cooperative banks.
•
Mr. MoNRONEY. That is why I wanted to find out how many States
have autho!;i?!!.'d ·them.
Mr. FLETCHER. That is a matter of State legislation, anyway. We
are not trying to control that by this legislation. We are only saying
that a Federal institution has a right to cm1vert to a State institution.
If a State wants to get fancy and have a lot more banks, than they
can permit it.
Kr. MoNRONff. But the States, under the present banking laws,
if they want to get fancy, cannot get Federal insurance for their
State banks unless they are approved by the FDIC.
Mr. ··Fr..~ER. Wliat I ain' trying to say is that the States will
regulate ths.t themS0lves. We have no problem there because the
State will make that determination itself.
Mr. MoNRONEY. But when a State makes that determination-in
other words, my State of Oklahoma might be willing to pass a law
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Federal Reserve Bank of St. Louis
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HOUSING ACT AMENDMENTS
.saying we can change these building and loan associatio:ns into cooperative banks; we are standing behind their deposits with a ~ystem
of Federal insurance which would be advertised and compete. with
your regular banking :facilities.
· .
· Mr. FLETCHER. You are aware that there are two systems of-Federal insurance-FDIC and the Federal Savings and Loan Insurance
Corporation.
Mr. MoNRONEY. Yes.
Mr. FLETCHER. They are both Federal insurance, and they are both
set up under Federal statute.
Mr. MoNRONEY. But they are set up to do different types of work.
Mr. FLETCHER. One is for savings banking and the other for eo;m.mercial banking.
Mr. MoNRONEY. That is right. And I wonder if there is a 109-phole
here to open up this competing insurance system to banks,• both claim,ing they have Federal insurance.
· Mr. BODFISH. We both claim we have Federal insura;nce now.
Mr. FLETCHER. If you analyze a few accounts you will find that that
is true.
,
Mr. BODFISH. We have twice as much assets per dollar of insur'ance liability in our insurance corporation and not as much dangerous liabilities, in our judgment.
•, . ,
But I do not see, Mr. Monroney, how the thing can get awkward
.in any way because they can only convert to State chartered institutions of the kind that are authorized by the State, and that have
been previously insured by our Federal insurance corporation.
Mr. FLETCHER. I do not think you boys in Oklahoma are going to
be foolish enough to open the thing wide, are you~
Mr. MoNRONEY. We possibly might because the States sometimes
resent the fact that they cannot charter a State banking institution
that will be eligible for Federal insurance. Under .this proviso they
could pass a law permitting cooperative banks or anything of that
kind, and then be entitled to Federal insurance.
·
Mr. BoDFISH. But your Federal officials still control your insurance of accounts in both types of institutions.
Mr. FLETCHER. It is not automatic insurance.
Mr. MoNRONEY. It would be in the case of where they changed the
State institution to a coop~rative bank.
Mr. BROWN. I think the answer to that is the banks have to be
jnsured.
· ·· · · ·
Mr. BODFISH. That is right. I usually agree entirely with :ae2resentative Brown. But I seem to be a dissenter this morning. We
were talking about Massachusetts cooperative banks, of which there
are 200. There is not one that has .Federal insuranc~. They have
State insurance, which is very strong, and they took care of the ·fo:ur
or five institutions that got in trouble back in the time ofthe financial
depression in 1933. And they have done a good job of it; We think
they have proved that ·a good job can be done by a State.insurance
fond if it is adequate,
.
, ·
Mr. S:t\UTH. What does the FDIC actually insure;numbers oryalue?
Mr. BoDF'ISH. Numbers or values?
Mr. SMITH. Yes.
Mr. BoDFISH, Well, they certainly do not insure values. -
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Mr. SMITH. Well, then, they only have to pay out i:µ numbers.
Mr. BODFISH. Well, dollars.
Mr; SMITH". In numbers.
Mr. BoDFisH; Well, all-right.
Mr. SMITH. So the.y do not really insure anything, do they?
Mr. BODFISH. Well, I have considerable confidence in the dollar yet,
even though it purchases less and less as the days go by.
Can we move- on, Mr. Chairman, to the next bill?
·
The CHAIRMAN. I wondered if Mr. Kreutz cared to discuss this bill
now, before we go on to the next bill? Mr. Kreutz, would you like
to discuss this bill before we go to the next bill? How would you
want to handle it?
Mr. KREUTZ. Mr. Chairman, that would depend entirely on you.
I would be glad to do entirely what you prefer.
The CHAIRMAN. Well, if it is agreeable, we will let Mr. Bodfish
proceed with the three bills and you can talre them up later.Mr. KREUTZ. Very well.
The CHAIRMAN. All right, Mr. Bodfish.
Mr. BODFISH. H. R. 271)9 deals with the question of-The CHAIRMAN. Before you leave this, Mr. Ferguson has suggested
to nie some amendments on pages :t and 3 of the bill.
After the word "vote," in line 4, he suggests that we include "required for such conversion" and strike out the words "legal" and "specified by" and insert "called and held for such purpose in accordance
with section.13" after the word "meeting."
Mr. BoDFISH. That language is entirely acceptable and carries out
this present intent, although it is a little smoother; and I think it is
the polished language in the Bricker companion bill. One of Senator
Bricker's associates is here.
The CHAIRMAN. In line 5, it strike out "as required for such a conversion." In line 6, after the word "event"-I presume this is in
conformity with the law in respect to conversions by States to Federals-he inserts "upon the vote of" and transposes, in line 7, the
words "at such meeting" and puts them back of the word "proxy."
And in line 8, after the words "that legal titles," he suggests crossing
out the remainder of that sentence and inserting "to all real estate·
shall be passed by proper conveyance."
Mr. BODFISH. That is ri$ht. Mr. Chairman, that would make the
bill identical in language with the companion Bricker bill in the House
which Senator Bricker and Senato·r Buck plan to expedite after this
committee is through.
The CHAIRMAN. In line 11 of page 3, after the word_ "only" he inserts
a comma.
In line 16, on page 3, he strikes out "by regulation or otherwise,"
and suggests, after th.e word "to," that we include "the" so it will read,
using the word "by" in line 16, "subject to the approval by the Federal
Home Loan Bank."
The principal amendment suggested is that we strike out "by regulation, or etc." That would make it conform to the bill.
Mr. BODFISH. I do not think "by regulation" is in there. I followed
it up to that point, Mr. Chairman.
The CHAIRMAN. We will take that up later. I just wanted to get
these suggestions befqre you for your opinion.
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Now, would you like to take up H. R. 2799?
Mr. BODFISH. Yes.
On H. R. 2799 this involves the effort on the part of the vast majority
of savings and loan associations to carry out a commitment that we
made to the Congress when the original Federal Home Loan Bank Act
was enacted. That was in 1932.
We were in the midst of financial panic, and this measure was one
of the joint measures, along with the RFC, more capit.al for th~ land
banks, some Federal Reserve legislation. And that was the initial step
in mortgage legislation advanced by the Congress ·to stabilize the
financial situation.
The men then in Congress and the President-President Hooveragreed that in setting up the bank system in the midst of financial
storm and hurricane that capital which would be subscribed by the
member institutions alone probably would not be adequate to quickly
get the bank system into operation. So they agreed to put $125,000,000
of Government money into this bank system to get it started, just as
they, at the same time, almost, put $125,000,000 into the land-bank
system which had been in existence since 1916 in order to make it
solvent and get it functioning.
One of the things that was dearly understood between those of us
who had a part in the development o:i' the legislation, and-thecCongress,
was that at as early a date as was feasible this business would furnish
the necessary capital with w!1ich to operate this bank system, just as
the bankers furmshed the capital fort he Federal Reserve system.
Mr. SMITH. Where did you get that $125,000,000?
Mr. BODFISH. Where did we get it'! From the Treasury of the
United States l>y appropriation o:f Congress.
·
Mr. SMITH. Did you confiscate private property'!
Mr. BODFISH. No. I do not think so. to my knowledge.
l\fr. SMITH. ,v-ell, from what other source could you derive it?
Mr. BODFISH. Dodor Smith, you do not want me to say that taxation.
orderly taxation, is confiscation. It can be if it is carrie<l too far.
Mr. Sl\UTH. Was that obtained by taxation?
Mr. BODFISH. It was taken from the general funds that were obtained from the issuance of seeurities by the Government, supported
by the taxing power of the Government. Undoubtedly the securities
could not have been sold without that.
Mr. SMITH. -Did you have any monetization of the debt diu-ing that
period 1 Was the Government printing money at that time 1
The CHAIRMAN. I think we ean read from the record that there was
monetization at that time.
Mr. BooFISH. Yes, some.
The CHAIRMAN. It is up to us whether it will continue or not.
Mr. BoDFISH. And the purchase of its own securities by the Federal
Reserve System also accomplishes the same thing.
For the assistance of the committee I have gone back to the heariilgs
that were held by this committee of the House and the committee of
the Sei:ate, and excerpted from the President's messagP to the Congress
proposmg the bank system. In that message he dearly indicated that
the institutions using the faciliies should be required to purchase stock
from time to time so that the Government holdings would gradua1ly
pass over to private ownership, as was the case with the Federal land
ha:qks and as is the case with the Federal Reserve banks.
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( The matter referred to is as follows : )
Tl!:&rIMONY REIGABIDING CAPIT'AL S•r<JOK OWN'EIIISHIP OF
BANKS IN 1932
I.
THE
FEilERAL HOMl!I LOAN
PlliESIDKNT HOOVER'S MESS,AGE
(I<'rom text of President Hoover's conference on home building and home ownership (1932) vol. II, pp. 100--101)
"It is proposed to find the initial capital stock for the discount banks in much
the same way, insofar as is applicable, as the capital was found for the Ferleral
Reserve Banks * * * and * - • * if the initial capital is not wholly thus
provided -(by member institutions), it should be subscribed by the Federal
Government, and further, somewhat as was provided in the case of the Federal
land banks, other im,titutions using the facilities of the discount banks should
be required to purchase from time to time from the Government some proportionate amount of its holdings of stock if there be any. In this manner any Government capital will gradually pass over to private ownenihip as was the case in the
Federal land banks."
II. HEARINGS
,~enate hearings .
1. Hearings before a subcommittee of the Committee on Banking and Cun·ency,
United States Senate, on the creation of a system of I<'ederal home loan banks,
January 14-21, 1002.
Mr. 13odfi;;h's:staterneut (pp. 00-91) :
"Mr. BODFISH. We look to the early retirement of the Government, and I
think the bill is built on the plan that the members who are participating will
put in the capital and take the responsibilities as time goes on.
"Senator Couzl!lNs. Would you be willing to have this organization set up with
the interested parties supplying all the capital?
"Mr. BODFISH. Yes; but I do not think it could be done quickly enough to take
care of the present situation.
"Senator COUZENS. Would you be willing to have a provision in this bill that
the Federal Government will draw all its capital within a 2-year period or a
3-year period?
"Mr. BoDFISH. No; because such a short set 'period would affect the sale of the
bonds, but the Government should withdraw within any period in which the
banks have an opportunity to get functioning satisfactoril~· an<l an ample opportunity to bring in the home financing institutions.
Mr. ])'riedlander's statement (pp. 182-183) :
"Senator CouzENS. I observe the Federal Government is to furnish a large part
if not all of the capital at the beginning.
"Hr. FRIEDLANDE&. Yes; due to economic conditions, in order to get the system
at work. the bill, as I understand it, provides that the Government will supply the
unsubscribed capital np to $150,000,000 in the same manner that the land-bank
organization was set up. * * * It would seem to me that you would want
to get the Government's capital retired as quickly as possible • * *. The
Federal Government in making its advance would make it with the understanding and the hope that tbe capital would be retired. I think that any inducement
you would offer in order to get private institutions into it from the very start,
so that Government capital might be retired, would be very helpful to that end.
"Senator CouzENS. Do you believe a system of this sort could be organized
and conducted exclusivel;y by private capital if the Federal Government undertook the organization of it?
"Mr. FRIEDLANDF..R. Under present conditions, I do not believe it possible."
2. Hearings before a subcommittee of the Committee on Banking and Currency, United States Senate, on the creation of a system of Federal home-loan
banks, January 26 to February 16, 1932:
"E. J. ADAMS, Federal Trade Commission. Eventually the private stockholders
own the system ( p. 201) .
3. Hearings before a subcommittee of the Committee on Banking and Currency, l:nited States Senate, on the creatioll' of a system of Federal home-loan
banks, March 9, 1932 :
"Secretary ROBERT P. LAMONT, United States Department of Commerce. The
bulk of this money (capital stock) is sn])posed to be put up by the using institutions and not by the Government.
will
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"Senator COUZENS. Yes; but not unlil after the Government has first put up
the initial capital (p. 653).
".Senator WATSON. Would the question as to whether or not the Government
was to have interest or dividends affect the value of the bonds (debentures)?
"Secretary LAMONT. I do not know that it would particularly. As a matter
of fact, the bill provides that the Government will be entirely out of these banks
!n a few years if they operate as expected (p. 656).
"Senator WATSON. Do you think the Government is entitled, as an investor,
to receive dividends the same as all other investors?
"Secretary LAMONT. Yes; but I think it rather unimportant, because if the
plan works out as hoped, the Government would not be in it very long (p. 657).
"Senator CouzENs. Would you think it practical; Mr. Secretary, if we should
devise a plan whereby the Federal Government withdraw its money within a
eertaln period of time so as to force the private institutions to take over the
enterprise?
"Secretary LAMONT. If the banks are used, and there is reason for thinking
that they will be, the Government will be out very soon. In fact, one group of
associations thought that their group alone would probably subscribe for practically all of the stock and there might not be any Government money needed.
I think that is a little optimistic, but that thought was expressed (p. 687) ."
House hearings
4. Hearings before a subcommitee of the Committee on Banking and Currency, House of Representatives, on the creation of a system of Federal homeloan banks, March 16-30, 1932:
"Mr. JOHN O'BRIEN, Assistant Counsel, Office of the Legislative Counsel, House
of Representatives. There is a provision made for the retirement of the. stock
held by the United States. The retirement begins when the members have paid
in an amount equal to the amount paid in by the United States as stock subscriptions * * * the proP.ess is continued until the entire amount of the
stock subscribed by the United States is retired at par (p. 18) ."
Mr. Friedlander's statement (pp. 47, 48, 61):
"Congressman FRANK HANCOCK. As soon as the Government has been refuunded
the amount of money it has advanced to set up these banks, t_he banks become,
for all purposes, privattl enterprises, do they not?
Mr. l!'RIEDLANDER. There is no provision in the law that I recall which makes
any change in the organiaztion set-up of the bank, even after. the retirement of
Government capital. It other words, the board at Washington still functions in
the supervision '(p. 47) :
"Congressman CLYDE WILLIAMS. You are setting up an institution here which
provides for stock subscribed by the Government and by member institutions.
"1fr. FRIEDLANDER. :Y'es, sir."
.
"Mr. WILLIAMS. Is there anything in the bill which provides the percentage of
ownership which each one of them shall have in the institution?
"Mr. FRIFJIJLANDER. The bill provides that the Federal board at Washington
shall fix the minimum capital stock of any bank, which shall be at least $5,000,000,
and that then they shall open their books for subscription in the same manner in
which the Federal land banks and the Federal Reserve Bank System were set
up, and that part of the $150,000,000 that was not subscribed by the institutions
that desired membership, that that would be subscribed by the Government, and
that as these other institutions came in later on, as they needed the facilities of
the bank, or as they found the bank was successful, and came in, that one-half
of their stock payments should go in retirement of the Government stock subscriptions, but there is nothing in the bill that sets up any relation or re;tated
percentage as between the stock ownership of the Government and the stock
ownership of the individual institutions (p. 48).
"Congressman MICHAEL REILLY. What do you think about the proposition of
the banks being obligated.to pay the interest on the $150,000,000?
"Mr. FRIEJJLANDER. It is not intended, of course, for the Government to permanently own stock in these banks. '.rhe object of limiting the Government, or,
rather, exempting the Government stock from earnings is as a means of having
these banks earn money from the start so that you can get the institutions in here
and get the Government out, which I assume you gentlemen want (p. 61)."
Mr. Bodfish's statement (pp. 152, 193, 195):
"Mr. BODFISH. As to stock subscription by the member institutions, the original
b_ill as introduced carried 1 ½ percept. It has already been reduced one-half of l,
percent. A committee of our United States Building and Loan League, called the
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committee on reserve credits and banking relations, which has been studying this
problem in principle for some two years recommended to our group that the
participation be 11/2 percent or more. I think the essence of the, thing there is
we want to cooperate in getting the Government out of this picture after it has
started the bank system and we are perfectly willing to put in substantial capital
into the whole proposition, if it continues to be built on strong, conservative
lines so that our best institution, as well as the ones that are. in immediate need
of borrowing will feel they want to come in immediately and participate (p. 152).
"Chairman REILLY. What do you think about the testimony that has been given
on the proposition of charging the banks interest on Government advances in
order to let the Government out of this banking system?
"Mr. BODFISH. I think that the quickest way to get the Government out of this
banking sysem, as far as its advancing of money is concerned, is to keep the capital
subscription up to 1 percent and to put the Government funds in as an advance
or loan without return, so that this system can pay reasonable dividends to participating members right from the start (p. 193).
"Congressman RonEllT LucE. As I have been contending, if the Government
lends capital to the system, repayment is coming out of the surplus, and therefore
the more interest the Government gets the longer it will take to get repayment of
capital, will it not?
"Chairman REILLY. That is true, but as this bill is drafted now they get $150,000,000 and nobody knows when the Government can get out of it.
"Mr. BODFISH. But everybody who comes in to participate and get any benefit
has to contribute to the retirement of that Government capital.
"Chairman REILLY. Providing when the banks are up to the same amount of
money the Government has in it.
"Mr. BoDisH. Yes; as we get more money, and if we can make it attractive,
that accelerates the retirement of the Government capital.
"Chairman REILLY. I am looking at the fact that the one great objective of
this bill is the Government of the United States is putting up $150,000,000-how
long the money will be used nobody can tell at the present time.
"Mr. BODFISH. The emergencies of the situation probably justify the Government in extending the cost of that capital to them for 3 or 4 or 5 years in steadying and righting the whole sillall mortgage field and home finanacing business.
After all, we do not want to save dollars and lose hundreds in our present business
situation (p. 195) ."
Senate hearings
5. Hearings before the Committee on Banking and Currency, United States
Senate on the creation of a system of Federal home loan banks, June 11-14, 1932.
"Secretary LAMONT. The home loan bank bill as it now stands provides for
Government participation to the extent of $125,000,000 to be advanced through
the RFC. It is expected that a large part of this capital will be provided by the
borrowing institutions and that within a reasonable time all of the Federal
capital investment shall return to the Government (p. 700) ."
Senate hearings
6. Hearings before a subcommittee of the Committee on Banking and Currency, United States Senate, on the creation of a system of Federal home loan
banks, February 17-23, 1932.
Mr. Lieber's statement (p. 601) :
"Senator COUZENS. How long do you think it would take the Federal Government to get out of this business?
"PHILIP LIEBER. I do not see any reason in the world why the Federal Government should not get out in 3 years, as contemplated in the bill.
•
"Senator CouzENS. You think the stock purchase by the Federal Government
will all be taken up by the building and loan associations, and others, within a
3-year period?
"Mr. LIEBER. It is my opinion that so much advantage will accrue from the
passage of this act that the building and loan associations themselves could
put up the $150,000,000. That is my honest opinion, sir. (p. 601)."
Statement submitted to th esubcommittee for the record by Mr. Lieber. Excerpts from a statement on "The Federal Home Loan Bank Bill-A Summary
and Analysis" :
"Each of the 12 banks will start with a minimum capital of at least $5,000,000.
Subscriptions are to be opened and at the end of 30 days the subscriptions are
to be totaled and the Government subscriptions to stock bring the total initial
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HOUSING ACT AMENDMEN'l'S
capital for all 12 banks to $150,000,000. The Government subscription is merely
an advance and is to be repaid as additional institutions join the system. An
early retirement of the Government capital is a)lticipated by the provisions of
the bill (p. 617)."
III. CONVENTION OF THE UNITED STATES SAVINGS ANU LOAN LEAGUE, 1932 (UNITE!)
STATES LEAGUE ANNALS, 1032)
"i\lr. BonnsH. How are the Government funds retired? 'l.'ihe law provides that
after the private or member subscriptions 1 of the Government, than one-half of
the additional subscriptions or payment on stock that come in must be used to
repay or retire the Government's subscription. (See section 6 (g)·.) However,
the Board has the power to retire Government capital at any times it sees
fit * • *. The Government's participation is not in the nature of a subsidy
but only an advance of its credit on which we are going to pay interest and
return the principal. They are merely letting us have this working fund because it is the public interest to start this system sooner than we could if we
were attempting to do it independently * • *. The Federal Reserve Bank
Act carried practically the identical provision that is in this law regarding the
advance of capital to start that system (pp. 17-18).
"FRED G. STICKEL, Jr. The home loan bank legislation is both emergent and
permanent in character. It is emergent or temporary in that to meet immediate
conditions and pressing needs and demands in the home-financing field, the
Government has agreed to loan a maximum of $125,000,000 to the system. Had
this system been set up during a period of prosperity such a loan might not
have been so large, and of a certainty the subscription list would have remained
opf'n for month (p. 61)."
These excerpts from the hearings clearly inclicate that everyone
concerned with the matter expected the savings and loan associations,
and the insurance companies and country bankers, and the title companies, who used the system, to -furnish enough capital to capitalize it.
The :formula which was written into the act was a mistake. We
had assumed, in making the plans-and when I say "we" I sa;y largely
Representative Robert Luce, who carried the main responsibility in
the planning of the legislation-that the bank system, this home loan
bank system, would be extensively used by small insurance companies,
by small banks having real estate paper or mortgages as well as ·by
building and loan associations.
However, as the system got under way, with its 12 regional banks,
other ·financial measures became necessary, and the so-called GlassSteagall Act, which drastically changed the whole concept of reserve
banking and made all types of assets eligible for loans or rediscounts,
where prior to 1933 the only paper that eould go into the Federal
Reserve system was 60-day paper, with the exception of agricultural
paper, which could be 6-month paper, but there was no such thing
as borrowing against bonds or against mortgages and the like-that
change in central banking policy gave the smaller banks _which had
substantial real estate mortgage holdings a basis for credit with the
Federal Reserve System, and the mutual banks also were made eligible
for the Federal Reserve System, and their securities, mainly municipals and mortgages, could be the basis of their borrowings, so that
after two or three years of operation, due to legislation subsequent to
this original act, as a practical matter, only building and loan associations joined the home loan bank system. A few savings banks have,
and a few insurance companies, but not very many.
We had worked out in the original statute a way of retiring the stopk
after the member stock equalled the Government's stock-the Govern1
Equal the subscription.
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ment's original $125,000,000. But that was on the assumption that
probably the system would have all the savings banks, many of the
country banks, many insurance companies, and the like. When that
did not materialize, the formula in the statute £or the ultimate retirement of Government stock was inadequate and did not fit the case at
all. The ·statutoi;-y-£ormula w-0uld have grossly overcapitalized the
home loan bank system before it would have retired any substantial
amount of the Government stock.
We feel that the institutions that use the facilities should fumish
the capital and that the return of this capital to the Treasury is long
ovedue. As an organization we have developed proposals, some 6
or 7 years ago, to return the capital stock, but got into a very violent
·controversy with our Federal officials. particularly Mr. Fahey, who
were stoutly opposed to our retiring the Government capital.
We are not asking £or any substantial changes in the authority of
the Federal officials over the regional home loan banks and over the
members of the bank system, but we do feel that it will be a more decentralized system, a system operated less from Washington and more
from the 12 regional banks ; it will be a system a little closer to its
members if we carry out our commitments made to the Congress in
1932 and furnish the capital and permit the Government capital on
which we have paid about 1½ percent, on the average, during the period we have had it, to go back into the Treasury.
So section I o-f H. R. 2799 provides -for all member institutions to
increase their stock holdings to 2 percent of home mortgages, and
that those additional funds be used to retire Government capital.
A natural question to ask is what that will accomplish at the present
time.
The 12 Federal home loan banks at the present time have 122½
million dollars o-f Government stock and we own 8i> million dollars of
stock. vVe estimate that this measure will in<"rease our holdings
approximately 75 million dillars and retire an equivalent amount o-f
Government capital in the 1iear future.
As our business is expanding, and our type institution is growing,
we expect-that the bahmce of some·$45,000,000 would be retired under
the formula proposed in the Woleott bill, H. R. 2799, in the next
3 or 4 years.
One other thing that I think I should call your attention to is that
we set a minimum capital requirement of $150,000,000 and we do not
propose to reduce the capital of the bank system below that, which we
think is an adequate capital base and will permit the expansion of
the system up to beyond a billion dollars on the basis of its present
operations and sale o-f debentures at five times capital, reserves, and
surplus.
The CHAIRMAN. Mr. Bodfish, at the present time, as I understand
it, members shall acquire and hold 1 percent.
Mr. BoDFISH. One percent o-f home mortgages; yes.
The CHAIRMAN. Yes; but not less than $500.
Mr. BODFISH. Yes.
The CHAIRMAN. And you change that to 2 percent and $500.
Mr. BODFISH. That is right about changing 1 percent to 2 percent.
When you start a little tiny one, an investment in home loan stock
which pays 1½ .percent or ·2 percent may represent a little more
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HOUSING ACT AMENDMENTS
substantial portion of their funds, and it would seem necessary.
The $1,500 was tin the original 1932 statute but was changed to
$500 in 1934 as I recall so we are only changing 1 percent to 2 percent. You will notice, Mr. Chairman, that we include home-pur:..
chase contracts and similar obligations in the base for measuring
the 2 percent. Quite a few of these institutions will buy a land contract rather than make a new mortgage, and the law, as it is now, reads
just "home mortgages." That will increase the base for calculating
the minimum requirement somewhat.
In section 2, which begins on page 3, line 4;, of the bill-The CHAIRMAN. I wonder if Mr. Russell can tell me from his compilation where this amendment is, of section 2? Section (g) of
section 11 seems to deal with deposits.
Mr. BoDFISH. Mr. Russell, can you tell us where section 2 appears
in the act?
The CHAIRMAN. Section (g) of section 11 seems to deal with deposits.
Mr. RussELL. Section 11 (g) is known as the liquidity section of
the Home Loan Bank Act, Mr. Chairman. Here it is. Mr. Chairman, if I may explain thatThe CHAIRMAN. That is 6 (g).
Mr. RussELL. There is something wrong with that print, Mr. Chairman. If I ma;y explain that section, section 11 (b) of the Home Loan
Bank Act-in the print you have in your hand; I am not able to understand the print the clerk has-is a provision requiring the home loan
banks to carry a certain amount of liquidity. It requires that the
banks carry, in the form of Government bonds and short-term loans,
a sum equivalent to the total member capital and total member de~
posits. With the $125,000,000 of Government capital in there, that
is all right. But when the members buy all of the capital, it would
leave the banks in a squeeze if this section 2 of this present bill were
not enacted. When they came to issue debentures or bonds to get longterm money, as the banks do, they would have to have all of their
capital and all of the deposit money in the liquidity pool.
This would amend it so that they would only have half of that in the
liquidity pool. You will note that the liquidity pool, however, would
still be larger than it is now. At present the member capital is only
about $85,000,000. If this bill were enacted, the members would buy
the $125,000,000 of Government capital, and the "one-half" would
.create a larger liquidity pool than the present liquidity pool.
Mr. BODFISH. We have found it in your book. It was amended in
1934, Mr. Chairman.
I wonder, Mr. Chairman, with that matter under discussion, if it
would be helpful to have a condensed statement of conditions for 1944,
1945, and 1946, showing the assets and liabilities of the home-loan
banks, the RFC and member capital, their reserves, their deposits, and
their debentures. I also have an earnings statement which is condensed .and is much easier to follow. than it is to get• it out of the
Government reports. You may want to put it in the record.
The CHAIRMAN. Very well.
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Federal Reserve Bank of St. Louis
25
HOUSING ACT AMENDMEN'l'S
( The documents above referred to are as follows : )
Statements of condition items of Federal home-loan banks as of Dec. 31, 1944,
1945 and 1946
1944
1945
1946
. ASSJj:TB
Investments ___________________________________________ _
Advances
to members
_____ ----------------------------All
qthe,-. assets
____________________________________
, ___ _
$144, 046, 000
130,563,000
28,404,000
$118, 392, 000
194, 872, 000
21,645,000
$145, 092, 000
293, 455, 000
34,561,000
----[·--Total. ___________________________________________ _[ - 303, 013, 000
334, 909, 000
4 73, 108, 000
LIABII.ITIEB
Capital stock:
RFC
________
._ . -------------------------------_
Members
__________________________________________
124, 741, 000
63,805,000
124, 509, 000
73,658,000
1 122, 672, 000
85,828,000
[------[·---
Total capital.. ___________________________________ _
Reserves and undivided profits ________________________ _
Deposits _______________________________________________ _
Debentures ____________________________________________ _
All other liabilities _____________________________________ _
Total ____________________________________________ _
188, 546, 000
17,921,000
28, 773,000
66,500,000
1,273,000
198,167,000
21,049,000
45,725,000
68,500,000
1,468,000
208, 500, 000
22,496,000
70,303,000
169, 045, 000
2,764,000
303, 013, 000
334, 909, 000
473, 108, 000
1 The adjustment in.the capital stock was actually made Jan. 2, 1947.
Data covering all savings anw loan members of the FHLB system as of Dec. 31,
1944, 1945, and 1946
1944
Number __ .--------------------------------------------.
3,656
Assets capital
__ -----------------------------------------------ooo, ooo
Share
____________________________________________ $6,423,
$5,537,000,000
Accumulated reserves ______________________________ :____
$461,000,000
1
19461
1945
3,658
$7,681,000, ooo
$6,530,000,000
$533,000,000
3,665
$8, 990, 000, 000
$7, i49, 000, 000
$624, 000, 000
Partially estimated.
Ratios of insured institutwns to all savings anti ioan associations and
cooperativ0 banks
1944
Number _______________________________________________ _
Assets. -----. -- --- --- ------·-. -- --- ---·--. -- • -. ··----· -1 Partially estimated.
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Federal Reserve Bank of St. Louis
19461
1945
Percent
58.0
85.9
Percent
59.3
87.3
Percent
61. 1
89.9
26
HOUSING ACT AMENDMENTS
Oper"tion.~ of the Ff'dPra/. llome-/.o"n ba.nks from beginni.ng through June 30,
1945
From beginning through
June 30, 1944
Year ending
June 30. 1945
From beginning through
June 30, 1945
-------·---·-----------·-·-----------------------Income:
Operating.............. .
Nonoperat-u,gs.·........ .
$57, 944, 182
4, l<)ll,Jl.1
Total. ................. - ........... -• .......... ·,
Expenses:
Operating ..... --_.·---.··•·····•-·--·······•-·-····
Assessments for FHLB Administration ........ .
Nonoperating .......•. ·-········-·
Total. ........... .
Net income ............ .
Disposition of net income:
Allocation to legal reserve .. _._ ............. .
Allocation to reserves for contingencies..... _
Dividends paid:
U. S. Government ................ RFC .................. .
Members .................... .
Total dividends ....................... _
Undivided profits........................... .
Retirement fund (prior service) .................. .
Total. .•........................
$4,872,445
1, 506~~~-
$62, 816, 627
5,641,807
--------t------ -68,458,434
--62,079,293
6,379,141
1 = = = = =0 1======1======
18,462,483
3,136,482
521,279
1,567, 145
450, 000
14, 611
20,029,628
3, 586, 482
535, 890
39,959,049
4, 347, 385
44, 306, 434
8,046,193
2,392,154
869,477
341,661
8,915,670
2,733,815
12,021,339
4,985,028
5,~~.41'4
1.380, 394
741,185
12,021,339
6,365,422
6,191,599
22,456, 781
7,063,921
2,121,579
989,212
25,456
24,578,360
8,053,133
25, 45fl
39. 959,049
4. 347,385
44,306,434
---------·-·----1-----22,120,244
2, 031, 756
24, 152, 000
Source: Annual reports of the FHLB Administration and quwterly reports on the FHL banks.
FPderal Sa,1,-ings and Loan Insumnce Corporation, statement of condition items
as of Dec. 31, 1944, 1945, and 1946
1944
1945
1946
ASSETS
Investments._ ......................................... .
All other assets ........................................ .
$151,061,000
4,746,000
$161,297,000
3,964,000
$172,000,000
4,387,000
TotaL ........................................... .
155, 807, 000
165, 261, 000
176, 387, 000
Capital stock .. ····················-····················
Reserves .......................................... ✓
All other liabilities ..................................... .
100, 000, 000
53,270,000
.2, 537,000
100, 000, 000
62,169,000
3,-092,000
100, 000, 000
72, 621, 000
a, 766, ooo
Total. ........................................... .
155, 807, 000
165, 261, 000
176,387,000.
LIABILITIES
... .
-Dllta-covering a.II insured institttti.ons as of Dec. 31, 1944, 1945, and 1946
1944
1945
Number._..............................................
2,466
Assets._ ................................................ $5,013,000,000
Share capital.. .......................................... $4,371,000,000
Accumulated reserves...................................
$328. 000, 000
1
1946
2,475
$6,148,000,000
$5,243,000,000
$388. 000, 000
2,496
$,, 319, 000, 000
$6, 210, 000, 000
I $462, 000, 000
Partially estimated.
Ratio of 111emliers to all sa.i•ings and. /.oan associations and cooperat-ive banks
1944
Number ............................................... .
Assets .............. --· ................................ .
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Federal Reserve Bank of St. Louis
1945
Percent
39.1
67.0
1946
Percent
40. 2.
69.9
Percent
41. fl
73.2
27
HOUSING ACT AMENDMENTS,
Operatio1111 of the Federal Sarings a.nd l,oa.n Jn.mra,nrw Corporation from
beginning through Dec..'J1, 1946
I
From beginthrough
June 30,
1944
Income:
Insurance premiums _________________
Admission fees ______________________
Interest on bonds 1 __________________
Year
ending
Junp 30,
ending
June 30,
1945
1946
___
.,___
__
Year
I
6 months
ending
Dec. 31,
From
1946
beginning
through
Dec. 31.
t946
$23, 961, 300
336,610
36,351, 766
$5,080, i96
6,528
3,549,465
$6,113,904
5,000
3,764,296
$3,529, 702
1,000
2,005,250
$38, 685, 702
349,138
45,670,777
TotaL ___________________________
60,649,676
8,636,789
9,883,200
5,535,952
84,705,617
Operating expenses ______________________
Losses (net after recweries) _____________
Operating expenses and net losses ________
Number of settlements _________________
$2,493,764
2 $5, 918, 692
$8,412,456
34
$455, iJ.5
3 $31,565
$424,150
0
$486,032
'$146,693
$339,339
0
$265,007
(')
~265, OOi
0
$3,700,518
$5,740,434
$9,440,952
34
Ratios:
Operating expenses to total inc'.lme ___
Net losses to total income ____________
Operating expenses and net losses to
total incame _______ , ____________
Proportion of total income availalbe
Percent
Percent
5. 3
Perrtnt
4.9
0
Percent
Percent
4, I
9. 8
f:>r~.reserves _
Operating expenses to pre~ium inc-1me_
Net losses to premium income ______
Operating expenses and net losses
to premium income ____ -----------
0
4. 8
0
4.4
6.8
13. 9
4. 9
3.4
4.8
11.2
86.1
95. 1
96. 6
95. 2
88.8
10. 4
24. 7
9. 0
0
7. 9
0
7. 5
0
9.6
14. 8
35. J
8. 3
5. 5
7. 5
24,
4
1 Includes profits on sale of securities.
'Includes cash cantributions. less rec,veries plus estimate for final losses. Twelfth Annual Report,
FHLB administration, p. 24.
3 Net recweries exceed contributions. Net losses, as of June 30, 1945, $5,887,127. Thirteenth Annual
Report, FHLB Administration, p. 28.
• Net recweries exceecl. contributions. The Budget of the United StatPs Government, 1948, p. 1103.
• Not repnted.
So'urce: .Antiuafreports FHLB administration.
__.tnnual losses, net additions to reserves, and ·unpaid dividends of the .F'ederal
Savings and Loan Insurance _Corporation from beginning through June 3Q,
,1946
Year ending
June 30-
Net
losses
Net oodiAnnual
tions to
reserves 1ividends
after l0sses unpaid
Yearendinl!
June 30-
Net
losses
Netaddi• Annual
tions to
reserves dividends
after losses unpaid
----------·---1----1---1935 ______________ ---------JQ3f, ______________ ---- --
}-987______________
1938 _____________
1939______________
1940 ______________
1941 ______________
$2. 000
103,000
281,000
1,005,000
2,06i,OOO
$105,000
3,739,~
4,391,000
4,890,000
5,158,000
5,338,000
5,768,000
$3,000,000
3,000,000
3,000,000
1942__ ____________ $1,723,000 $3,277,000
1943______________ 444,000 8,741,000
1944 _______ -- _---- 294,000 7,873,000
1945______________
'3,200 8,213,000
1946__ ____________ 2 147,000 9,857, ~
$3,000,000
3,000,000
3, 000,-000
3,000,000
3,000,000
3,000,000
3,000,000
Cumulative_ 5, 740, 000 67, 350, 000
33, 000, 000
(!)
a, ooo, ooo
Dividends amounting to $3,035,000 were paid by the Corporation covering the year ending Jone 30, 1935.
' Recoveries exceeded losses.
Source: Annual Reports of the Federal Savings and Loan Insurance Corporation.
1
Mr. BROWN. Did we not reduce the premium for insurance last year j
Mr. BoDFISH. Yes; you reduced the premium and the Senate agreed
with you and the President vetoed the bill.
Mr. SPENCE. It went through both bodies by unanimous consent.
Mr. BODFISH. Yes. The President had a veto message and he had
a constructive and clear point. In his message he indicated that there
was no plan or proposal-for th~ retirement of the Government capital
in the insurance corporation. It was that time that the administration
was making plans to retire Federal Deposit Insurance Corporation
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Federal Reserve Bank of St. Louis
28
HOUSING ACT AMENDMENTS
eapital, and he stated as his objection the fact that we did not have a
plan or proposal to retire the insurance capital, where we have $100,000,000. So when we put it in this, we propose to start the retirement
of the insurance corporation capital, and Mr. Wolcott's bill here will
retire $26,000,000 immediately, and over the next 7 or 8 years would
retire the balance. We think we can get the bill approved by the President. "\,Ve have consulted with several of his advisers. We do not
have commitments, of course.
The CHAIRMAN. The purpose of this is to meet that objection.
Mr. BoD:rrsu. That is right.
The CHAIRMAN. Is this capital now held by the Treasury or is it
raised by the Reconstruction Finance Corporat~on? .
Mr. BoD:rrsH. It is held by the Reconstruction Fmance Corpora-.
tion. It is one of the assets that was transferred, I think in 1939,
when the assets of several Government a9rporations were transferred from Treasury to Reconstruction Finance Corporation. It was
originally held by the Treasury. But it is technically in the Reconstruction Finance Corporation assets now.
The CHAIRMAN. Has there been any change from the original law
in that respect?
Mr. lloD:rrsu. No.
The CHAIRMAN. The original law, section 6 (e), provided that the
Reconstruction Finance Corporation Act be amended by striking out
the words "War Finance Corporation Act," and inserting in lieu
thereof the words "Reconstruction Finance Corporation Act."
For such purposes hereby allocated and made available to the Secretary of the Treasury out of the capital of the corporation and/or of
the proceeds-issued by the Corporation.
The capital of the banks, therefore, has been raised by the Reconstruction Finance Corporation and not raised by the Treasury in
direct obligations?
Mr. BoD:rrsu. No. It was subscribed originally by the Secretary
of the Terasury either from balances or sale of current obligations.
It was in 1938 or 1939 that the stock was transferred to RFC. It was
in one of the appropriation measures or a measure adjusting RFC
capital and liability. It was one of the measures in which you were
doing some things to the Reconstruction Finance Corporation. This
stock is by la,w transferred from the Secretary of the Treasury to the
Reconstruction Finance Corporation. But originally, in 1932-The CHAIRMAN. Well, as of now the capital is made available by
the Reconstruction Finance Corporation to the Treasury; the Treasury does not raise this capital by the issuance of bonds or otherwisedirect obligations?
Mr. BoD:rrim.1 assume that is correct. That is, the Reconstruction
Finance Corporation obligations are handled by the Treasury .
. The CHAIRMAN. ,v-e have authorized the Treasury to reimburse the
Reconstruction Finance Corporation for this capital; have we not?
Mr. Bon:rrsH. Not to my knowledge.
The CnAIRMAN. In reducing the amount which the Reconstruction
FinancP Corporation made available out of the capital which was held
by the Treasury?
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Federal Reserve Bank of St. Louis
HOUSING ACT AMENDMENTS
29
Mr. BonFISH. I would want to examine that closely. I just do not
recall from memory, Mr. Chairman, whether there was a contraTreasury or Reconstruction Finance Corporati01.1-Treasury transfer
of funds or not. Do you happen to recall, Mr. Russell i
Mr. RussELL. No.
The CHAIRMAN. Well, I do not think it makes too much difference
in this bill. We will have the Reconstruction Finance Corporation
Act before us shortly and we want to know by how much we can
reduce their borrowing.
Mr. BonFISH. Mr. Russell, Mr. Ferguson, and I will be glad to
run that down carefully and get the exact situation and give you a
memorandum on it.
The third section of the bill, on page 3, deals with the question of the
eii.pital of the insurance corporation.
The insurance corporation started out with an original capital of
$100,000,000 which was furnished by the Home Owners' Loan Corporation. It now has that original capital as of the end of 1946, plus
$72,000.000 in reserves. We think that $150,000,000 minimum capital
in our insurance corporation is adequate. vVe have figures that lead
us to that conclusion.
With $150,000,000, we would have about $2 for each dollar that the
Federal Deposit Insurance Corporation has, as the margin against
their exposure, or amounts of risk. We would have approximately a
$30 risk for every dollar of capital that we would have at $150,000,000,
whereas the Federal Deposit Insurance Corporation has approximately
$70 of risk for each dollar of capital and reserves, given it in round
figures.
Our thinking, in making the s~ggestion we have made in this section, grew largely out of the proposals with regard to the Federal
Deposit Insurance Corporation which invoived pegging that fund at
a billion dollars, and we feel that $150,000,000 will leave our fund sta~
tistically, at least, about twice as large in relation to the account insured. I do not know who can evaluate with accuracy what the real
losses would be if we had another financial catastrophe. It is my personal view that mortgages secured by real estate will work out better
over a careful and prolonged liquidation than commercial paper, businessmen's notes, personal obligations, and the like. I personally feel
that, given an orderly process of liquidation, we have more secure assets in the insured savings and loan institutions than you will find in
the commercial banks. I hasten to admit that we do not have the proportion of cash or proportion of Government paper; but despite that
we have about 25-percent cash and Government paper in our insured
institutions.
I think there is another thing that is significant in this capital-base
and premium-reduction discussion: These institutions have almost 8
percent in reserves against their share of liability. In other words,
in a commercial bank the capital cushion, as we call it, is the paid-in
capital and the surplus and their undivided profits. In our institutions it is our general reserves. The capital surplus and undivided
profits of the national banks of the country, in relation to deposit liability, are about 6 percent at the present time. Our reserves in our
61862--47-3
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Federal Reserve Bank of St. Louis
30
HOUSING ACT AMENDMENTS
institutions-and it va,ries with individual institutions, of courseare now approaching 8 percent. That is quite a different situation
than that_which prevailed 15 or 20 years ago, of course, and we have
made tremendous progress in strengthening these institutions. But
that is the first line of defense or safety-the capacity of this local
management combined with the provision that they have made £or
losses in the form of reserves in their own institution.
Now, on this question of retiring Government capital in the insurance corporation, this legislation will retire about $26,000,000 immediately. I think the only difficult question that the committee has to
explore in this connection-and I would rather bring it out because
we have discussed it before-is this question of the dividends on this
$100,000,000 of capital.
This )federal Savings and Loan Insurance Corporation is the only
Corporation which was set up by the Government to deal with a distress emergency situation or a difficult financial situation, in which a
cumulative dividend was written into the bill and in which the Government officials sought to make profits. It was proposed and insisted
upon by people that were trying to scuttle the legislation originally,
and no such provision ,vas written into the Federal Deposit Insurance
Corporation Act; there haYe been no dividends paid the Government
or the Federal Reserve System on the $300,000,000 of Federal Deposit
Insurance Corporation stock; there are no dividends in the Reconstruction Finance Corporation picture. The $200,000,000 that Commissioner Fahey has in the Home Owners' Loan Corporation has paid not
one dime of dividends, and there is no dividend provision in the Home
Owners' Loan Corporation Act.
Also, these cumulative dividends were to be at the rate at which the
Corporation, the Home Owners' Loan Corporntion's, bonds were issued
originally, which was 3 percent. So technically there has been a 3percent cumulative dividend going on here now amounting to about
$39,000,000. It has been the source of considerable profit to the Home
Owners' Loan Corporation, if we would have to pay that cumulative
dividend. Mr. Fahey, 4 years ago, recommended to this committee
that the dividend be eliminated, the cumulative feature taken off the
statute books, and to put this insurance corporation in line or on the
same basis as the Federal Deposit Insurance Corporation and other
Government corporations.
The capital which we have from the Home Owners' Loan Corporation at the present time is costing them 1 percent. They are borrowing
the money, about a billion dollars, from the Treasury, so what they
have loaned us is from a fund, on $200,000,000 of which they pay no
dividend themselves whatsoever, and on the bonds they issued they
did pay 3 percent £or a time, but which have now been retired and
which bond money is costing them only 1 percent, being loaned direct
to them by the Treasury.
There is no proposal'in the Bricker-Capehart bills to reimburse the
Government £or the cost or carrying charges of the capital in the Federal Deposit Insurance Corporation. We would like to be treated just
exactly as they have been treated. It is a question on which there was
some controversy last year, Mr. Spence, at the time your insurancepremium bill was up, and at that time the provision in the Spence bill,
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Federal Reserve Bank of St. Louis
31
HOUSING ACT AMENDMEN'l'S
which passed the House and Senate, was that the dividend terminate
as of the year of the passage of the bill.
.
This proposes to put our insurance corporation on just the same basis
as that of the Federal Deposit Insurance Corporation and take all
income over the $150,000,000 minimum and use it to the retirement of
Government capital. We are paying over .$8.,000,000 a year in premiums to this insurance corporation. You would be interested to know
that the operating expenses of the insurance corporation have been 4.4
percent of total income. The losses have been ~\.8 percent._
t~e
operating and expenses and losses to total income srnce the begrnnmg rn
1934 have been 11 percent. In q,ther words, our Government Insurance Corporation is charging us a premium that is more than nine
times their loss and expense experience.
If you figure those ratios based only 011 the premium income we,
have paid and set aside the earnings from the bonds they have had~
the operating expenses to premium income have been 9.6 percent, the
losses to premium income have been 14.8 percent, or the total operating expenses and net losses to paid premium income have been 24
percent. In other words, while there have been substantial losses in
institutions that were unwisely converted from State to Federal charters, in the eagerness of Federal officials, to get Federal charters outand that is where about 2,000,000 of our principal losses have beenwe sti11 have paid our way and paid a premium that is four times the
l'Xpense and the loss experience to date.
~Ir. SrnNCE. The President vetoed the bill on the ground that the
Federal Savings and Loan Insurance Corporation had insufficient
reserves as compared to liabilities. How have those reserves increasecl in money in the last few years~
Mr. BooF1s11. They have been increasing at the rate in excess of
$10,000,000 a year. The President's principal and only point, Mr.
Spence, was that. there was no provision for the retirement of Government capital, and he was very interested and anxious on that particular point.
Mr. SPENCE. But. he did mention the fact I mentioned.
Mr. BooFISH. No; but statistically the thing is very, very strong,
and it is much stronger each year and the only other thing I can compare it to is the Federal Deposit Insurance Corporation.
I have here, Mr. Chairman, the operations for the last 4 or 5 years
boiled down to the simplest facts possible, their ratios, the assets of
the corporation, the additions to reserves over a period of years.
I said $10,000,000, Mr. Spence, last year it was $9,857,000, the addition
to reserves after expenses and losses.
Mr. BucHANAN. This is it premium payment to the Government?
Mr. BooFISH. That is our preminm payment-well, no, that is not
quite that. There is a little bond interest in that. There is probably
$2,000,000 of bond interest in it, and there is subtracted from it all
the expenses and losses of the year. So it is approximately $10,000,000 a year, the rate at which it has been increasing, and substantially
all out of our premiums.
The CHAIRJ\IAN. vVithout objection the schedule you have mentioned will be incorporated in the record.
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Federal Reserve Bank of St. Louis
qr
.32
HOUSING ACT AMENDMENTS
(The schedule above referred to is as follows:)
Selected points of comparison between the Federal fJavings and Loan Insurance
Corporation and the Federal Depo!lit Insurance Corporation
Benefits:
1. Insured amount.
2. Basis of settlement.
Corporation'q ability to pay benefits:
3. Capital and reserve.
4. Approximate insured liabil-
it.v.
5. Approximate risk per dollar
of capital and reserve.
6. Amount of imurance fund
per $WO of insured liability.
7. Gross annual income, year
19411.
Gross coverage:
8. Nmnberinsuredinstitutions.
9. Total amount of all accounts.
Record:
10. Liquidations, receiverships,
Federal Savings and Loan Insurance Corporation, as of
Dec. 31, 1946
Federal Deposit Insurance Corporation as of Dec. 31, 1946
1. Maximum individual account insurable $5,000.
2. Optional with insured individual, a new account in an
open insured associa t:on;
or 10 percent cash, 45 percent in debentures due
within 1 year and 45 percent in debentures due
witnin 3 years.
1. Maximum individual deposit inslll'able $.1,000.
2. Optional with Corporation,
as soon as pos~ible by
equivalent deposit in a new
bank or anot~1er insured
bank, or in such other manner as the Board of Directors of tae FDIC may prescribe.
_4. $5,868,000,000.
3. Capital $100,000,000.
Reserve $72,621,000.
3. Capital $289,300,000.
Reserve $769,185,000.
4. $72,700,000,000.
5. $33.99.
5. $68.68.
6. $2.94.
6. $1.4fl.
7. $10,654,000.
7. $130,899,000.
s.
8. 13,550.
9. $145,000,000,000.•
2,496.
9. $6,210,000,000.
10. 35, with share liability of
$6/Jl,187,000.
10. 399 with deposits totaling_
$505,000,000.
11. 14.1 percent. 1
ll. 5.9 percent.•
12. 6.4 percent.
12. 4. 7 percent.
13. 85.5 percent.
13. 91.1 percent.
14. 1.4 percent.
14. 2.9 percent.
15. Percentage of insured de-
15. 1. 1 percent.
15. 0.3 percent.
16. Solvency, adeqm1cy of capi•
tal structure, good future
earning prospects and good
management.
17. Admission fee.
18. Premium rate.
16. Unimpaired capital, safe financing policies, good
management, and earning
ability sufficient to pay a
competitive rate of return.
17. $400 per {llillion.
·
18. ¼ of 1 percent until Corporation's reserve equals 5
percent of insured risk.
19. Share; deposit, and creditor
liability.
20. ¼ of I percent.
mergers, or settlements involving Insurance Cor_por-
ation aid tJ date.
11. Insurance losses as
,i percent
of premium income since
beginning of operd.tions.
12. Insll,Iance losses as a percent
orgrnss income, since beginning of operations.
13. Reserves on December 31,
1946 as a percentage of gross
income to same date from
beginning of operations.
14. Percentage of total institutions insured that have received Insurance Corporation assistance since begin-
ning of operations.
posit or share liability in
institutions receiving Insurance Corporation assistance to deposit or share liability in all insured institutions.
Requirements and Cost of Insurance:
16. Entrance requirements.
19, Basis for computing premium.
20. Additional possible assessment.
21. Examinations.
17. None.
18. ri2 of 1 percent forever.
19. Deposit liability.
20. None.
21. At least once a year. Ex- 21. Once a year. The cost of examination costs are paid
amination of insured banks
for _by the institution exis absorbed by the Corpoamined.
ration.
t Loss estimates are made by the Federal Savings and Loan Insurance Corporation.
2 Exclusive of U. S. Government deposits arising as a result of subscriptions to U. S. Government securities, which deposits are not subject to assessments.
• Loss estimates are made by the Federal Deposit Insurance Corporation and on the assumption that certain further recoveries will be made.
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Selected points ·of comparison b°etween the Federal Savings and Loan Insurance
Corporation and the Federal Deposit Insurance Oorporation---Continued
Requirements and Cost of Insurance
-Continued
22. Supervision.
Federal Savings and Loan Insurance Corporation, as of
Dec. 31,.1946
Federal Deposit Insurance Corporation as of Dec. 31, 1946
22. By the·Federal Home Loan
Bank Administration for
federally chartered institutions and by the Administration and State authorities for State chartered institutions. The presidents of the twelve Federal
home loan banks act as
agents for the Federal Home Loan Bank Administration in supervision.
22. By the Insurance Corporation and the Comptroller
of the Currency for National Banks, and by the
Insurance Corporation and
State authorities for State
Banks.
Mr. BODFISH. There is one little improvement in the measure that
has grown out. of our correspondence. On page 3, line 13, and in line
18 also, we suggest that the word "net" be placed ahead of the word
"assets." I think present draftsmanship could be interpreted to mean
that if we issued debentures in liquidating institutions or in satisfying
share-account claims on defaulted insured institutions, that that would
increase our amount of assets and we would have to retire all the
Government capital out of those debenture funds before we could use
the funds for other money. What we really mearit was "net assets";
that is, assets minus note, debenture, or bond liabilities.
The CHAIRMAN. Mr. Ferguson has also suggested to me that after
the word "which" in line 13 we exclude "exclusive of the proceeds of
the issuance of debentures." Do you want to discuss that?
Mr. BoDFISH. Yes; that is an attempt to achieve exactly the same
thing, and Mr. Ferguson and I have studied the thing further since
yesterday, and we concluded that by the mere use of the word "net"
we could accomplish the same purpose, and it seemed simpler and
clearer.
Mr. FERGUSON. That is right. Either one is satisfactory. I think
this is clearer than the others.
Mr. BODFISH. And the word "net" should also go before the word
"assets" in line 18.
On page 4, line 14, Mr. Chairman, you will notice the date is established for the change in the premium rate. That is the same date that
was left in last year. It is 1946. We certainly have no objection if
you gentlemen would rather make the change current, and make it this
year instead of 1946. For the benefit of the newer members of the
committee, I· would like to say in connection with this insurancepreminm question our Insurance Corporation has a mutual or assessment feature that is not fouu<l in t!1e Fedeml Deposit Insnrnnce Corporation. The Federal Deposit Insurance Corporation premium is
set and determined, and the insured banks have no further liability
after they have paid their premium. We are subject, at the option
of the Insurance Corporation, if the losses exceed the income, in any
year, to an equivalent assessment of one-eighth now, and we would
like to have that made one-twelfth. We do not ask the removal of that
further protective feature, which again, I think, will make our Insur
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HOUSING ACT AMENDMENTS
ance Corporation function adequately and more strongly in a crisis
period.
Mr. CoLE. Mr. Chairman, I would like to ask a question, if I may.
The CHAIRMAN. Mr. Cole.
Mr. CoLE. The provision on page 2, beginning with line 16 (now
in these types of procedures}, namely, the provision which provides
for the retirement of the stock of the capital, with the cash being held
in a fund in the Treasury. That seems a little unusual.
Mr. BODFISH. The precedent for it is in the Farm Credit· Administration legislation when the capital of the land banks and Farm Mortgage Corporation was returned to the Treasury. They returned it
on the basis that they were in a position, in a crisis period, to have it
moved back, if needed without further legislation. Furthermore-Mr. CoLE. How long do you expect that to be held in cash 1
Mr. BoDFISH. Well, that is the way the Agricultural Act reads.
Last year the Spence-Wagner bills, providing for the retirement of
Federal Deposit Insurance Corporation capital, had a similar provision. In fairness, I was examining last evening the Bricker-Capehart bills on FDIC capital retirement which this year do not have
such a provision.
Mr. CoLE. Well, it makes it easier for the associations to obtain
their stock, I assume. That is about all?
Mr. BODFISH. Yes; and its notice to the world-Mr. CoLE. It does not require a new statute to authorize it 1
Mr. BODFISH. If we should hit a tailspin situation and you needed
more capital in these home loan banks in order for them to be able to
float their debentures, it would be simple for the Government to put
back the capital in that emergency period that had been repaid.
Mr. CoLE. I know, but you do not provide the same thing, however,
in section 3.
Mr. BoDFISH. No. The capital in section 3 does not have any private ownership. That corporation would be like the Federal Deposit
Insurance Corporation. The funds that are in there, the billion
dollars in the Federal Deposit Insurance Corporation, and this $150,000,000, are owned essentially by the Government, and there is no
claim of proprietorship or private ownership. I want to agree w.ith
you personally that I do not have much enthusiasm for those provisions, but some of our people rather like it, and there was the precedent in the Farm Credit Administration.
Mr. COLE. In other words, you pay off the stock or do not pay it off,
really. I mean individually, you pay it off.
Mr. BODFISH. Well, you pay it off, but if it starts raining, you can
get your umbrella back again.
Mr. MoNRONEY. Does that mean the $150,000,000 will be sterilized,
and we pay 2 percent on the $100,000;000 that sits idle in the Treasury1
Mr. BODFISH. No; you pay Iio return on it.
Mr. MoNRONEY. I mean if we retired it and it went into the general
fund, then, we would be eliminated from the 2 percent interest charge
that we are paying for borrowed money. This way we set the $100,000,000 aside and keep on paying 2 percent interest on it i
Mr. BODFISH. Well, you pay 2 percent interest on part of it.
Mr. FLETCHER. It is 2.06 percent that the Government pays for
its money on the over-all average.
Mr. MoNRONEY. Yes.
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Mr. Bo?FISH. Of course, some of your balances, you pay nothing on.
You will nev_er get ~forton Bodfish to make a life-and-death plea to
keep, th~t pl.!,rticul~r hue in the bill .. I am not criticizing the chairman s bill. That is our draftsmanslnp and our people and especially
several of the home loan bank officers would prefer it that way, but I
do not think it is good public policy, frankly. That is my personal
opinion, but my people have approved it this way.
Mr. BANTA. Whether it would be possible to retain your umbrella
without this authority?
·
Mr. BODFISH. I think it would be. If we have a financial emergency,
and if more capital were needed, and Government and Treasury
officials felt it was needed, they should be in a position to act. That
is the only thing. I see no reason ·why it should be held or impounded.
Mr. FLETCHER. In other words, it is the authority they want rather
than the cash?
· Mr. BODFISH. We do not care anythi~g about the cash being there.
All we want is to have the Government officials in position to act in a
major Nation-wide financial emergency.
Mr. FLETCHER. Of course, even to that extent, if there ever came
a time of emergency, why, they know very well that they would back
the institution anyway.
·
Mr. BODFISH. That is right. I think Representative Banta's point
is excellent, the authority is the thing we are interested in. We are
not interested in the money being there and being sterilized.
Might I comment on 2800? I have taken more time than I should.
Mr. MoNRONEY. Before you leave that, the interest charge of 2 percent is $2,000,000 a year.
Mr. RILEY. Mr. Chairman, before we leave H. R. 2799, Mr. Bodfish, aren't there building and savings and loan associations which
require the setting up of reserves in their local portfolios in addition
to the premium they pay to the insurance corporation?
Mr. BODFISH. Yes.
Mr. RILEY. I would like you to comment briefly on that, if you
could.
Mr. BODFISH. Yes. We have a rather difficult situation there. We
are required, if our institutions are insured, to make certain allocations to our reserves for losses. I think there is an unfortunate
thing in the statute in that we are required to build our insurance
reserve-that is, the reserve required by the Insurance Corporation
statute-up to 5 percent within 20 years. We have no obiection to
the 5 percent, and we have no objection to 2'0 years. In the aggregate, we have these reserves up between 7 and 8 percent at the present
time. · However, the wav that thing was written-and the House
rejected the idea completely, incidentally, it was put in by the Senate
at the instance of Marriner Eccles, and remained in the bill unfortunately-the statute provides that if you do not make your 5 percent in this particular reserve within 20 years, you ha.ve to come down
here to Washington and get permission to pay a dividend to your
savin!"S account holders.
Well, now, that embarrasses substantially a rapidly growing institution. If you take an institution that is doing a large volume in
GI loans or somethino- of the kind, and getting the savings that are
adequate to make tho;e loans in volume, their percentage of reserves,
even though they have made substantial allocations, is low. We would
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HOUSING ACT AMENDMENTS
much rather see the Congress touch up that reserve requirement so
that we had to put 15 percent of our net each year, which over the
period would amount to more than is required now, but it would
not put us in the hands o:f the Federal authorities i:f we happened to
grow rapidly at one point and kept on doing business, to the point
where we would have to come down here to get permission to either
pay a loss out of that reserve or pay a dividend if we charged any
losses to that reserve. It is a Government control o:f this particular
reserve requirement that is turning out to be awkward :for some of
the rapidly growing institutions.
Mr. RILEY. What is the reserve that the commercial banks or
national banks are required to have? Do you happen to know?
Mr. BoDFIRH. I do not happen to know. Mr. Russell tells me it is
10 percent. We have been putting about 30 percent of our net earnings into reserves in recent years, and we prefer to have a requirement
of 15 percent, and the national bank requirement is 10 percent. But
we do not like having to make the certain percentage within a rigid
period of time, because a rapidly growing institution finds its ratio
down even though it has done a first-class job and made a generous
allocation to reserves. But our reserve position generally is very
strong, Mr. Riley, as you know.
Mr. RILEY. Yes.
The CHAIRMAN. All right, Mr. Bodfish.
Mr. BODFISH. H. R. 2800 is just a thing that this committee has
acted on before. It was in the· bill in 1940. You have also been quite
willing to authorize our institutions to make property improvements,
alteration, and repair loans. But due to the happenstances on the
other side, the legislation has never gone th:rough, and this provision
is a little different than the draft that passed the House in 1940 in that
it authorizes our federally chartered associations to make them either
with the title I Federal Housing Administration insurance or on our
own account and at our own risk. Frankly, we rather move in the
direction of getting away from the use and dependence on Government
guaranties rather than increasing the use of them.
I do not think there will be any criticism or objection to this particular power; and really, gentlemen, it is long overdue; and it is
not a fault of this committee or the House of Representatives that it
has not p~ssed. It has been due to a situation in the Senate and in
our agencies.
.
Mr. BucHANAN. Has the President ever vetoed that?
Mr. BODFISH. No; this has ahvays gotten bogged down in the Senate
or it has been enmeshed in the wars between the housing agencies
that we had around here several years ago when we were feuding and
fighting over private housing and public housing, guaranteed loans
versus nonguaranteed loans, and the like.
- ·
Mr. RILEY. Mr. Chairman.
The CHAIRMAN. Mr. Riley.
Mr. R1LEY. Mr. Bodfish, they would enable the home owners to make
minor repairs an<l carry the obligation with the same insurance that
holds the mortgage without going to the expense of drawing a new
mortgage?
Mr. BODFISH. That is right. The expense and the delay.
Mr. RILEY. And the delay?
Mr. BODFISH. That is right.
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Mr. RILEY. Or going out and financing it through other institutions?
Mr. ·BODFISH. That is right.
Mr: RILEY. It would be a big boon to the home owner, would it not i
Mr. BODFISH. I think the benefits are entirely to the home owner,
because it makes the additional loans very simple, when he wants to
make them for repairs and improvements, and makes them inexpensive.
It means that a GI, for example, who got his loan at 4 percent, with
practically no cost, could borrow additional funds at 4 percent if it was
for repairs, improvement, or alteration. If he went over to one of
the short-term credit operations or borrowed four or five hundred dollars, he would probably pay anywhere from 12 to 36 percent for it.
Mr. BROWN. You limit the loan to $1,500?
Mr. BoDFISH. As far as the property improvement, repair, and modernization. We also limit this, Representative Brown, to 15 percent
of the association's assets. We think our assets ought to remain
largely in Government bonds and cash and mortgages, predominately
home mortgages, of course.
The CHAIRMAN. Mr. Bodfish, there is something in this language
which bothers me. It states, "Notwithstanding any other provisions
of this subsection," which is subsection ( c) of section 5, "except the
area eviction, such associations may invest their funds in title I, Federal Housing Administration loans, loans guaranteed or insured, as
provided in the Servicemen's Readjustment Act," and so forth.
Subsection ( c) has to do with the sale of paper held by the Administrator. He may sell the paper subject to approval of the Treasury.
Mr. BODFISH. Mr. Chairman, this is in subsection ( c) in the Home
Owners' Loan Act instead of the Federal Loan Bank Act. This section
provides for the chartering of the Federal savings and loan associations, which is section 5 of the Home Owners' Loan Corporation Act
rather than the Federal Loan Bank Act.
The CHAIRMAN. There are no Federal Housing loans, are therei
They do not make the loans; they guarantee them?
'
Mr. BODFISH. Welli we use their forms and their applications. I do
not suppose technica ly they are loans. I suppose clearly they are
loans insured under title I of the act.
The CHAIRMAN. What do you mean by the present Federal Housing
Administration loans?
Mr. FLETCHER. Loans which were insured under title I is what he
means.
The CHAIRMAN. Yes.
Mr. BODFISH. Yes; I think that would be a substantial improvement
in the draftsmanship.
The CHAIRMAN. Would that not be a little ambiguous
Mr. BODFISH. I think you are entirely correct, and I feel a little
embarrassed about it because I have spent a lot of time saying that
the Federal Housing Administration did not make loans, but insured
mortgages.
The CHAIRMAN. I know you did. That is what confused me.
Mr. FLErCHER. Mr. Chairman, for the record I think; it ought to be
said that there is a great backlog of work to be done, remodeling houses,
and so on, which would find this particular bill very useful, because of
the ease and the low cost of financing of improvement and remodeling
work which has to be done on houses which have foregone that work
because of the war period.
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HOUSING ACT AMENDMENTS
Mr. BODFISH. Mr. Chairman, does the committee understand the odd
language in 6 and n The reason we have to say, "notwithstanding
any other provisions," is that the other provisions of that subsection
require a first-lien mortgage, title search, and all that sort of thing.
This lifts it out from under it but does not take off the 50-mile limit
as far as our operation is concerned.
The CHAIRMAN. Do you want to clarify that in any way, that
language?
Mr. BODFISH. Well, I think that is about the clearest way. It reads
all right when you attach it to the statute, but just reading it by itself,
it does seem awkward because the section previously has a number of
limitations that they must be first liens, and that sort of thing.
We can do a large volume of business under this.
The CHAIRMAN. In the existing law, where is it?
Mr. BoDFISH. We would like particularly to see this thing expedited,
as well as these others, Mr. Chairman, because we have missed a great
business opportunity, which was an opportunity to serve our home
owner borrower, by not having the authority to do it. Our institutions,
which are doing half the home-mortage business in many communities,
should have the authority to make improvement and repair loans, which
we.have not had except with the cumbersome and costly mortgage and
title procedure. And again I say it is not the fault of this committee
or the House of Representatives.·
I think that is all, unless there are questions, Mr. Chairman.
The CHAIRMAN. What you want to do is get the authority to make
repairs which are insured under title I?
Mr. BODFISH. Or to make the same size loans and to take the risk
ourselves. We hope ultimately to do that kind of bushiess without
using title I insurance. So it really provides for them either under
title I or at our own risk. Incidentally, I think the banks would be
wise to carry their own risks. It is relatively safe business; they have
had a very low experience; and I think all we financial institutions
ought to learn how to take our own risks instead of using Government
guaranties as much as we have.
Title I has done a great job and is one of the great parts of the
Federal Housing Administration machinery, but maybe it is one that
can go by the board someday.
That is all I have, Mr. Chairman.
I think there is one of the Government guaranties that is very
profitable business for the banks; it is very satisfactory business for
our State-chartered institutions. I think their loss experience with
the Federal Housing Administration is something like half of 1 percent of the amount loaned.
·
The CHAIRMAN. All right, Mr. Bodfish.
Mr. Krentz, could you be here this afternoon at 2: 30?
Mr. KREUTZ. I would be very glad to; yes, sir.
The CHAIRMAN. I understand you cannot be here tomorrow; is that
correct?
Mr. KREuTz. I should not be here, Mr. Chairman, but if the committee would prefer, I could arrange it. But I should not be here
tomorrow.
The CHAIRMAN. Well, I understand that there is a general debate
on the floor this afternoon, and I shall try to get permission to sit
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this afternoon, and if we have time this afternoon, following Mr.
Kreutz' testimony, I should like to take up the committee print of
the Lanham permanents legislation, which we have been discussing
in executive session.
Mr. BODFISH. Thank you very much, gentlemen, for your time.
(Whereupon, at 12: 30 p. m., the committee recessed, to reconvene
at 2: 30 p. m.)
AFTERNOON SESSION
Present: Mr. Wolcott (chairman), Mr. Gamble, Mr. Kunkel, Mr.
Talle, Mr. Sundstrom, Mr. McMillen, Mr. Cole, Mr. Stratton, Mr.
Banta, Mr. Fletcher, Mr. Foote, Mr. Spence, Mr. Brown, Mr. Folger,
Mr. Riley, Mr. O'Toole, and Mr. Buchanan.
The CHAIRMAN. The committee will come to order.
Mr. Kreutz. Mr. Kreutz is the executive manager of the National
Savings and Loan League.
You may further identify yourself if you care to, Mr. Kreutz, and
proceed in any way you see fit.
STATEMENT OF OSCAR R. KREUTZ, EXECUTIVE MANAGER,
NATIONAL SAVINGS AND LOAN LEAGUE
Mr. KREUTZ. My name is Oscar R. Kreutz. I am executive manager of the National Savings and Loan League, which has some 500
member savings and loan associations in 39 States, with assets of about
$1,700,000,000, and they include many of the soundest, largest, and
most progressive associations of the country.
I very much appreciate this opportunity to appear before this committee, and particularly do I appreciate your courtesy in letting me
come back this afternoon instead of tomorrow morning, which would
have been very difficult indeed.
First, Mr. Chairman, I should like to confirm an understanding I
have, that inasmuch as these three bills are introduced to get the subject before the committee the similar bills now pending in the Senate
may be considered by this committee.
The CHAIRMAN. The whole subject is wide open, Mr. Kreutz.
Mr. KREUTZ. Very good. And I understand, on that pqint, that
these Senate bills that are to be put in the hopper in the House, probably today, would have been put in earlier but for the £act that the
Congressman who will introduce them has been so busy.
I want to say that with the broad objectives of these bills which
you have £or consideration today we are in complete accord. There
are some points-about two of them, in particular-which I would
like to discuss with you-some difference which I would like to point
out and explain the reasons for those differences.
With respect to H. R. 2800, I may say we are in complete accord
both with the principle and with the provisions of the bill.
In regard to H. R. 2798, a bill to permit the conversion of Federal
savings and loan associations to State charters, there is now pending in
the Senate S. 913, which is to be introduced in the House as well,
and to which I would like to draw your attention. However, I should
like to say that the principle of a two-way street-to permit the conversion of these associations either from State charter to Federal
charter or from Federal charter to State charter-is one which was
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HOUSING ACT AMENDMENTS
enunciated by the Federal Government, and o:ften insisted on by the
Government, in dealing with State authorities.
As a matter o:f :fact, :for some years I served in the Federal Government, and as deputy general manager o:f the Federal Savings and Loan
Insurance Qqrporation, and later as its general manager, it .was my
dut;r. to con:fer with State authorities and to recommend the adoption
o:f State legislation to permit the conversion o:f these associations. We
believe thoroughly in that principle.
Now we are committed, :for certain reasons which I will mention,
to suppport S. 913, a copy o:f which I believe you have before you,
or will have before you, and a copy of which will be introduced in the
House.
That bill was dra:fted after considerable discussion with its authors
in the Senate o:f the principles involved. They felt that there was a
certain safeguard, which was necessary and desirable, from the standpoint of the Government and its investment in the capital stock o:f the
Insurance Corporation, and from the standpoint of the insured members of these corporations as well.
The purpose of S. 913 is to place a converted Federal association,
when it commences operations as a State association, on the same basis
and subject to the same obligations, and with the same rights, as a State
association located in the same State and presently insured by the
Federal Savings and Loan Insurance Corporation.
I want to point out how it is designed to do that. First I should
say that, in our opinion, these two bills, H. R. 2798 and S. 913, are not
unalike, except in one fundamental respect, and that is an important
difference. The last paragraph of S. 913 provides that the Insurance
Corporation shall approve such conversions, except under two conditions: One, when the members of the association, after conversion, will
not share in the assets in the event of dissolution in exact proportion to
their relative share of credits. That particular clause is included in
other language in H. R. 2798, so there is no use in discussing that.
The second ,clause, however, which reads:
When the association, as the resnlt of conversion, would fail to fulfill the
standards of insurability prescribed by title IV of the National Housing Act.
Now, that particular clause was inserted in this bill in order to provide a means whereby the Federal Savings and Loan Insurance Corporation could obtain, from a converting association, special agreements under which it would operate after conversion, and which agreements would subject it to the same kind of provisions contained in
agreements which are entered into by State-chartered associations in
those States when they get insurance.
I will explain that further. In Maryland there is no statutory supervision o:f these savings and loan associations. Therefore, in Maryland, the Insurance Corporation, in order to obtain certain protection
:for itself, asks these associations to enter into special agreements
which take the :form of bylaw amendments, under the provision of
which they adopt certain restrictive standards which are similar to
the Federal charter, which we know as charter K.
That particular method gives to the Insurance Corporation, therefore, a substitute :for State supervision and regulation which does not
exist in that State. Similarly, in some 26 States there are no limitations on the percentage of appraisal which the State-chartered associa-
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41.
tions may lend. In those States the Insurance Corporation obtains
official arguments from associations applying for insurance which.
provide that they will limit their lending percentages to, say, 80
percent.
Now it is true that in H. R. 2798 there is a provision, on page 2, beginning with line 18, which would appear to bind the converting association to the agreements contained in the original application and
to section 403 of title IV of the National Housing Act. However,
neither the application for insurance, which was executed by the Federal association, nor title IV of the National Housing Act contains
agreements of the kind which the Insurance Corporation obtains in
these various States, as I have described.
As a means of obtaining special agreements, or, rather, as a result
of obtaining special agreements of that kind, it has been possible for
the Insurance Corporation to obtain insurance of accounts to such associations at the time instead of having to postpone the matter indefinitely.
In discussing the principles involved in this conversion question,
as I said, it was the desire of the authors over on the Senate side that
a provision of this kind be included. I bring it to your attention now
pecause I feel that it is something you would want to have brought to
your attention, and you might want to do something about it. We
believe thoroughly in the prmciple of a two-way street on conversion,
and believe that a conversion bill should be passed by Congress and
made a part of our statutes.
Now, unless you have some questions, Mr. Chairman and gentlemen,
with regard to H. R. 2798 or S. 913 in the light of my comments, I
will be glad to pass on to a•discussiorrof·2799.
The CHAIRMAN. Are there any questions of Mr. Kreutz with respect
to 2798?
Mr. RILEY. Mr. Kreutz, on page 3, in the second paragraph, the
fact that they are now members of the Federal Home Loan Bank and
the Insurance Corporation would tend to show that they fill the bill.
·would it not be better to have some language in there that would add
such agreements as State associations now members of the Insurance
Corporation, or something to that effect, rather than to have wording
like this?
Mr. KREUTZ. That-might do it, Congressman Riley, and we discussed the problem at some length and found it a little difficult to
get language that would do just that. In other words, it would give
the Insurance Corporation, in those various States, the same agreements.
Mr. RILEY. This would seem to leave considerable discretion to the
Federal authorities as to whether they could fulfill those requirements,
or they might make them so difficult that they could not fulfill them.
I think these associations ought to be left largely to the majority of
the shareholders to operate them as they see fit within the frame work
of the law.
Mr; KREUTZ. That is a very good point. And we certainly think
that the associations should be run by their shareholders, and that
the supe_fvision of these associations should be with full consideration
of the rights of the shareholders. And, also, that only as required by
acts of Congress should_ the supervisory authorities extend theil' powers
in the supervision of these institutions.
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Mr. FLETCHJ<,R. Will the gentleman yield £or a question~
Mr. RILEY. Yes .
Mr. FLETCHER. H I understand you, Mr. Krentz, you believe that
the language in S. 913 covers it better than the language in H. R. 2798,
relative to the standards of insurability1
Mr. KREUTZ. We think that H. R. 2798 would not, as it now reads,
give the Insurance Corporation any means of obtaining a spacial agreement from a converting association in one of these States where there
are some deficiencies in the State laws. S- 91:) would give the Insurance Corporation that means.
Mr. FLETCHER. )Vell, the language on page 2 of H. R. 2798, line 21,
reads: "By such conversion shall accept and be bound by a11 agreements required by section 403 of title IV of the National Housing Act."
Mr. KmmTZ. Yes, sir.
Mr. FLETCHER. Does that not say substantially the same thing as
on page 3, subsection 2?
Mr. KREuTz. I believe not, because the agreements required by section 403 of title IV do not include these things that I was referring to,
which are obtained by the Insurance Corporation in order to overcome
a local deficiency.
Mr. FLETCHER. I see.
Mr. KREUTZ. Now it may be argued, and has been argued, in fact,
that the Insurance Corporation has no authority, really, to get these
special agreements to cover situations of that kind. I l'ecall that we
used to have that pointed out to us occasionally, but the fact is that
through the use of such special agi'eements it was possible for the Insurance Coporation to make certain institutions insurable which otherwise, by the standards laid down by the Act of Congress, would not
have been insurable.
Mr. FLETCHER. I see your point. Now, is it true, however, that if
at any time the Insurance Corporation should not feel that a building
and loan, or savings and loan, association was operating under laws
that gave the necessary safety for them to insure, they could withdraw
that insurance? Can't they do that?
Mr. KREUTZ. Mr. Fletcher, that is an interesting question because
that is exactly the question I put to one of the Senators, whose name
is on this Senate bill, because the objection to this particular clause
had been filed with us by the State supervisor who wanted no restrictions of any kind. And in discussing it with him I said that if he
saw fit to withdraw the provision from the draft I didn't know as our
people would object at all. They wanted a conversion bill. But then
I asked him that same question, and his reply was: "1Vhat about the
individual shareholder who, in the event of cancellation of insurance
by the Corporation in order to protect itself, would be left high and
and drv and without the benefit of insurance~"
Mr. FLETCHER. Well, of course, he is protected.
Mr. KREUTZ. For a period of time.
Mr. FLETCHER. In accordance with the clause of insurance.
Mr. KREUTZ. Yes, sir.
Mr. FLETCHER. And the mere threat of withdrawal of jnsurance
should be sufficient to get most any kind of agreement they migli,t want,
it would seem to me. If I understand you correctly, this subsection 2
was put ·in here to satisfy a certain Senator, or a certain Senator's
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feeling that that would make it a better bill, but not because you personally think it was necessary; is that right?
Mr. KREuTz. Not only that. I am representing the views, as well,
on this point, of our people who studied the whole question and who
felt that there ought to be some provision of this kind as a protection
to the Insurance Corporation. And they felt, in the discussion of it,
that the soundness of the corporation, and its protection, were o-f
fundamental importance to their institutions since it insured accounts
of their members, and they did not want to see it unduly threatened
with a risk that could be avoided rather easily. So I want to correct
the impression I may have giyen, unintentionally, that this particular
clause was put in there only because the Senators who introduced the
bill on the other side wanted it. It was also desired by some of our
p!;lople who felt it was important to the corporation.
Mr. FLETCHER. Will there be an objection to it that you can see~
Mr. KREUTZ. No; as a matter of fact, I feel that the clause would
not interfere in any way with the free conversion of 99 out of a
hundred Federal associations in the country that want to convert.
Some associations, in converting, who are located in some of these
States, in order to be on the same basis, after conversion, as the State
associations that are insured in those States would be required to
execute these'special agreements through the· adoption of special bylaw provisions.
Mr. BROWN. What States do you have reference to?
Mr. KREUTZ. Well, I mentioned Maryland as one State where there
is no statutory provision for regulation, supervision, and so forth. I
did not have Massachusetts in mind. There are 26 States, and I would
be glad to submit a list of those States to the committee, where there
are no limitations on the percentage of appraised value which the associations can lend.
Mr. FLETCHER. Do you think that in the execution by the Federal home-loan bank of that subsection 2, that they might be arbitrary
or capricious and say, that, as a result of conversion, certain associations would fail to fulfill the standards ?
Mr. KREUTZ. All I can say on that, Mr. Fletcher, is that Commis,,
sioner Fahey, testifying on this bill before the Senate committee on
May 1, took vigorous exception to the bill because he felt it did not
give them any real power to control or restrict conversions, and that
it was a wide open bill.
Mr. FLETCHER. Referring to S. 913?
Mr. KREUTZ. Yes.
Mr. BROWN. We now have about three times as many State charters
as Federal charters. I feel that the people who control the stock should
control the association.
Mr. RILEY. I do not think there is any objection to that, Mr. Brown,
but I think that the standards for converting back to the States ought
to be set out in this bill and not be discretionary with the Federal
officials. That is one of the purposes of the bill, as I understand it :
To give the shareholders the right to say whether or not they want
a State charter or a Federal charter. I do not know of any association that wants to convert back to a State charter, but I certamly think
they ought to have that right if the time comes when they want to do it.
Mr. KREuTZ. I think so, too.
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Mr. GAMBLE. Are there some who want to convert back to a State
charter?
Mr. KREUTZ. Very :few. There are just a :few in the country that
are toying with the idea. I doubt if there would be very many. On
the other hand, I think it is a right which I think these associations
ought to have. And if their shareholders want to convert back to
State <:!harter they ought to be able to do it.
Mr. BROWN. I think there are a lot of them who want to, myself. I
know there are some in my State who want to. A lot of associations
under Federal charter want to go back to State charter. Now we
have over three times as many State ch[!rters as Federal charters in
the United States, but in my State there are twice as many Federal
charters as State charters, and they are dissatisfied with them.
Mr. GAMBLE. H you got a lot 0£ conversions of Federal associations
back to State associations might you not run into the difficulty of somebody who has charge 0£ the Federal situation seeing his empire slide
out from under him and put out objections to the reconversion?
Mr. KREUTZ. That is possible.
Mr. GAMBLE. It is very possible.
Mr. KREUTZ. Yes, sir.
Mr. FLETCHER. May I ask a question?
According to the terms of S. 913, it would be impossible :for an
association to convert back to a State charter unless the Federal
Savings and Loan Insurance Corporation allowed them to; is that
right'1
Mr. KREUTZ. ,vell, the bill says that the insurance corporation's approval shall be obtained, but it goes on to say that the corporation
shall approve, except under these brn conditions which are set forth.
Mr. FLETCHER. Suppose they want to convert back without insurance to a mutual State association? I£ the stockholders want to go
that way, I do not -think we should compel them to take Federal insurance. Now, I know some 0£ the finest institutions in the country,
and I am sure you do, I can think of one offhand that you are :familiar
with, in Santa Barbara. One of the finest institutions in California,
which I know does not have any Federal insurance. Who are we to
say that insurance is the final answer? An association may wish to
build up its reserves to the point ·where it is able to carry its own insurance, in a sense. I do not agree that ,ve should compel them to continue
insurance i:f they want to do without.
Mr. KREtrTz. We certainly would agree with that.
Mr. FLETCHER. Does this bill require it?
Mr. KREUTZ. No; they could terminate insurance. under the act.
That is set forth specifically under the act.
·
Mr. FLETCHER. By terminating the insurance, could tlwy then con-,
vert back to a State association?
Mr. KREUTZ. They would have to convert first, because a Federal
association cannot terminate insurance.
·
Mr. FLETCHER. I see. First they ,-.;ould have to convert and then
terminate their insurance 1
Mr. KREUTZ. Yes, sir; or it could be done practically concurrently.
Mr. FLETCHER. And you see no reason why that couid not be done?
. Mr. KREuTz. No, sir; I cann?t. _An~ certainly they should have that
right. There are many fine mstitnt10ns whose accounts are not insured.
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Mr. GAMBLE. May I ask another question? Is there anything in
H. R. 2798 that you object to and, secondly, would it not be easy to
amalgamate these two bills into one without hurting the bill or its
objective?
Mr. KREuTz. Well, I would certainly think it could be done. The
only point I would make is that our group, in studying the question,
and then later the Senators who introduced the bill originally in the
Senate-, felt a provision of 1hat kind was desirable, and in some cases
might be very important.
Mr. GAMBLE. Because we do not always agree with the other body?
Mr. KREUTZ. Yes, sir.
Mr. FLETCHER. Do you think we might lift subsection 2 right out
and put it in H. R..2798?
Mr. 'KREuTz. You certainly could lift the principles of it.
Mr. GAMBLE. Exception 1 is in there in different language, is it not,
down at the bottom of page 2?
Mr. KREUTZ. Yes, sir.
Mr. GAMBLE. But the second exception is not in H. R. 2798?
Mr. KREUTZ. That is correct. That is the one fundamental difference. There are same other differences which I do not regard as
basic, such a:s the provision in H. R. 2798 that conversion shall be
effective upon approval by the State authority. S. 913 provides that
conversion shall be effective upon cancellation of the charter, by the
Federal Home Loan Bank Administration, but it then goes on to say
that the charter shall be canceled immediately after approval by the
Insurance Corporation, so that that becomes automatic.
Mr. KuNKEL. In other words, your idea is to take H. R. 2798 and
work it out in conference?
Mr. GAMBLE. No; I was thinking whether he had any objection to
2798 and .what he would add to it from S. 913 here.
Mr. KUNKEL. What I thought you meant was for us to take it to
conference and leave the decision on this controversial provision to be
decided by conference.
Mr. GAMBLE. I had not gotten that far, Mr. Kunkel, I was thinking
about the action here.
The CHAIRMAN. Mr. Kreutz, I think Mr. Fletcher brought out a very
important point: That the Insurance Corporation would prevent the
conversion if, in their judgment, it was held that, as a result of the
conversion, they would fail to fulfill the standards of insurability prescribed, and if the shareholders decided on conversion, and they did
not want insurance, then, they could not convert, under those circumstances; is that not correct?
Mr. KREUTZ. Well, let us put it another way: I can hardly conceive
of the Insurance Corporation refusing to carry out a mandate of the
Congress in a matter of this kind.
Mr. KuNKEL. You have more faith than I have.
The CHAIRMAN. I might say that this committee, up to the present
time, principally has not had the time, an_d I do not know if it will
have the time or not-at least, we are all belabored to bring on some
legislation to oust Mr. Fahe~ because he has not followed the intent of
Congress with respect to a California matter. I do not know whether
we will take up the legislation. The committee will have to decide
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whether we- will or not. So we are under ar,1 obligation to make our
intent very clear.
Mr. KREUTz. Well,I felt it my responsibility to bring this point to
t.he attention of the committee together with the reasons for it. You
are very well able to reach your own conclusions about it, and I will
not attempt to try to superimpose my judgment on yours in a matter
of that kind.
The CHAIRMAN. Is it your judgment that under H. R. 2798 they
could convert without meeting these requirements or standards of
insurability? And then, if they later met them, could they get
insurance again?
·
Mr. KREuTz. You are assuming now that there would be cancellation of insurance because of some situation there i
The CHAIRMAN. As I understand H. R. 2798, if they meet the standards when they reconvert, the Insurance Corporation must insure them
as they insure any other State-chartered organization, and the eligibility for conversion is not predicated upon the eligibility for insurance?
Mr. KRUETZ. No.
The CHAIRMAN. There might be a period of time, during the time
when their Federal charter was canceled and until they took up their
State charter, when they would not be insured. Assuming there was
such a case, and assuming that they later put themselves in a position
to be insured, the Federal Insurance Corporation would have to insure
them the same as they would any other State organization?
Mr. KREuTz. Oh, yes; they would. I say it is conceivable that an
association converting under the provisions of 2798 would be threatened with cancellation of insurance by the Corporation £or certain
reasons, and that, in £act, insurance might be canceled. In which
event, of course, there might be considerable hardship to the association and to its members, but, on the other hand, in time, the association
conceivably could correct the conditions complained about by the Insurance Corporation and again qualify £or insurance, if it were of such
a mind.
The CHAIRMAN. We are up against the fact that a federally chartered institution cannot cancel its insurance.
Mr. KREuTz. That is right; a Federal association cannot.
The CHAIRMAN. I have in mind similar questions which have been
before this committee, in the Banking Act of 193fi-we never did quite
overcome it until about 3 years ago-where an attempt was made to
blanket all commercial and savings banks under the Federal Reserve,
with the idea that the Federal Reserve Board would be politicalized
and that all banks then would be under the political domination of
some bureau here in Washington. The means they had of bludgeoning banks into the system was the provision that they would not be
eligible for insurance under the Federal Deposit Insurance Corporation unless they came into the Federal Reserve. They gave them 2
years in which to do that, and at the end of that 2 years we postponed
it for another 3 years, then we postponed it for another 2 years-I
do not know how often we did it-but 3 years ago we got rid of that
requirement and broke up that attempt. I certainly want to be very
careful that we do not set that thing up again here and have to spend
the next 10 years trying to get rid of it.
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There is no intention 0£ disbarment on the Federal Reserve, because
we prevented the Federal Reserve being placed in a position where it
could be dominated. But the attempt was made to politicalize it, and
placing control 0£ credit under the political domination 0£ a Federal
bureau. We would not do it, but we had not quite got rid 0£ it until
we removed the requirement that a bank must be in the Federal Reserve
in order to participate in the Federal Deposit Insurance Corporation
insurance, :which we did 3 years ago, as I recall. It took us a great
many years to get rid 0£ that provision. Do you not think that so long
as we give the Federal bureau the discretion as to whether an association should convert £rom a Federal to a State charter, that, in keeping
with their hesitancy to go ahead with their side 0£ this agreement, that
we can expect that they are going to rajse obstacles to prevent those
conversions i That is what I am a little£earful about.
Mr. KREUTZ. I think there should be no interference with the conversion 0£ a Federal association which, after conversion, would be in
the same situation with respect to its obligations as is a State-chartered
association in the same State.
The CHAIRMAN. Are there further questions on this bill 1
I think you said H. R. 2800 was satisfactory i
Mr. KREuTz. Yes, indeed; very satisfactory. I understand there
would be a little change in the language there, brought out in the discussion this morning. That is a thing which our people have been
very much interested in obtaining.
The CHAIRMAN. You mean with respect to the investment of the
funds, and so forth 1
M,:. 1{.JmuTZ. Yes, sir; authority £or Federal associations to make
these title I loans, and the majority 0£ our people are in £avor 0£
authority to make unsecured loans up to certain limits, and $1,500
would be very satisfactory. Many States have given to State-chartered
associations that kind 0£ authority, and we think it is very proper £or
the Congress to give Federal associations the same authority.
The CHAIRMAN. I think we are all in agreement as to what your
organization and the Federal Savings and Loan League wanted to
accomplish. It was a question 0£ finding the language to do it.
Mr. KREuTz. Yes, sir.
-.t
Now, Mr. Chairman, as to H . .K 2799, we find a problem which is a
bit more difficult. It woa,ld be a little easier if the bill were divided
into two·partti-'--that·is, if there were two bills instead of one-the first
part-that is, sections 1 and 2-dealing with the requirement 0£ the
Government-owned stock in the Federal Home Loan Bank System, as
you know. On that particular point we have polled our membership
as to their views, and a majority of them would favor the continuation
0£ the present provision 0£ the act, which would mean a slower retirement 0£ the Government ownershi{> 0£ stock in the Bank System.
They favor it at least for the time being, and they £eel that in these
times when there is a very heavy call on these institutions £or funds
with which to finance GI loans and home purchases, the Bank System
should not be weakened by a reduction such as has been proposed 0£
its capital--stock to $150~-000l)00. Our people £eel that while the· objective is most desirable, and we agree with it wholeheartedly, the
timing of it might be a little difficult, might create some difficult
problems.
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In addition, they do not favor being required to increase their
ownership 0£ stock in the Bank System at this time from 1 percent to
2 percent.
It would entail, in the aggregate, a very substantial .investment by
the institutions 0£ the country, and they would rather not have to do
it just now, and £eel that the language 0£ the original act is reasonable
language in that regard, which, as you may recall, provides that when
the stock of the member institutions in any bank equals the stock
owned by the Federal Government, then, 50 percent 0£ the sum
received in the sale 0£ new stock by the bank from the members be
used to retire the Government stock, and our membership has instructed me to advise you that they like that provision £or the time
being, and would like to see it continued.
They also raise the question 0£ the effect 0£ a substantial reduction
0£ this kind in the stock 0£ the Home Loan Bank System upon the
ability 0£ the System to market its debentures-a very important
question. And I want to submit, on that point, their views in opposition to sections 1 and 2 0£ H. R. 2799.
Now, I would like to discuss the last part of H. R. 2799, and I would
like to state that the reduction in the premium rate is past due. A
year ago we had the privilege of testifying before this committeemany 0£ you were present at that time-in support 0£ Mr. Spence's
bill, H. R. 4428, which, as you heard this morning, was actually
passed by both Houses and then vetoed by the President. There was
some confusion, we think, over the matter 0£ reserves 0£ the Insurance
Corporation, which was partially responsible for the veto of your
~-The
-
act requires that the individual insured association shall
accumulate a Federal insurance reserve 0£ account until that account
equals 5 percent 0£ its insured liabilities, and the regulations provide
that annual allocation shall be made to that account in a minimum
amount. Insured associations over the country have reserves considerably in excess 0£ the statutory requirement, based upon the time
which they have run. Their aggregate reserves will run 7 to 8
percent, which is considerably more than the ultimate reserve 0£ 5
percent required by the statute.
·
Now, there is another provision i:r\ the act which says that when
the Insurance Corporation's own reserve equals 5 percent of its insured
liabilities, then, it shall cease collecting insurance premiums from these
institutions. Well, it is those two reserves which apparently got confused and it was that confusion which, we think, had something to
do with the President's veto of the bill. But there is the other factor
which was mentioned this morning, and that is the matter 0£ some plan
for retiring the stock of the Insurance Corporation, and, as we testified
a year ago, we are very much in favor of retiring the stock 0£ the
Insurance Corporation as soon as it can safely be done.
We suggest, and there is incorporated in S. 1149, a provision for
the retirement of the stock of the Insurance Corporation, not by
applying the amount in excess of net assets of the Corporation above
the amount of $150,000,000, but in applying, instead, 25 percent of the
net income of the Cor~oration, after l_osses and dividends, if any. w·e
recommend ~hat as bemg a more feasible plan; and a safer plan, from
the standpomt of the Government and from the standpoint of the
system of assured associations.
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At first blush that might seem to you like a provision that would
take an awfully long time to be effective, because the net income of
the Corporation this year will be little over $10,000,000, and obviously
25 percent of that would be only $2,500,000 a year. It would appear,
therefore, that it would take 50 years to retire the stock of the Insurance Corporation under this formula. But I have had some discussions of the matter with people in the Government, and, because of
the rate of growth of these institutions, and, therefore, the projected
increase in annual income of the Corporation, one estimate made to
me was that it would take only 10 years to retire the stock of the Insurance Corporation on the basis of 25 percent of net income. I would
es6mate that it would be perhaps closer to 15 years.
Mr. GAMBLE. What would be your estimate on H. R. 2799?
Mr. KREUTZ. The Corporation's assets today are $180,000,000, which
would mean that undel" that provision there would be some $30,000,000
of its stock retired immediately upon the effective date of the bill, and
assuming the growth of the insured institutions, and, therefore, an
increase in the net income of the Corporation, I should say that it
would take between 10 and 115 years to retire the stock on that basis.
But there would be an inflexibility under that provision which might
be a little risky.
Under the net-income formula, you have a flexibility which could
be adapted easily to changing conditions, and in addition, the Congress would have an annual review of the Corporation's operations
in that it has to come up and get budget approval every year, of its
income and its expenses, both of the recurring and nonrecurring type.
So there would be an opportunity for the Congress to review the
program of the Qorporation in retiring its capital stock under an
income formula. There would be provided a flexibility which would
seem to be desirable.
There is another thing in S. 1149 which we strongly urge, and that
is a provision which would authorize ·the Secretary of the Treasury
to purchase debentures of the Insurance Corporation, which we think
is an important authorization to give to the Secretary of the Treasury.
As I said, we believe that the reduction in the insurance premium
of the Corporation, from one-eighth to one-twelfth of 1 percent, is
past due. The Corporation has had no losses whatever since, I think,
October 1944; its income is increasing substantially; its rate of premium is so much higher than that paid by the banks, and yet we think
the risk, if anything, is less for the Federal Savings and Loan Insurance Corporation than for the Federal Deposit Insurance Corporation.
Mr. GAMBLE. If the banks got into some difficulties, and you were
confronted with either bill which you had to pay off, might it be embarrassing to you if it were mandatory?
Mr. KREuTz. I think it would be much less embarrassing to the Corporation, Congressman Gamble, if the income formula were used than
if the other formula were used, unless the amount of stock and reserves which would be required to be build up were substantially
greater than $150,000,000.
Mr. GAMBLE. You have no authority at the present time to buy this
stock~
Mr. KREuTz. That is, the Secretary of the Treasury, do you mean~
Mr. GAMBLE. Can you buy that back from the authority~
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Mr. KREUTZ. You mean the insured institutions?
Mr. GAMBLE. Yes.
Mr. KREUTZ. No, sir; there is no provision for the ownership of the
stock by the insured institutions at any time. But ultimately the stock
would be retired through payment to the Home Owners' Loan Corporation or its successor, and then there would be ultimately nothing
but reserves in the Corporation an\l no capital stock, as such. It would
still be controlled by the Federal Government.
Mr. KUNKEL. Is there any special reason for 25 percent, if we accepted the net income formula?
.M.r. KREUTZ. No special reason. The formula was arrived at simply by studying the experience of the Corporation and by the application of a simple rule that if only 25 percent of the net income were
required to be used to retire the stock each year, the experience of the
Corporation in sorite future year would automatically adjust the
amount which would be retired. In other words, if the Corporation
had a bad year, for some reason, it might not, in that year, be able to
retire any of the stock. Neither would it under the other bill, I should
say, if there were no increase in its assets with that change, which was
suggested this morning. That is, the insertion of the word "net." But
the net income formula seems to us to be a safer formula because of
the greater flexibility which would be provided under that formula.
Mr. KUNKEL. Do you mean you took the percentage as more or less
an arbitrary selection?
Mr. KREUTZ. Twenty-five percent is more or less an arbitrary percentage figure; yes, sir.
Mr. KuNirnL. And in determining how rapidly we might see this
retired if we wanted to change that, it could be done?
Mr. KREUTZ. Yes, sir, and I might call your attention also to the
fact that S. 1149, on page 2, has a provision, beginning with line 15,
which authorizes the Corporation to pay off and retire additional
amounts, in its discretion, and I am satisfied that that is exactly what
would happen. After the asEets of the Corporation have reached, say,
$200,000,000, I think the Board of Trustees-and we hope there will
be a Board restored, one of these days, to direct the affairs of the Insurance Corporation as there was before the war-I think the Board of
Trustees of the Corporation would, from time to time, retire additional
amounts in excess of the 25 percent of net income.
There is one other little point in the bill to which I might call your
attention, in that the adjustment in the dividends payable on the stock
of the Corporation would be made as of July 1, 1944, under this bill,
because the Corporation sold all of its capital stock bonds, 3 percent
bonds in May of that year.
Mr. GAMBLE. What is the status of these Senate bills? Have they
been reported?
Mi,-. KREUTZ. No, sir; they are still in committee. The committee
held hearings on them on May 1.
Mr. GAMBLE. That is the subcommittee held hearings and they reported the bills to the full committee?
Mr. KREUTz. No, sir; I understand they expect to act sometime soon
and to report the bills out to the full committee.
The CHAIRMAN. Hearings have been held on S. 913, but not on
S. 1149,havethey?
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Mr. KREU'l'Z. I should say that hearings were held on S. 804, Mr.
Chairman. During the hearings on the housing bill, S. 866, because
there was a similar provision in that bill, and in that bill, and in that
bill, and in the hearings on that bill, we recommended the enactment
of S. 804 with certain amendments, certain changes in it, in lieu of the
provision in the housing bill, S. 866.
The changes in S. 804, on which hearings were held, are incorporated
in S. 1149, and that change, principally-The CHAIRMAN. What is S. 886?
Mr. KREUTZ. That is the housing bill.
Mr. GAMBLE. Is that the Wagner-Ellender-Taft bill?
Mr. KREUTZ. Yes, sir. It had some such provisions in it.
Mr. RILEY. Mr. Kreutz, what do you think about the provision for
setting up of reserves by the individual associations? Do you think
that is adequate as it is, or do you think the change would be desirable
as was suggested this morning?
Mr. KREUTZ. That is a subject on which our group has not fully
studied and I think I should not express an opinion on it at this time,
.M.r. Riley.
The CHAIRMAN. Are there further questions?
Mr. SuNDSTROM. I would like to ask unanimous consent at this time
to insert in the record a memorandum by L'.1wrence B. Carey, commissioner of banking and insurance of New Jersey, in support of H. R.
2798.
The CHAIRMAN. Without objection, it is so ordered.
(The document referred to is as follows:)
STATE OF NEW JEilSEY,
DEPARTMENT OF BANKING AND INSURANCE.
Trenton, May 9, 1947.
MEMORANDUM BY LA Wlt~~NCE B. CAREY, COMMISSIONER m' BANKINl¾ AND INSURANCE
OF NEW .TERSF;Y, IN S1:PPORT OF H. R. 2798
The State of New Jersey is in favor of. and heartily endorses, the provisions
of H. R. 2798, which would permit conversion of a Federal savings and loan
association to a State-chartered savings and loan association-mutual in character-by a vote of its members and without unnecessary and unduly restrictive
veto power either by the Federal Home Loan Bank Administration or the Federal
Savings and Loan Insurance Corporation.
Attached. hereto and made a part of this memorandum is a self-explanatory
copy of a letter written at the request of the Honorable Alfred E. Driscoll,
Governor of the State of New Jer,;ey, by the ·commissioner of banking and insurance of New Jersey, Lawrence B. Carey, to the two Senators and all the Congressmen of our State, endorsing H. R. 2798, and urging its passage.
New Jersey has had a conversion statute on its books since 1934. The statute
was considered unduly restrictive by the Federal Home Loan Bank Administration, and in 1939, as the result of a request by the Faderal Home Loan Bank
Board and the Board of Trustees of the Federal Savings and Loan Insurance
Corporation, the New Jersey statute was greatly liberalized, and in its present
form sets up an easy and uncomplicated procedure for a two-way street for the conversion of (a) a State-chartered association to a Federal association, or ( b) a Federal association to a State-chartered association. Neither method requires the
consent of either the Federal or State authorities, but accomplishes the desired
conversion by the voluntary action of the members or shareholders-the owners of
the association. Fifteen conversions to Federal charte_rs have already been
accomp!ished in New Jersey under this liberal statute.
It is interesting to note that at the time the New Jersey statute was amended
in 1939, there did exist a method, of conversion from Federal to State control.
It was contained in the Rules and Regulations for the Federal Savings and Loan
Syste:rp. It read as follows :
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"Any Federal association may convert itself into a State-chartered thi·ift and
home-financing institution, upon the vote, cast at a legal meeting called to consider such action, specified by the law of the State in which the home office of
the B'ederal association is located, as required by such law for a State-chartered
institution to convert itself into a Federal association, and upon compliance with
other requirements reciprocally equivalent to the requirements of such State
law for the conversion of a State-chartered institution into a B'ederal association,
provided legal titles a.re protected by such conversion or provided proper conveyances of legal titles are made ( Sec. 5 (a), ( d), of H. 0. L. A. of 1933, 48 Stat.
132,133, 12U. S. C.1464 (a), (d))."
This regulation-truly democratic and broad in its terms, and comparable to
the liberal provisions of our .c\'ew .Jersey conversion statutes-was repealed about
a year ago by the Federal Home Loan Bank Administration without prior notice
to anyone for the later stated reason that it had no legal sanction in Federal
statutory law.
Hence, that portion of the New Jersey statute which sets up prot:edure for
the conversion of a Federal as;;ociation to a State-chartNed assoeiation is
rendered null and void by the lack of a reciprocal liberal Federal eonversion
statute. H. R. 2798 would fill that void.
There are at the pre:,;ent time 112 State-chartered savings and loan associations in the State of .New ,Jersey whose members' accounts are insured up to
$5,000 by the Federal Savings and Loan Insurance Corporation.
These associations possess 70' percent of the total ass€'ts <if our 493 State-chartered savings
and loan associations. There are also lfi federally cliartered sayings and loan
associations that have their principal offices in the State of New Jerse~. All
State-chartered insured associations are examined jointly by the department of
banking and insurance and the Federal Savings and Loan Insurance Corporation.
In the event of a conversion from Federal to State charter, the Insurance Corporation would then join with thP S~ate of NPw Jersey in thP examination of
the association because of its rNention of the insurance of accounts.
These figures and examination procedure are mentioned because of the contention of the Federal Home Loan Bank Admini;;tration and the Federal Savings
and Loan Insurance Corporation that a yeto power should be provided in the
Federal conversion statutP. In this connection, it could be forcibly argued that
if the Federal association whieh seeks to conYert had not properly operated,
remedial action would appear to lmYe been in order by the Insurance Corroration.
which presently possesses all neeessary vowers to act against a delinque:1t association. However, if the association is funetioning properly under its Federal
charter, the change wrought by a conversion nnder T. R. 2798 would simply be
the passing of control from the Federal Government to thP State government.
The Federal Savings and Loan Insurance Corporation and the Federal Home
Loan Bank Administration woul<l, as bPfore iudkated, after the conversion to
State charter, join with the State in its supervisory examination the same as
it now does in connection with our 112 State-chartered insured associations.
By rPason of the above it is respectfnlly urged that as a matter of simde justice
and in the interest of proper balance between our State and Federal systems that
II. R. 2798 be enacted into law.
Respectfully submitted.
LAWRENCE B. CAREY,
Gonuni-~sio11cr of Bankinr7 rrnd Insurance of Neu, Jersey.
APRIL
28, 1947.
DEAR SEN ATOR.
DEAR CONGRESSMAN.
This letter is written at the request of Gov. Alfred E. Driscoll in reference to
H. R. 2798, introduced by Congressman Jesse P. Wolcott, chairman of the House
Banking and Currency Committee.
H. R. 27!18 provides a procedure whereby a Federal savings and loan association could convert to a State-chartered association on a voluntary basis by a vote
of its members.
New .JersPy has a libPral la\\· on this subjPrt-;.;pctiom: 115, to 118 of arti~le
XVI of ehapter 5G, laws of 1946, providin,g a two-way street for conversion
(a) from State to Federal charter, and (b) from Federal to State charter. The
nrovisions of ( b) are rendered ineffective -by the lack of reciprocal Federal
legislation on the subject.
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The New Jersey statute and its amendments were requested by the Federal
Home Loan Bank Administration and its agents participated in drafting; its
liberal provisions as to voting by shareholders. It does not require State approval
for the conversion ; nor does H. R. 2798 require such approval by the Federal Home
Loan .Bank Administration or by the Federal Savings and Loan Insurance Corporation. Other bills, presently before the House and Senate on this subject do provide for a veto power by the Federal authorities and it is our understanding that
notwithstanding the desire on the part of the Federal Home Loan Bank Administration to secure the liberal provisions of State statutes, as it did in New Jersey,
permitting conversion to Federal charters, it now advocates more restrictive provisions in a Federal statute permitting conversion from Federal to State charter.
This attitude, in our opinion, is inconsistent and unfair.
May we therefore respectfully urge your active support of H. R. 2798 to the
end that it may be translated into law?
If you wish any further information on the subject we will be pleased to
endeavor to supply it to you.
A letter similar to this is being sent to the other Congressmen and Senators from
New Jersey.
Respectfully yours,
LAWRENCE B. CABEY, Commissioner.
The CHAIRMAN. Are there further questions?
Mr. Kreutz, do you have any other witnesses you wish to have
heard?
Mr. KREUTZ. No, I have not, sir, thank you. I assume there would
be an opportunity later, if there is some additional information that
we would like to file, that we might be able to file it.
The CHAIRMAN. We will be glad to have you supplement your statement by filing of additional information.
Mr. FLETCHER. Mr. Chairman, I would like to have the same privilege, of inserting a wire by Neill Davis, executive vice president, California Savings and Loan League, in support of these three bills.
The CHAIRMAN. Without objection, it is so ordered.
(The telegram above referred to is as follows:)
SACRAMENTO, CALIF., May 12, 1947.
Hon. CHARLES K. FLETCHER,
Member House Banking and Currency Committee,
House Building, Washington, D. C.:
Anything you can do to hasten early consideration and favorable action by the
Banking and Currency Committee and the House on the four Wolcott bills, H. R.
2797, 2798, 2799, 2800, will be greatly appreciated by the savings and loan associations of California. Adoption of the features of these measures is highly important to the future sound and successful growth of these savings institutions. The
fact that these proposals embody results of long study and have the unified
endorsement of the industry is significant. A forthright reconversion provision
and the reestablishment of the Federal Home Loan Bank Board are top legislative requirements, and other features of these measures are equally worthy.
We urge your active support.
Best personal regards,
NEILL DAVIS,
Executive Vice President, California Sa-vings and Loan League.
The CHAIRMAN. Thank you, Mr. Kreutz.
The committee will now adjourn to go immediately into executive
session on the Lanham permanents.
(Thereupon, at 3: 45 p. m., the committee adjourned to go into
executive session.)
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AMENDMENTS TO FEDERAL HOME LOAN RANK ACT,
HOME OWNERS' LOAN ACT OF 1933, AND NATIONAL
HOUSING ACT
FRIDAY, MAY 16, 1947
HousE OJ<' REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY'
Washington, D. 0.
The committee convened at 10 a. m., pursuant to call, the Honorable
Jesse Wolcott (,chairman) presiding.
Also present: Mr. Gamble, Mr. Kunkel, Mr. Talle, Mr. McMillen,
Mr. Cole, Mr. Hull, Mr. Stratton, Mr. Banta, Mr. Fletoher, Mr. Foote,
Mr. Spence, Mr. Brown, Mr. Folger, Mr. Riley, Mr. Buchanan, Mr.
Boggs.
The C:n.Anoi:AN. The-committee will come to order.
We have with us, this morning, Mr. Fahey.
Mr. Fahey, we will be glad to hear you on these three bills. You
may take them up in whatever order you wish.
STATEMENT OF JOHN H. FAHEY, COMMISSIONER, FEDERAL HOME
LOAN BANK ADMINISTRATION
Mr. FAHEY. Mr. Chairman and gentlemen of the committee, late
Monday afternoon when I received your invitation to appear before
this committee in connection with the hearing you were to hold on
H. R. 2798, 2799, and 2800 on the following day, I was in New York
:,,t a meeting with the presidents of the Federal home-loan banks.
These periodical meetings are usually held in Washington. Because
hotel accommodations could not be secured here, however, it became
necessary to hold this conference in New York. The most important
matter we had under discussion was the question of possible readjustment of the capital of the Federal Home Loan Bank System. This
problem is also dealt with in part in H. R. 2799.
I regret very much that this meeting with the bank presidents
prevented me from being here on Tuesday, and I appreciate the courtesy of this. committee at a time when I know so well the demands
1,,1pon your time and the J?ressure under which you are working, in
affording me the opportumty to appear today.
Questions relative to possible reduction in the capital of some or
all of the banks in the syf:ltem have been under consideration for some
time, as well as the possibilities of retiring the Government's investment in the stock of the system. Because of the varying conditions
in the several bank districts and the problems with which we are
confronted in the mortgage-lending field at present, it was of great
importance to have a free exchange of views with the presidents con-
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cerning the capital problem. It has a very vital relation, which cannot be ignored, to the successful distribution 0£ the bonds 0£ the
bunk system which must be issued £rom time to time and for which
we have always had a broad market.
The bills before your committee include some legislation which
we have repeatedly supported and advocated before this an:d other
committees 0£ Congress. Some 0£ the provisions in the present
dra£ts, however, we £eel should be reexamined and modified in some
respects. May I discuss these bills separately?
The first bill under consideration, H. R. 2798, would provide authority by which a Federal savings and loan association may convert into a savings and loan association, building and loan association, homestead association, or cooperative bank incorporated under
the laws of the State, district, or territory in which the association's
principal office is located.
·
At the very outset, in order that there may be no mistake as to
my position, I should like to make it as definite as I can that I am
unequivocally in favor of the enactment 0£_ legislation to authorize
such conversions.
In my judgment it is clear that there should be a "two-way street"
by which State associations may convert into Federal associations
and Federal associations may convert into State associations. It is
my firm belie£ that i£ a majority 0£ the shareholders 0£ a Federal
association, reasonably well informed as to the effect 0£ the step
which they are about to take, vote to exchange their Federal charter
for a State charter, they should have the right to do so, provided
adequate protection is afforded to the interests 0£ the other shareholders and to the Government, which insures savings investments
in these mutual institutions through the Federal Savings and Loan
Insurance Corporation.
I think we should not overlook the £act that the Federal Government has assumed a very great responsibility to the public and to
the savers, who own these institutions, when it provided for the
insurance 0£ these savings accounts. There are now 1,472 associations under Federal charter. Nearly 3,000,000 people, whose incomes are comparatively small, have placed $4,000,000,000 0£ their
savings in the custody 0£ these institutions on the pleclge 0£ the
National Government that their interests would be protected and
that their savings would be returned to them, in the event 0£ loss,
up to $5,000 for each insured investor in each association. Additional savings in State-chartered institutions amounting to more
than $2,000,000,000 have the same insurance protection.
The total insurance risk on these savings accounts is three times
what it was in 1940. Aside £rom the shareholders' savings, however, the Federal Savings and Loan Insurance Corporation has a
further risk. Borrowing by these associations are a first claim ahearl
of the share accounts and the Insurance Corporation, therefore, in
effect virtually insures these advances as well as the savings accounts.
With these facts clearly in mind, I feel that we should examine
H. R. 2798 to determine whether it meets fully the tests 0£ adequate
protection to share110lders and to the Government. I£, in some details, we find it does not, I assume that the committee expects us
to present suggestions for amendment so that the bill shall provide
adequate prote9tion.
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As to the main objectives of H. R. 2798, I am completely in agreement. Such suggestions as we feel should be brought to your attention are directed toward consideration of such deficiencies as we think
are present in the bill as it now stands.
First: While the bill appears to contemplate conditions under
which there could be conversion both from State charter to Federal
charter and from Federal charter to State charter, it would permit
Federal-to-State conversion even where the law of the particular jurisdiction did not permit State-to-Federal conversion. In order to provide assurance of a true "two-way street" plainly the bill should be
amended to authorize Federal-to-State conversion only .where the law
of the jurisdiction authorizes its savings and loan associations or
similar institutions to convert to Federal charter.
Second: The bill would permit conversion to be voted upon at any
"legal meeting" recognized by the law of the State, district, or Territory for this purpose. Apparently this would permit the _proposal
to convert to State charter to be brought up for the first time, and
voted upon immediately, at a regular annual meeting of which no
other notice had been given than the usual statement of the name of
the association and the place and time of the meeting. With only such
a routine notice the members in general would assume that only the
ordinary type of business usually arising at annual meetings would
be taken up and would not attend. I would suggest, therefore, that
the bill be amended so as to provide that conversion shall be voted
upon at a special meeting called to consider such action at a time
reasonably convenient for most of the shareholders.
Let us remember that most of these shareholders are workers and
a large proportion of them are women. A time could be fi;;:ed for holding this meeting that would be just out of the question, so far as
general convenience of the shareholders is concerned, and still comply
with the law and regulations. Reasonable provision should be made
for holding such meetings at a time convenient to most of the shareholders.
Third: On a matter of such importance to their interests I believe
you will agree that the members should have every reasonable opportunity to be informed as to the facts. I would suggest that a full and
adequate notice of the time, place, and purpose of the meeting, and
the effect of such conversion on the association and its members, be
posted in the association's offices for 14 days before the meeting and
be mailed, not less than 15 nor more than 30 days before the meeting,
to each of the association's members of record and to the Federal Home
Loan Bank Administration.
Fourth: As the bill now stands, conversion to State charter could
be accomplished upon a vote of 51 percent' of the votes cast at the
meeting in person or by proxy. Ho.wever, 51 percent of the votes
cast at the meeting might act1;1-al~y represent only a ~mall minority of
the total members of the association. We have associations with thousands of members. Their status and rights should not be changed
by a few hundred votes. I would urge that the bill be amended so as
to provide that conversion may be approved by a vote of not less
than 51 percent of the members entitled to vote. This would assure
that the vote upon conversion would be truly representative of the
wishes of the association's members.
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Surely the majority rule should prevail in a mutual savings
institution.
Fifth. In my judgment the bill does not include necessary protection
for the interests of the Federal Savings and Loan Insurance Corporation. Under the bill, it would be possible in a jurisdiction which had
no State supervisory law, or a weak supervisory law, for a Federal
association which had gotten into a shaky financial condition through
excessive lending or other unsound practices, and which had been
requested by the Federal Home Loan Bank Administration to correct
these practices, to convert to a State charter. It would thus :free itself
:from the necessity of complying with any supervisory recommendations designed to remedy the situation and maintain the association's
soundness. At the same time the Federal Savings and Loan Insurance Corporation would have no option but to continue the insurance
under these radically different conditions. I would strongly recommend, therefore, that the bill be amended so as to remove the possibility of developments of this character.
May I point out that conditions in mortgage-lending institutions
may change radically between examinations; that the Federal Savings
and Loan Insurance Corporation should not be required automatically
to continue the risk of insurance in the event of conversion. Managements of these institutions change from time to time. One entirely
responsible and capable may be replaced the next month by another
which the Insurance Corporation should not be obliged to take any
chances on. We have haJ experiences of this sort. "\Ve also have
some insured institutions that would never have been approved if we
had been informed fully when the applicaiton was presented.
For these reasons the Federal Savings and Loan Insurance Corporation should have imposed upon it the responsibility of approval
or disapproval when a change of jurisdiction is proposed. If it withholds approval unfairly, it should be called to account.
"\Ve would like to submit to vou amendments which we believe would
strengthen provisions of the ·bill to which I have referred. We are
drafting these proposals which we can deliver to yon tomorrow and we
trust that they may have your consideration.
The CHAIHMAN. Mr. Fahey, why could we not have these before us
today? These three bills have been left laying over for three days
now awaiting your testimony, and we were hoping to report them out
this morning. ,vhy can we not have your amendments today?
Mr. FAHEY. We may be able to get them up here by noon.
The CHAIRMAN. ,ve assumed that you were in New York and could
not get to this committee until today.
,
Mr. FAHEY. Yes.
The CHAIRMAN. Bnt we found that you were before the Appropriations Committee yesterday.
Mr. FAHEY. Mr. Chairman, the time for meeting with the Government Corporation Control Subcommittee of the House Appropriations
Committee ·was fixed before I ,vent to New York or heard anything
about the hearing which was to take place before yonr committee.
This meeting was to have taken place 2 weeks ago but the chairman was
unable to be present and it was postponed until "\Vednesday morning,
May 14, at 10 o'clock, and I arranged my plans so as to be back for it
on vVednesdaY: This meeting was not held yesterday as von apparently
understood. ,ve will see if we can get those amendm.ents np to you
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by noon today, if that would be satisfactory. I mean at the conclusion
of this hearing.
The CHAIRMAN. I hope we won't have to hold up consideration of
the bills any longer than today because we have already held the bills
in .abeyance for 3 days awaiting your testimony.
Mr. FAHEY. Our general counsel will telephone and see if the typing
is completed. In that case, our suggestions can be sent up right
away.
H. R. 2799 embodies provisions affecting the capital structure of the
Federal home loan banks and the Federal Savings and Loan Insurance Corporation. I think it would save your time if I discussed
each section of this bill separately.
The first provides for the retirement of the stock held by the Government in the Federal home loan banks, which, as you know, constitute
a reserve credit system for thrift and home-financing institutions.
There is no objection to the reduction of Government capitalindeed it is desirable if it can be worked out without disadvantage.
There, are, however, certain provisions of this section which should
receive further attention. The Federal home loan banks, as you gentleman appreciate, cannot satisfactorily dischaq~e their responsibilities unless they have adequate funds available m times of stress to
meet the needs of their member institutions. In its existing form
the act permits us to reduce the Government stock in these banks, but
it makes no provision for the return of such capital in time of need.
• Il R. 2799 provides that funds arising from the retirement of the
stock held by or for the Governmentshall remain in the 'l'nmsur;v of the United States and he available for :mbscription to stock in the Federal home loan banks in the future.
However, the Government stock in the Federal home loan banks
is now held by the Reconstruction Finance Corporation, and there is
no provision in the bill as to how the proceeds of such retirement
are to reach the Treasury. I would suggest that section 1 of H. R.
2799 be amended by striking out that part of said section following
the period at page 2, line 16, and substituting therefor the following:
Upon a determination at any time by the Federal Home Loan Bank Administration that the proper functioning of any Federal home loan bank requires
11.dditional capital, said Administration may request the Secretary of the Treasury
to subscribe at par on behalf of the United States to stock of sueh bank, and the
Secretary of the 'J'reasury shall so subscribe such amounts as may be so requested,
and shall make payment therefor at sueh times as may be requested by said
Administration: Provided, That the Secretary of the Treasury shall not at any
time subscribe for any such stock if the effect of sueh subscription would be to
increase the aggregat.e amount of the then outstanding holdings of Federal home
loan bank stock by the United States arnl by the Reconstruction Finance Corporation to an amount greater than the amount subscribed for by the Secretary of
the Treasury 011 behalf of the United States under subsection (f) of this section.
l<'or the purpose of making such payments the Secretary of the Treasury is hereby
authorized to use as a public-debt transaction the proceeds of the sale of any
SFcnrities hereafter issued under the Second Liberty Bond Act, as now or hereafter
in foree, and the purposes for which securities may be issued under the Second
Liberty Bond Act, as now or hereafter in force, are hereby extended to include
such payments. Suell stock shall be evidenced in such manner as· may be determined by said Arlministration, shall share in dividend distributions without preferenee, and shall not be deemed to be Government capital within the meaning of
the Government Corporation Control Act. .Any such stock may be retired at par
at any time with the approval of said Administration, and shall be.retired at par
at any time upon direction of said Administration if said Administration shall
be of the opinion that such retirement is advisable and that the bank has resources
available therefor.
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H proper provision is made for resubscription by the Treasury to
the Government capital which is retired, I see no compelling necessity
for mandatorily increasing the required holdings of Federal home
loan bank stock by member institutions from 1 percent of the member's home-mortgage loans (but not less than $500) to 2 percent of the
member's mortgage loans, home-purchase contracts, and similar obligations (but not less than $500), as would be done by the present bill.
It seems to me that this increase in stock could be eliminated entirely
or made subject to the discretion of the Federal Home Loan Bimk
Administration. Some member institutions, particularly the smaller
ones, may find this increased requirement a real burden, and we should
be glad to submit suggestions for amendment to modify it or to eliminate it, as the committee may desire.
As I have explained, our general counsel is trying to get these suggestions up here right away.
Section 2 of this bill would amend subsection (g) of ~ection 11 of
the Federal Home Loan Bank Act as amended. This subsection now
requires that each Federal home loan bank at all times havean amount equal to the sums paid in on outstanding capital subHcriptions of its
members, plus an amount equal to the current deposits received from its members-
invested in obligations of the United States, deposits in banks and
trust companies, and certain types of advances with maturities of
1 year or less. The change which would be made by the bill consists
of the addition of the word "one-half" before the words "the sums'
paid in on outstanding capital." This change does not appear to me
to be objectionable.
Section 3 of the bill would require the Federal Savings and Loan
Insurance-Corporation to retire from time to time its stock held by
the Home Owners' Loan Corporation in blocks of $1,000 at any time
from its assets in excess of $150,000,000. The stock would be paid for
at its par value, less any amounts paid in dividends thereon. Apparently this would permit the Corporation, whenever its assets approached $150,000,000, or at any time, to pay dividends to the Home
Owners' Loan Corporation on its stock which in effect would be a
credit against the Insurance Corporation's liability on the par value
thereof. The result would be an indirect eventual cancellation of all
liabilities :for dividends on the stock held by the Home Owners' Loan
Corporation.
When the. capital of the Federal Savings and Loan Insurance Corporation was provided by the Home Owners' Loan Corporation, it
was regarded as a temporary expedient. The intention was that under
more normal conditions than those which prevailed at that timethat was in the midst of the mortgage panic excitement-a plan would
be evolved by which the investment of Home Owners' Loan Corporation would be repaid and the insured associations, which are the beneficiaries of the insured plan, would make the repayments.
The act provided that the Insurance Corporation should pay dividends equal to the interest rate on the Home Owners' Loan Corporation bonds which were used in payment for the capital stock of the
Insurance Corporation.
I should explain, in that connection, that at that particular time
the Home Owners' Loan Corporation was regarded as a general relief
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organization to combat the mortgage panic conditions of the early
1930's, and this was a temporary expedient. My impression is that
it was approved by Congress without a dissenting vote in either House.
The Federal Deposit Insurance Corporation expects that the Government's present investment in that Corporation can be retired presently and it would appear that some reasonable scheme should be
developed by which the money which has been invested in the capital
stock of the Insurance Corporation should be returned to the Home
Owners' Loan Corporation so that it may be paid over to the Treasury
.
and applied to the reduction of the public debt.
The dividends payable to Home Owners' Loan Corp?rat10n sh~uld,
it seems to me, be paid to Home Owners' Loan Corpo_rab<~m as provided
by law originally and as contemplated by the leg,1slat10n passed _by
both the House and the Senate last year. Otherwise the amount mvolved must come out of the Treasury when the liquidation of Home
Owners' Loan Corporation is completed and the capital stock of that
Corporation can be paid back. As is now apparent, it can be. It cannot be repaid fully if the diivdends which should be paid to it by the
Insurance Corporation are to be canceled, and it is, of course, clear
that a plan to dispose of the $100,000,000 of capital Home Owners'
Loan Corporation advanced must finally be developed.
It seems to me that this problem calls for further careful study and
that it is unnecessary and unwise to pass legislation such as that proposed in section 3 of H. R. 2799 at the present time. I do not think this
is a good time to monkey with this problem of insurance of savings
and deposits.
Section 4 of H. R. 2799 would reduce the premium rate of the Insurance Corporation from one-eighth of 1 percent to one-twelfth of 1
percent of the accounts of insured members plus creditor obligations
of insured institutions. It would retain the existing power of the
Insurance Corporation to assess additional premiums, but would similarly reduce the maximum rate thereof. We are sympathetic with the
idea of reducing the rate from one-eighth of 1 percent to one-twelfth
of 1 percent. I expressed myself on this point a year ago. We do not
believe that the insurance of savings should cost more on a premium
basis than the insurance of deposits in commercial banks, under anything like normal conditions.
Because of the significant inflationary developments in the real-estate
market in the past year or so, I cannot conscientiously endorse the
proposal to reduce the insurance premium at present. I think consideration of such a reduction should go over for another year.
The question may also be raised as to whether it is consistent to
provide for the retirement of the Government subscription of the capital stock of the Corporation and at the same time reduce the premium
rate. The premium income of the Insurance Corporation amounts to
approximately $7,000,000 a year. The proposed amendment would
result in a reduction of more than $2,300,000 a year. I do not think any
such reduction should be made now.
Another reason for present objections to the reduction of the
premium rate is the fact that as ~f June 30, 1945, the ratio of the
reserves of the Insurance Corporation to mortgage loans held by insured member savings and loan associations was 1.67 percent, but as of
December 31, 1946, this was reduced to 1.39 percent. During the same
61862-47--5
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period the reserves of the associations themselves also diminished in
l'elation to mortgage-loan holdings.
It is our firm conviction that section 4 of H. R. 2799 should be
elimin.ated and any action providing £or a reduction of the premium
rate deferred for the present.
H. R. 2800 would liberalize the provisions of subsection ( c) of section
5 of the Home Owners' Loan Act of 1933, as amended, with respect to
loans by Federal savings and loan associations. It would provide
that notwithstanding any other provision of that subsection "except
the area restriction" such association may invest their funds in title I
Federal Housing Administration loans, loans guaranteed or insured as
provided in the Servicemen's Readjustment Act of 1944, as amended,
or other loans for property alteration, repair, or improvement. It
would further provide, however, that no such loan shall be made in
excess of $1,500 except in conformity to the other provisions of said
subsection, and that the total amount of loans so made without regard
to the other provisions of said subsection shall not at any time exceed
15 percent of the association's assets.
With respect to Federal Housing Administration loans and loans
under the Servicemen's Readjustment Act of 1944 (the GI bill of
rights), it is believed that Federal savings and loan associations should
have authority to make any home loans of this nature under regulations issued by the Federal Home Loan Bank Administration. We
feel that the bill should be amended so as to provide therefor. If such
an amendment were adopted, the making of such loans by these associations would be amply safeguarded by the insurance or guaranty
and by the fact that proper regulations by the Federal Home Loan
Bank Administration would be required.
As to the making of loans for property alteration, repair, or improvement which do not have such insurance or guaranty, we believe
that Federal associations should be authorized to make such loans
under reasonable safeguards. One of the most promising sources of
additional housing accommodations is the modernization and repair
of existing structures and the alteration of properties to provide
needed additional space for ·growing families or for a greater number
of families. Federal savings and loan associations are ready to assist
in the financing of these operations, but the existing requirement as to
their taking first liens is often a serious impediment to the making
of loans of this type. Where a lien is already held by someone else, or
where the amount needed is so small that the expense of taking a lien,
including any necessary title examination, is not just justified, this
first-lien requirement effectually prevents Federal associations from
making such loans, and the delay involved in making a title search is
itself a deterring factor. However, it is felt that provisions of H. R.
2800 as to the making of such loans, and the $1,500 limitation in particular, are too restrictive.
It is suggested, therefore, that the bill be amended so as to authorize Federal savings and loan associations, upon the approval of the
Federal Home Loan Bank Administration, to invest in loans for property alteration, repair, improvement, or equipment, with a proviso
that no such loans shall be made under this provisio:q. in excess
of $2,500 except in conformity to the other provisions of. subsection
( c) of section 5 of the Home Owners' Loan Act of 1933, as amended.
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The $2,500 limitation and the requirement of approval by the Federal Home Loan Bank Administration would, it is believed, adequately
safeguard the making of such loans by these associations.
There is given below a suggested amendment to the bill which, would
accomplish these purposes. This suggested amendment to the bill
would also authorize Federal associations to participate in future
Federal programs of loan guaranty or insurance. The amendment
proposed is as follows:
Strike out all after line 5, and in lieu of the matter so stricken, insert the
following:
Without regard to any other provisions of this subsection, any· such asssociation, upon the approval of the Board or the Federal Home Loan Ba-nk Administration by regulations or otherwise, may lend or invest its funds in or upon" Cl) Any loan or investment upon or with respect to home or combination
home and business property which is insured or guaranteed or as to which
any commitment for insurance or guaranty thereof has been made, or as
to which the association has any insurance of guaranty, under title_ I or
any other title or provision of the National Housing Act as heretofore, now,
or hereafter in force, or under the Servicemen's Readjustment Act of 1944
as heretofore, now, or hereafter in force, or otherwise by the United States
or any agency or instrumentality thereof;
"(2) Any.loan for property alteration, repair, improvement, or equipment:
Provided, That no such loan shall be made hereunder in excess of $2,500
except in conformity to the other provisions of this subsection."
I should like to add that in view of the shortness of time I have not
been able to obtain the usual clearances on this testimony.
In concluding this statement, gentlemen of the committee-The CHAIRMAN. What is the usual clearance?
Mr. FAHEY. I mean discussing it with the Budget· Bureau, which
is usually done because it involves financial matters.
In concluding this statement, I am sure it is unnecessary for me to
point out to you that the inflation of the home real-estate market in
our country has never been greater than at presl'nt.
The type of institutions we are dealing with invest their funds in
home mortgages. In the last few years the percentage of sound value
of underlying security that has been loaned by all mortgage lending
institutions has risen steadily, and loans have been made on higher
and higher appraisals.
May I add that the appraisal system in this country still has many
weaknesses, despite its improvement in the last decade.
One of the most serious blows that could be struck at the national
economy and democratic institutions woilld be for the millions of
small savers, who have placed their funds in savings and loan associations, and other types of savings institutions, to suffer another
calamity like that which afflicted our people in the early 1930's. Their
confidence was restored at a critical time by insurance provided by
the Federal Government. We must be certain that the safety of
insured deposits and savings are not threatened, now or at any time.
Unfortunately, we are' not imbued with the ability to foretell the
future, but we are familiar with our experiences in the 1930's and we
·
should not forget them.
Our business in this country, in my opinion, is to prevent depressions, not to p~scribe new medicines for curing them.
For one, I am not in the least alarmed or pessimistic over the discomforts which come in the readjustment of prices .under present conditions. So far as the future is concerned, I am certain we will advance
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to new heights in the standard o:f living in this country, and sustain
it, i:f we exercise judgment and common sense.
The maintenance o:f a stable and safe banking and credit system in
this country is absolutely necessary to a sound economy. The breakdown o:f that system as a result o:f the excesses o:f the 1920's was largely
responsible :for the worst depression any country ever suffered. It
was largely due to the ne~lect o:f both Federal and State authorities to
exercise considerate but nrm supervision over the operation o:f financial institutions.
In view o:f resent conditions and past experiences I :feel that the
supervision o savings institutions, o:f all classes, should be handled
with extreme care. It is a difficult and uncomfortable job to point out
the weaknesses o:f managements and attempt to take remedial steps in
a boom period, when so many are convinced that they are operating
on a basis o:f absolute safety. However, i:f the present tendencies all
along the· line among lending institutions are not held in check we
may have plenty o:f headaches, and some o:f them sooner than we think.
I would welcome the opportunity to present to you, at some convenient time, some o:f the supervisory questions which confront us and
other authorities, and some o:f the problems we :face. Such a presentation, I think, would be o:f real interest to this committee and would
lead to a better understanding all along the line as to the kind o:f supervision which should be exercised.
I:f we could have a :full, mutual understanding o:f the problems confronting us I am sure that none o:f us would believe it is a good time to
relax or impair the careful supervision which Congress and the public assume is being conducted in connection with the operations o:f all
types o:f financial institutions.
The. CHAIRMAN. Does that complete your statement, Mr. Fahey1
Mr. FAHEY. It does, Mr. Chairman.
The CHAIRMAN. I assume the members would. like to ask you some
questions.
Mr. BROWN. Mr. Chairman.
The CHAIRMAN. Mr. Brown.
Mr. BROWN. You stated that you thought these notices should be
given to stockholders at a time which is convenient :for the majority.
Now, we cannot write details about a stockholders' meeting in any bill.
Mr. FAHEY. That is right.
The CHAIRMAN. We say that it must be a controlling number in
order to revert :from a Federal association to a State charter. That
it must be done by 51 percent o:f the stockholders. That means they
have got to be there. O:f course, in all special meetings they always
give notice of the purpose. Now, when you give notice o:f the purpose
and then legislate that it should be regulated by the majority, that is
as :far as you can go in a bill. We just cannot write that kind o:f a
thing in a bill.
Mr. FAHEY. I understand that the shareholders do not have to be
present at the meeting. They can vote by proxy i:f they have a :fair
and proper explanation o:f the question to be voted on. My only point
is that it is possible to give a reasonable notice and permit the people
who own these institutions to have some understanding, of the change
proposed. That should be true whether the change is made to State
or Federal charter. It can be done readily enough. After all, our
great business corporations in this country, with hundreds of thou-
f
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sands of stockholders, go to great lengths in sending out full explanations of any proposed changes in bylaws or of the adoption of retirement plans, or of any changes of major importance which affect the
jnterests of stockholders. We should deal with these shareholders in
mutual-cooperative institutions holding billions of the people's savings
in such a way that they understand what is being contemplated.
Mr. SPENCE. Mr. Fahey, you say that you think there is no reason
why there should be any disparity between the premiums paid by
banks to the Federal Deposit Insurance Corporation and those paid by
Federal savings and loan corporations to the Federal Savings and
Loan Insurance Corporation. I heartily agree with you on that.
You were for this principle the last time we discussed it, were you not 1
Mr. FAHEY. That is right.
Mr. SPENCE. Now-you say that because of economic conditions you
think no action should be taken. Do you think it would be desirable
now, in order to equalize these premiums, to increase the premium
paid by Federal savings and loan banks?
Mr. FAHEY. No; I would leave the premium where it is. I would
let this problem ride for another year. We have a year ahead of us
so far as mortgage lending is concerned, where, with a readjustment
of prices on home developing, we ought to be a little cautious about
what we do now.
.
The Federal Deposit Insurance Corporation has a very great fund
accumulated. Ours is much smaller and it is on a somewhat different basis.
Mr. SPENCE. The Federal Savings and Loan Corporation has increased its savings every year, has it not? It is in a stronger financial
position than it was last yead
Mr. FAHEY. Oh, yes; that is true of the Federal Savings and Loan
Insurance Corporation. The same thing can be said of FDIC. Both
have been going through a pretty comfortable period.
These insurance funds, after all, have not been seriously tested yet.
The legislation wa,s very sound and wise, in my judgment. It had a
great constructive effect during the war. It influenced great numbers
of people, enjoying higher wages and fuller employment, to put
money into savings institutions of all kinds-I mean savings and loan
associations, the savings departments of the commercial banks and
mutual savings banks. They also put great sums into life insurance.
Mr. SPENCE. Do you not think that the confidence you express in
the economic future weakens· the effect of your argument that we
should not reduce this premium at this time? The building associations have long thought that they were the victims of an injustice
because of the disparity of premiums paid by the banks and those paid
by them, and I think that is true.
Mr. FAHEY. I am fully aware of that. Of course, they would like
to have the advantage of a reduction, and should have it at an appropriate time. I think, however, too many managers do not appreciate
fully that the most important thing is that this fund should be sound
beyond any question, and it should be able to meet immediately any
emergency that may arise. I do not believe we should have another
HOLC in this country. I do not think we should permit a situation
to develop where the Congress is meeting nights and days-I almost
said Sundays-attempting to repair this, that, or the other break in
the econoiny. That is the kind of thing we ought to prevent.
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May I say this also: I think that this problem 0£ protecting the
people's savings is one 0£ the most important and one 0£ the most
sensitive in our whole economy. The :folks who put money into institutions 0£ all kinds in small amounts-and please do not misunderstand me; I am not talking about savings and loan associations alone,
but all types o:f savings institutions-do not know too much about
financial matters, and when rumors are passed around to them they
are easily disturbed. I have seen runs on banks and savings institutions :for which there was not the slightest justification, but they caused
great damage and heavy losses.
In this period o:f readjustment I think we should be ready to sacrifice
a little something in order to be a little more sure o:f foll protection.
It _is_ constructive planning to avoid difficulties which counts, in my
opm10n.
Mr. SPENCE. After the passing 0£ the Federal Savings and Loan
Insurance Act there was a general reorganization o:f the building associations, wasn't there? A general reexamination o:f the building associations? Are they not in a much sounder economic position now
than they have been in heretofore?
·
Mr. FAHEY. Certainly they are. All classes o:f savings institution:,;
are, in my judgment. It is true 0£ institutions 0£ this kind, however,
as it is o:f others that you cannot depend upon the management o:f all
0£ them to exercise proper judgment and care. Too many 0£ them
suddenly develop into economists, or they think they have, and believe
they can prophesy the future. Some are lacking in financial understanding and experience. It is very easy for :folks to get into an
optimistic :frame o:f mind as to where real-estate values are going.
During the war period and since there has been better control over
speculation in the stock market than heretofore, but there has been
no corresponding control over another great speculative field-and
that is real estate.
·
Mr. SPENCE. Well, the personal equation enters into all other
financial institutions, does it not?
.
Mr. FAHEY. It does. However, some institutions are much better
able to take care o:f themselves than others and have better managements.
Mr. KuNKEL. Will you yield £or a question, Mr. Spence?
Mr. SPENCE. I yield.
Mr. KuNKEL. I do not suppose that ever enters into the Federal
bureaucracy, does it? They are always sound and have good judgment and never make these errors?
Mr. FAHEY. ""\Vell, 0£ course, I think that :from the standpoint o:f the
critics there is never anything right about any so-called bureaucrat,
either now or at any time in the past.
Mr. BROWN. Will you yield, Mr. Spence?
Mr. SPENCE. I yield.
Mr. BROWN. _Do you not think that the market values 0£ real estate
and homes will decre.ase in the next year or two?
Mr. FAHEY. I certainly do.
Mr. BROWN. I agree with you.
Mr. FAHEY. 1£ they do not, you are not going to have the market
for homes and mortgages that people talk about.
Mr. BROWN. That is right.
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Mr. FAHEY. The trouble about the present situation is that people
are being asked to pay prices £or homes that are out of all reason in
relation to any common-sense values.
Mr. BROWN. That is right.
Mr. FAHEY. I am very anxious not to say things here that may be
misconstrued or that may be regarded as alarming. Most everybody
knows, and surely every member of this committee knows, what has
happened to home prices. They are more out of line than anything
else in the entire price structure, in my opinion.
Mr. SPENCE. Well, the Federal Savings and Loan Insurance Corporation has supervisory control over all these institutions. It has
a right of examination and it can revoke the insurance, can it not?
· Mr. FAHEY. Yes. But in that respect we have had our troubles
:for the Jast year in our effort to operate on a reduced appropriation.
We have not had enough examiners. We are required to examine all
insured institutions at least once every year. We are nearly 500 examinations behind at this moment. This is not a comfortable situation. All kinds of things occur in these institutions in the course
of a year.
Mr. BANTA. How many examiners do you have?
Mr. FAHEY. I think about 150, or something like that. We ought
to have over 190. The problem is not just in the examination alone.
Our examiners and expert supervisors, including those in the States
and in the Treasury, in my judgment, are underpaid-at least a large
proportion of them are. It is difficult to keep them in the service
after they have been trained. Too many examiners return merely
bookkeepmg information. Examinations have to be carefully reviewed by men who have a real understanding o:f financial problems
and who catch the significance of things reported which are overlooked
by people 0£ less experience.
All this is a long story, and I should not take up the time of the
members of the committee with it today. However, as I venture to
suggest here, it is my hope that some time before you adjourn, despite
the demands on you, we can somehow plan to discuss more fully this
matter of better machinery for safeguarding the savings o:f the peoplt
of this country, which is so important.
The CHAIRMAN. How would you protect them an}:' further than
they are protected under FDIC and the Federal Savmgs and Loan
Insurance Corporation ?
Mr. FAHEY. How can they be further protected?
The CHAIRMAN. How would you suggest they be further protected?
Mr. FAHEY. 0£ course, I am not so :familiar with the FDIC set-up,
Mr. Chairman. FDIC does not have any responsibility £or supervision. Supervision is taken care of by the Comptroller of the Currency. The Federal Reserve System also has some authority as to
examination and supervision. Its methods and organization, Mr.
Chairman, have been greatly improved since 1930. That is also true
of many o:f the State set-ups.
Ours, in turn, has improved, but it is far short of what it s~ould
be. I mean we need more careful examination, more prompt examination than we have today-The CHAIRMAN. Do you think depositors in banks and shareholders
in building and loan associations should be insured against any
possible loss?
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Mr. FAHEY. As a matter of fact they are today, up to $5,000. Deposits in excess of the $5,000 in insured banks are generally the accounts of corporations and businessmen of large resources.
The CHAIRMAN. What I am getting at, Mr. Fahey, is this: Do you
think the reserve in the Insurance Corporation should be high enough
to cover any possible loss; let us put it that way?
Mr. FAHEY. Yes, Mr. Chairman, I do. I think that the capital and
the reserves of these insurance corporations should be such that they
are able to ake care of any emergency experienced people can reasonably be expected to anticipate. When anything disturbing starts they
should be prepared to act promptly and without any doubt on the
part of anyone.
The CHAIRMAN. You put the word "reasonable" in there now.
•
Mr. FAHEY. Yes. Well, that is dependent upon judgment and the
condition at the time.
The CHAIRMAN. I asked you whether you thought it advisable to
build up these reserves to take care of any possible loss, and not a reasonable loss, as you state, but any possible loss. That would require
us to build reserves in Federal Deposit Insurance Corporation above
$50,000,000,000.
Mr. FAHEY. As I see it. if we should have another extraordinarv
depression-I do not believe we will, mind you, and I am convinced
we do not need to-but, if we should, and the same kind of trouble
began to develop as in the early thirties, then, there would be no way of
combating it, except by help from the Government. Certainly private
interests cannot meet it. They cannot organize to do it.
The CHAIRMAN. Would we set up these two insurance corporations
for the purpose of preventing just such conditions as we experienced in
J:929, on the theory that if individual deposits and shares would be
insured, that the individual would not be in too much of a hurry to go
down and draw it out, even if conditions were not as sound as they
might be?
Mr. FAHEY. That is right.
The CHAIRMAN. And that might stop it?
Mr. FAHEY. Generally speaking, Mr. Chairman, that is true.
The CHAIRMAN. We felt it unfeasible to build up reserves to cover
any possible loss, having in mind that the psychological effect of this
insurance was perhaps of almost as much value in the field in which we
are operating as the actual cash in reserve.
Mr. FAHEY. That is quite true, Mr. Chairman, in my judgment, and
yet even that can be disturbed by unh~ppy incidents, as has been
shown already, by experience. In the marn, as banks have been closed
by the Federal Deposit Insurance Corporation, or as we have closed
savings and loan associations, or taken over control of them, despite
the fear of other local institutions that action would cause a serious
disturbance, nothing of the kind has occurred.
Yet, it is evident from at least one isolated experience that it can
happen, and that a run can be started. When a run starts, it is a very
difficult thing to handle. It can be handled only by meeting every
demand promptly.
Mr. SPENCE. Mr. Fahey, everybody recognizes that the price of real
estate now is abnormally high. When do you think it will probably
get back to the reasonable, normal levels?
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Mr. FAHEY. Well, Mr. Spence, I am not so sure.that I have not been
jndulging in a little too much prophecy here already. I do not think
any of us can answer that question definitely. It will depend upon a
number of things.
One thing that is influencing it already, is a spreading buyer's strike
against extraordinary prices for homes. Already building workers
are being laid off in various parts of the country. In New York City
alone only 2 weeks ago 16,000 men in the construction industry were
dropped because of lack of work caused by resistance to high costs.
Unwillingness to pay excessive costs is not limited to commercial
and other buildings. Many business enterprises are reluctant to go
ahead, and have canceled important building programs because they
feel they cannot afford present prices.
In the matter of homes it is the same thing. There are various sections of the country now where speculative builders, within the last
8 or 9 months, built houses, fully expecting to get rid of them immediately at the prices they were asking. They have been carried
for months, and they have not been sold yet-plenty of them. I l'lhould
explain that we are able to keep pretty well informed as to what
is happening in this field. First of all, the Federal Home Loan Bank
System regularly compiles mortgage recordings in this country, and
those figures are available at all times for study of these conditions.
Home Owners~ Loan Corporation has sold over 198,000 houses all over
this country, and through it we have gained experience on a greater
scale than anybody ever had. It is familiar with the real-estate
market. Through the medium of its hundreds of thousands of borrowers we keep informed of local real-estate conditions. Through
them we learn of the frequent temptation to sell their homes-as many
of them have-at high prices. When they come to us to pay off the
mortgage, we have a complete record of the property, what its reasonable value is, who is making the new mortgage and the amount involved, and we have been able to follow these trends.
As far back as 1943 they were evident, and we have from time to
time made public some of these facts.
We have some figures covering thousands of sales made during the
last 6 months of 1945 and for the full year of 1946 in many of the
States-specific cases of sales-and the rise iii-prices in· that comparatively short time is extremely disturbing. In some sections, a
precipitous drop has been noted even withm _a few months.
The thought I am endeavoring to convey, Mr. Spence, is that this
is a fluctuating, unbalanced situation, so far as housing is concerned,
and I feel that under these conditions, it is just as well to sacrific§ a
little something extra for safety.
I believe we are going to get a lot of building this year-not as much
as we should have, but an encouraging volume. A year from now the
situation will look much more cheerful, I think, so far as prices are
concerned, and we will be on a firmer basis than we are today. I am
wholly unable to go along with the predictions of some of the realestate developers and promoters who claim that we are going to have
continuously increased prices for the next 5 years, and that houses at
present prices are cheap.
Mr. SPENCE. What do you say the present tendency is toward raising
or lowering of prices?
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Mr. FAHEY. It is beginning to ease off. -There is no doubt about
that. It should be a gradual process. If you make it precipitate. you
will invite trouble.
'
The CHAIRMAN. Mr. Fahey, I do not quite reconcile the feeling expressed here with respect to this increase in liability with the suggestion you make that the title I loans be increased to $2,500. It
seems to me that equipment loans are considered to be rather risky;
are they not?
Mr. FAHEY. Mr. Chairman. I think that depends upon the kind
of equipment and the kind of borrowers. Insofar as $2,500 loans are
concerned, I do not think there is any difficulty if the loans are
intelligently made.
The CHAIRMAN. Would you recommend that this $1,500 be increased
to $2,500 without the approval of the board?
Mr. FAHEY. No, Mr. Chairman. We provided for approval of
the administration. We believe that the necessary safeguards would
be provided.
The'CHAIRMAN. Do you think it is safe to make a $2,500 loan under
title I if it is approved by you, but you don't think it is safe for the
institution itself to make a $1.500 Joan?
Mr. FAHEY. We do not mean that every loan must be approved by
the Administration.
The CHAIRMAN. Every one of these loans, under your language,
would have to be approved by you?
Mr. FAHEY. Oh, no; that is not what is intended at all. Standards
by which such loans can and should be made with all reasonable safety,
should be approved by the Administration. Let us remember that the
bank presidents and their staffs in all of these districts are living close
to this problem every day. My point about it, Mr. Chairman, is this:
That one of the most important opportunities for improved housing is
in making alterations and additions. This is especially important -at
the present time, because a lot of necessary work of that kind has been
neglected in the last 6 years, and these properties have deteriorated.
We had the same experience in Home Owners' Loan Corporation.
The CHAIRMAN. Has it not been your experience that the losses
under title I have been ever so much less than they have u:ri.der titles
II and V?
Mr. FAHEY. I cannot say, Mr. Chairman.
The CHAIRMAN. We have the statistics here to that effect.
Mr. FAHEY. I am not sufficiently familiar with it. My impression
is that in the early part of the experience O:Q. title I, the losses were
rather uncomfortable. They then tightened up on their regulations,
particularly with reference to refrigerators and things of that kind,
and overcame that difficulty. I think the apprehensions that have
long prevailed concerning loans to so-called small people, that is to
say, people of small means and in small amounts, have not been
justified.
The experience of the Home Owners' Loan Corporation is very
significant in that respect. At the present time about 22 percent of
all the loans on the books of the Home Owners' Loan Corporation are
paid down to less than $500, and over 40 percent of them are for less
than a thousand dollars. These loans were made in small amounts
to so-cal1ed small people and these borrowers have made good.
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Again, as a further illustration, commercial banks all over this country which would not think of making so-called small loans 10 years
ago are now going into this business very aggressively. It is a question of experience and exercising judgment with small borrowers and
o:£ servicing the loans intelligently, just the same as any other kind
o:£ a loan. However, it can be overdone.
So far as improving these homes is concerned, it is really surprising
what can be done with a structure that is 15 or 20 years old. In
many cases, however, these houses are far better built than a lot of
those that have been thrown together in the last decade.
The CHAIRMAN. Mr. Fahey, may I ask this question: I:£ you were
given the authority to regulate these title I loans, would you :£eel that
you would have to harmonize your policy with that of the Federal
Reserve?
Mr. FAHEY. That is a legal question.
The CHAIRMAN. It is very closely affiliated with it, is it not?
Mr.FAHEY. I would not be sure that I was replying correctly without first checking with our legal department, but I would assume that
we could, i:£ it was in the act. Again, I assume that the Federal
Reserve requirement sooner or later will be eliminated, when they
think it can be done safely.
The CHAIRMAN. Well, we will have that under consideration in
this committee within the next couple of weeks. Are there any further questions?
(No response.)
The CHAIRMAN. All right, Mr. Fahey.
Mr. FAHEY. I want to thank you gentlemen again for going to the
trouble of letting me appear, and I hope you will understand the
difficulty I was up against in not getting here on Tuesday.
.
The CHAIRMAN. Thank you. We understood you were not gomg
to be back from New York until today, and we found that you were
before the Appropriations Committee yesterday.
Mr. FAHEY. Mr. Chairman, when I received word in New York late
Mondny afternoon that I was scheduled to appear before your committee on Tuesday morning, I immediately instructed my office to
contact the clerk of your committee as quickly as possible, explain
my absence from Washington, the reasons for my delay, and to ask
for a later opportunity to appear. I might add that in addition to
meeting with the bank president in New York, _as I have already
explained, we now have the Federal Savings and Loan Advisory Council, a statutory body, which is advisory to the Administration. They
are meeting here in Washington now. The rest of the time is going
to be given to them today.
The CHAIRMAN. Well, we are very glad to have had you.
Mr. FAHEY. I would just like to add one other thought. I:£ any
questions arise in connection with any of these things and you think '
We can supply the information you want, we will try to respond
promptly.
The CHAIRMAN. Thank you very much.
Is Mr. Proctor here? 'Mr. Proctor or anyone else appearing on
behalf of the National Association of Mutual Savings Banks?
(No response.)
The CHAIRMAN. Mr. Proctor is not here. Mr. Bodfish.
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Mr. BODFISH. Mr. Chairman, I do not want to prolong the proceeding, but I do think that 5 minutes of comment on the property-improvement amendment submitted by Mr. Fahey would be helpful to
the committee.
·
The CHAIRMAN. We will be glad to have it.
Mr. BODFISH. I will only take a moment.
On page 14 of his testimony, Mr. Fahey submits revised language
:for property-improvement loans. We would not be happy with that
language for several reasons.
The first reason is this: You will notice that in the draft he says,
without regard to any other provisions of this subsect~on:
Any SlJCh association, on approval of the Board, or the Federal Home Loan
.Administration, by regulations or otherwise.
We believe that the Congress should pass laws of general applicability. I:f you want to authorize us to make title I loans or
property-improvement loans, you should authorize the 1,472 Federal
associations to make them. You should not authorize Mr. Fahey
and his associates to say, "This association can make them, but that
one cannot," or put in their hands the temptation to :favor their
:friends and. punish their enemies. vVe strongly object to that discretion being lodged clown here in '\Vashington, whereby an association
which wanti, to make property-improvement loans has to come down
here and negotiate, and ask permission. We think the Congress
should either authorize it or not authorize it.
We are opposed-Mr. CoLE. Mr. Bodfish, do yon understand that that is the intent
of that section, that they would set up a broad general policy?
Mr. BODFISH. We know that is the intention. We have encountered it repeatedly in discussions with them before. It is one of the
policies of the department to want to select associations and give
some powers and authority that they will not give others.
Mr. CoLE. You mean your past· experience with them has been to
the contrary?
Mr. BODFISH. That is right. I would point out, too, Mr. Cole, that
all the insurance laws, State and Federal, and all banking laws, State
and National, in this country make specific authorizations as to the
lending field of institutions and they say, "You can make such and
such loans," and that means all banks and not the oms that the
Comptroller of Currency happens to have something to say about.
We also oppose the amendment for another reason, which I think,
Mr. Chairman, is important to the committee. Some of us who have
never been interested in this legislation have tried our level best to
avoid asking Congress to deal with a competitive controversy between
the organized banks of the country and the savings and loan associations.
We have had several of those controversies. It is not good for
any of us, and it is not good for our friends, if we can avoid them.
Therefore, in this property-improvement matter, we had extended
conferences with staff representatives of the American Bankers Association, and they have agreed to recommend to their people that there
would be no opposition to the property-improvement loans if we
limited them to $1,500 and if we limited them to 15 percent of our
_assets, and if we omitted home equipment.
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Some 0£ our people would like to include home equipment, but we
have a gentlemen's understanding that they will not oppose that or
raise questions i£ we confine ourselves to alterations, repairs, and improvements, which is clearly our field. Much as some 0£ us would like
to see it extended to equipment, the injection 0£ that into the draft by
the committee would involve us in controversy on the· Senate side with
the banking group, and we are very anxious to avoid that, because we
do have assurances from the other side that when you send these bills
over they wul expedite them.
I would like to comment on the one inquiry 0£ Representative Brown,
on the conversion question. We did not want to write all the details
into this proposed statute. We have no objection whatsoever to the
requirement 0£ a notice to all members. We would prefer that the
vote remain 51 percent 0£ those attending the meeting, either in person
or by proxy.
Mr. BROWN. That is in the bill?
Mr. BonFISH. That is in the bill. Mr. Fahey suggested that it be
51 percent 0£ all the menibers. I will illustrate the difficulty.
The CHAIRMAN. Mr. Bodfish, is there any reason why we should
not provide £or that in the bill?
Mr. BoDFISH. No reason at all. I think the notice is the main thing
you could deal with at an annual meeting, and not have to call another
meeting 2 weeks later at the same tin;ie, which is a little ridiculous.
But where you give notice to everyone, we have no objection to it.
The CHAIRMAN. Under the 51-percent provision?
Mr. BoDFISH. Under 51 percent· 0£ all account holders. That is
excellent in theory, and generally good in practice, but I would remind
you that these are savings-account holders. They are not sophisticated corporate investors. They are not accustomed to signing proxies,
which are legal documents and have in them statements to be witnessed
or n~arized, and we encounter a great deal 0£ difficulty in getting
people who are entirely sympathetic with the situation, to get them
to sign these formal documents known as proxies.
A.gain, we have no objection to notice through the mails and by
posting to everyone. We would rather have it limited to 51 percent
0£ those present at the meeting either in person or by proxy, because
it is difficult to get proxies from holders 0£ savings accounts who are
not typical corporate investors.
Mr. BROWN. Do not all these associations give a notice and state the
purpose 0£ the meeting?
Mr. BODFISH. That is true of a special meeting. But the thing Mr.
Fahey is apprehensive about is that at a regular annual meeting, on
account of costs and inconvenience, we do not always send notices each
year. We publish a notice. Take the institution of which I happen
to be chairman of the board in Chicago. We have 27,000 account
holders, and we used to try to get them all at the meeting, and we
would work and work and work, and maybe we would get 15 or 20.
Mr. SPENCE. You send the notice with an enclosed proxy in each
notice, do you not?
Mr. BODFISH. Yes; and I do not think in response to any mailing we
ever receive back more than 15 or 20 of the proxies. The small savings
account holder is not accustomed to signing proxies which have to be
witnessed, and the like. They just put them aside.
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I think those are the only points in the way of definite suggestion on
Mr. Fahey's testimony. We object strongly, as this committee knows,
to his having the discretion to say whether an institution can convert
or cannot convert. We went over that whole thing.
Mr. GAMBLE. Would you not rather leave that up to the shareholders themselves rather than to somebody down here, Mr. Bodfish?
Mr. BODFISH. There is no question, Mr. Gamble, that it should be
entirely and exclusively an affair for the shareholders if they are going
to a State institution of the type of Federal institution. ·
Mr. KuNKEL. I am afraid you do not realize, Mr. Bodfish, that
the Federal bureaucracy is strong.
Mr. BODFISH. H I could get a letter from every home owner who did
not buy a home in 1942, 1943, and 1944, because, as Mr. Fahey says,
prices were too high, I think we would get 2,000,000 letters. We are
all of us wise and unwise at times.
Mr. BOGGS. What do you think of prices now?
Mr. BODFISH. Here is my sincere opinion: premiums are being paid
for occupancy and possession of existing houses. There is no question
about it. I do not, myself, expect the prices of new houses to be lower,
because everything that goes into the cost of production of housesand when you go back to mine, forest, and factor, as well as the onsite labor-is being paid more, and in recent years they have been
working less. That is the thing that the price of a new house is made
of; it is the wages of men all the way along the line, and I do not expect
to see wages £all nor do I expect to see labor become more efficient.
So therefore I expect and hope for stabilization at about the present
prices with regard to new houses.
Mr. Booos. I have talked to some of my colleagues here on the committee, and they expressed the personal feeling that they would not
.even think about building a house today, if they could get out of it.
Frankly, I hav,e talked with many people in addition to Mr. F"olger
and Mr. Riley, and I find that to be a general expression.
Mr. BoDFISH. And, Congressman, that is the wholesome thing. The
only thing that will bring prices down is either a tremendous production of houses, or if consumers cease bidding for the short supply.
Mr. BoGGs. You are talking about wages. As soon as this lay-off of
workers gets universal-and it is becoming universal-wages are going
to come down.
The CHAIRMAN. Will you yield to me, Mr. Boggs?
Mr. BOGGS. Surely.
The CHAIRMAN. There are three outstanding economists in the
United States, one of whom is Mr. Bowles, advocating a general
increase on wages of 10 percent and a general reduction in prices of
20 percent.
Mr. Booos. I do not subscribe to that kind of economy.
Mr. BROWN. Will you yield to me, Mr. Boggs?
Mr. Booos. Yes.
Mr. BROWN. I think one thing alone will bring the value of real
estate down and that is when everybody believes prices are too high
and do not build. That is the one thing that is going to reduce the
market value in 12 months to a great extent.
Mr. BODFISH. I hope so.
Mr. BOGGS. It seems to me that this thing has happened before, arid
prices have come down before. In 1928 and 1929 the prices of houses
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right here in Washington were tremendous, and the same houses 3 or
4 years later sold £or 50 percent 0£ the price they were bringing in
1929.
Mr. BoDFISH. But you have never had, before in the history 0£ this
country, protected wage levels, the vehicles for spreading the work,
and the rising cost 0£ living £acing every worker. I do not want
to argue about it. What I would like to do is say let us look at
it a year from now, and I am willing to bet something that I am
right, but I may be wrong. I am not a boomer. It is not that. I
just think I see a whole change in your labor costs and efficiency situation that will prevent any substantial £all in the price 0£ new houses.
0£ course, the old ones.that people hav~ been payi~g premiums £or £or
dccupancy and possession, that 1s washmg out rapidly now.
Mr. Chairman, the other day Representative McMillen asked me £or
figures on the income 0£ veterans. The only thing that is available
is a report by the Bureau 0£ the Census covering some 40 or 50 areas
in which they made sample explorations. For example, in Cook
County, Ill., they indicate that 84 percent 0£ the World War II servicemen ltre employed; 8 percent 0£ them are in-migrants, and their
median income-that is, not the statistical average, but the midincome-is $47 a week. Forty-nine percent 0£ them are married. And
then it goes on with 40 percent 0£ them are living in rented rooms or
doubled up, and the like. It is a very excellent piece 0£ literature, and
he asked me £or it, and I am glad I have it here.
Mr. CoLE. Mr. Bodfish, I aislike to put you particularly on the spot,
but Mr. Fahey was not in the room when you made your statement
a while ago. I understand he is now. As I understand, you state the
Federal Home Loan Bank Administration has been iJ,rbitrary and capricious and offered the possibility 0£ permitting £avoritism among
the associations.
Mr. BODFISH. I did not use that language.
Mr. CoLE. No, that is my language.
Mr. BoDFISH. I will be glad to repeat my approximate language.
Mr. CoLE. That was the implication I got from your language.
Mr: BODFISH. It has been at times. I would he very glad to make
the statement, although I do not usually. I try to avoid making any
personal references.
Mr. CoLE. I realize that. I do not mean anything personal, but the
statement was made and while he is here, I would like to have you
c1ari£y it.
Mr. BODFISH. I said we objected strenuously to the language which
placed in his hands, or the hands of his associates, the discretion to
determine, by regulation or otherwise, that one association can make
title I loans and the next association cannot, or that their £riends can
make them, or it can become a device to £avor those who know them
well and to punish those who sometimes have not been entirely friendly
or even have insisted upon running their institutions according to the
law, and properly, and not the way sometimes Mr. Fahey's examiners
want them run.
We want the Congress to £ollow the pattern 0£ the banking laws and
insurance l~ws in all the States to the effect that when you grant investment powers, they should be granted across the board £or all institutions, or they should be granted to none. We do not want the
discretion on that point lodged down in Washington.
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I also, indicated, Mr. Fahey, we were opposed to the $2;500 ceiling
on property-improvement loans, and we were opposed to the inclusion
of home equipment.
Mr. FAHEY. I thought you said you wanted the inclusion of home
equipment.
Mr. Bom'ISH. I explained to the committee, and I will be glad to
go over it. We would like to have the inclusion of home equipment.
Mr. FAHEY. Well, we-Mr. BODFISH. Just a minute; let me finish.
We went to the Ameriean Bankers Association in order to avoid
having a competitive controversy before the committees of Congress,
and, as far as we are concerned, we agreed to alterations and repairs
and improvements only because they are very opposed to our having
the right to make home equipment loans and ·would enter appearances,
both here and in the Senate, if that was included in the bill.
·
And we also agreed to a $1,500 top and a 15-percent limitation of
assets. So far as we are concerned, we have a gentlemen's agreement
with the spokesmen of the A. B. A. which will eliminate controversy on the Senate side which might imperil the bills.
Mr. FAHEY. I think you need to be a little bit careful about that.
You are liable to attract the attention of the Department of Justice,
for one thing.
But let me explain thisMr. BODFISH. I have never been afraid to talk to any business group,
Mr. Fahey, and have understandings with them and talk about them,
too. Incidentally, you were in on the understanding in 1940, when
we had an agreement with the A. B. A., so you would be in the same
·
suit.
Mr. FAHEY. I do not recall anything of that sort, Mr. Bodfish, but
even if I were inclined to favor your recommendation at some time,
my position might be changed as a result of the developments of
recent years.
May I comment briefly with reference to two things, Mr. Chairman?
One, I think that this matter of loans on equipment is something that
should be examined with some care. It can be worked out all right
through understanding and regulations. It depends somewhat on
the kind of equipment. Houses have been built all over this country,
in the last couple of years, insured by the Veterans' Administration
and by FHA, which included various kinds of equipment.
The question is what is reasonable equipment? In recent months
I have seen houses that are being sold to veterans and others, where
the right kind of an electric or gas stove was included, the right kind
of a water heater and an electric refrigerator.
In other cases, I have been through houses where they were installed
in the house, but the salesman did not explain to the buyer, except
when questioned, that they were extras, beyond the price being charged
for the house.
The CHAIRMAN. Are you speaking to the bill now?
Mr. FAHEY. Some have gone so far as to claim that anything
fastened to the floor was part of the equipment and could be insured.
I think that is out of reason. On the other hand, this question of
equipment and the financing of it, in my opinion, is something that is
worthy of careful discussion, so far as the lending institutions are
concerned.
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There is no particular reason why commercial banks should have
the business exclusively. On the other hand, the corporations which
sell this kind of equipment have been financing it for years. Frequently they have taken it out the very minute an unfortunate home
pwner happened to be getting somewhat delinquent in his payments
because of sickness in the family, or for some other reason beyond
his control, and this ought not to occur. There is still something to
be thrashed out with reference to where the reasonable line is on this
sort of thing.
So far as we are concerned, the thought of the Federal Home Loan
Bank Administration would be to get together with the people in the
associations and work out reasonable areas within which they should
operate. I do not think regulations should be unfairly restrictive, or
so elastic as to invite dangerous practices.
There is just one other thing I would like to say while I am on my
feet, because the question has been raised, and then I will try not to
take up any- more of your time.
Mr. Bodfish m.ade some remarks about arbitrary and capriciousMr. CoLE. Mr. Fahey, those are my words.
Mr. FAHEY. All right, but I assume, Mr. Cole, that you are referring
to allegations which have been brought to your attention and that of
many oth:ers. These words have been circulated all over the country
in recent months at pretty large expense.
Mr. CoLE. I did not want to put my words in Mr. Bodfish's mouth.
Mr. FAHEY. I understand that. If, however, you have not received
numerous letters containing these words, Mr. Cole, then you have
been overlooked and discriminated against.
Right now the Supreme Court of the United States is dealing with
this question of arbitrary and capricious action on the part of the
Federal Home Loan Bank Administration. The issue raised is the
result of the appointment, by us, of a conservator for a California
association. After the courts get through with this issue and the
facts can be brought out fully I hope that this committee will provide
an opportunity for a careful examination of these charges-every one
of them-and devote the time to it that is necessary. It not only represents some problems that the committee should be familiar with, but
I think the public ought to know something about them as well.
When all the facts can be disclosed they will tell their own story.
Now, so far as Mr. Bodfish's claims of arbitrary action by us are
concerned, I think he ought to list the cases and put them before us.
That is a part of his job. We will be pleased to answer those claims
when he submits them.
.
Mr. BODFISH. I will be glad to bring them up here, Mr. Commiss10ner.
Mr. F AREY. All right.
Mr. BoDFISH. We cannot accomplish anything by giving it to you.
Mr. F AREY. Why? When have you ever brought them be:l;_ore us?
Mr. BoDFISH. Because I do not come up here to open up these
questions.
Mr. FAHEY. That is all right, but it's your main business, isn't it,
to raise such questions with us aside from running a Federal savings
and loan association on the side, for which you are well compensated,
by the way.
61862-47-6
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Mr. BoDPTSFI. It is well run.
Mr. FAHEY. I don't know.
_Mr. BODFISH. You have 10 examiners in there once a year.
Mr. F.-\HEY. Well, I prefer not to get into personal questions, but
since the subject has been opened up and you have talked about it
before, there are some questions that might be discussed, concerning the
activities of an executive vice president of the United States Savings
and Loan League who also rurn, a Federal savings and loan association
on the side, if you like. I "·ould be prepared to discuss it, however, at
any time you like, Mr. Bodfish.
Now, as to the other thing-Mr. SPENCI•:. Mr. Fahey~ I do not know whether you answered the
question or not. ,vhat do equipment loans generally include 1
Mr. FAHEY. Well, there is great variation in them. In general, they
include heating equipment, an automatic refrigerator, an automatic
water heater, a gas or electric stove, and so on. Today, the refrigerator
is a reasonable part of the equipment of a home. There are hot water
heating systems, which are entirely reliable and they are a safe.investment, if given a reasonable time in which to pay :for them, but the
people ought not to be soaked 9 and 10 percent for the amount of
money involved in those things.
Mr. SrE~CE. It includes personal property, then, does it?
-Mr. FAHEY. Well, one question about which there has been debate
'is whether equipment is removable or not. A lot of home owners buy
this equipment and own it themselves, and if they move out, they
expect to take it with them. There is always room for differences of
opinion about this sort of thing. Some buyers of a home may prefer
that the owner would take it out because they would like some other
kind of a refrigerator. Then, there are differences of opinion about
electric stoves and gas stoves. As to those types of equipment, both
<electric and gas, tremendous improvements have been made in recent
years. This whole matter of equipment, as a result of the research
work that has been done by manufacturers, is changing, and that is
something that has to be taken into consideration.
I think it might be highly desirable for the Federal Housing- Administration, the Veterans' Administration, the Federal Deposit In-surance Corporation, and the Federal Savings and L::>an Insurance
·Corporation which are insuring an awful lot of home loans, to get
together and reach a general understanding as to what should be in.eluded in loans of this kind and what ought to be excluded. I do not
think it is the business of the American Bankers Association and the
United States Savings and Loan League to settle important questions
of legislation on the side.
Pardon me for taking up so much of your time, Mr. Chairman.
Mr. BODFISH. Mr. Chairman, I do not dissent from Mr. Fahey's
general theory about equipment loans, but we have waited for many
years to be able to make improvement and repair loans, and we would
like to get that decided, and we will then be ready for any exploration
as to whether it is right for us to go into the home-equipment loan
business. We do not want our property improvement loan cusiness,
which I think everybody agrees is appropriate for us, to be jeopardized
over a controversy in a competitive situation in which the organized
:hanking interests feel we are stepping out of our field. I do not agree
-with them, but it is better, I think, to agree on these things and get
1
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something done than to have a controversy and lose things that are
more important.
Mr. BucHANAN. Do you object to the $2,500 limid
Mr. BoDFISH. Our understanding is $1,500, and that is what our
people have approved in our organization. I do not think we should
move that to $2,500 and invite controversy on the other side.
Mr. RILEY. Mr. Bodfish, when it goes above $1,500, it would not
be so expensive to draw up a new loan.
Mr. BODFISH. That is right. You are getting into pretty large unit
of credit, however.
Mr. FOLGER. Is it not a :fact that the equipment situation is still unsettled and i:f you leave that out, you could well reduce it to $1,500?
Mr. BODFISH. That is right. There are not :n;iany o:f these improvement jobs that go above $1,500. I think the average title I loan is
something like $420. So this gives us enough leeway.
Mr. GAMBLE. Mr. Bodfish since you were here the other day, I
introduced H. R. 3448. Would you mind commenting on that, sir i I
do not think the committee members have a copy o:f the bill.
Mr. BJDFISH. It is a very simple matter, Mr. Chairman. The Home
Loan Bank account only qualifies as mortgage collateral :for advantages to member institutions, mortgages that have a maturity o:f less
than 20 years. Some o:f the Federal Housing Administration title II
mortgages are 25 years, many o:f the GI loans are 25 years, and they
are not eligible as collateral for borrowings :from Federal home loan
banks, and it changes the 20-year limitation to 25 years, which would.
take care o:f principally these GI loans and as far as I know there is
no one who objects to it at all. The Department has approved it, and
I believe it has even had a budget approval, has it not, Mr. Fahey?
Mr. FAHEY. Yes.
Mr. BJDFISH. There is no disagreement anywhere, Mr. Gamble.
And this little bill would be very appropriate.
The CHAIRMAN. Are you in favor of 3448, Mr. Fahey?
Mr. FAHEY. I do not see any objection to that, but while we are on
that subject, I would hate to· see any of us going beyond 25 years.
This 30- to 34-year business on small houses is full o:f danger I think.
Mr. BODFISH. I agree with you.
The CHAIRMAN. W ould_you request the committee to report that bill
out?
Mr. FAHEY. Yes. I do not see why not. Let me check on it, if you
will. I have not seen it before.
Mr. GAMBLE. In other words, i:f you have to hold any mortgageabove 20 years, Mr. Bodfish, you cannot use it as collateral; you have·
two groups; anything up to 20 years you can use as collateral and that
above 20 years you cannot use.
Mr. BoDFISH. That is correct.
Mr. FAHEY. This is all right as :far as we are concerned, Mr. Chairman.
The CHAIRMAN. Then you are both agreed that H. R. 3448 should be
reported out?
.
Mr. FAHEY. Yes. Unless, on checking further with the legal department, they send·word back to you right away.
The CHAIRMAN. Will you address a letter to Mr. Gamble on it right
away, then?
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Mr. FAHEY. We do not need to. You can understand that we are
in favor o:f it unless you hear :from me right away.
The CHAIRMAN. We will not take any action on reporting that out
until Monday, and if we have not heard from you by Monday we will
do so.
Mr. FAHEY. That is right.
The CHAIRMAN. Do you think it is necessary to have any further
hearings on it 1
Mr. FAHEY. They tell me there is no objection to it, and that legally
it is all right.
The CHAJR\\IAN. Are there any questions about H. R. 3448?
Mr. BUCHANAN. Was it ever25 years before1
Mr. BODFISH. No. The original act was 20 years, and there was not
a 25-year mortgage at th~t time. It is a simple matter.
The CHAIRMAN. Mr. Fahey, would you consider it necessary to have
any further hearings on that?
Mr. FAHEY. No, I do not think so, Mr. Chairman.
The CHAIRMAN. Mr. Bodfish, do you know of anybody who might
be opposed to it 1
Mr. BODFISH. I know of no one in the business or among our competitors or in other departments who would object because it mainly
takes care of GI loans. I want to apologize, Mr. Chairman, for leading the committee into personalities and discussion of outside activities. I am sorry Mr. Fahey brought that up. I will be glad to discuss
his- outside activities some time as he wants to discuss mine.
The law prohibits him from having any; it does not me.
Mr. TALLE. Mr. Bodfish, is it not true that in connection with these
high costs that are talked o:f, there are two very important £actors:
one is whether a :fair day's work can be had :for a :fair day's pay i
Mr. BODFISH. That is right.
Mr. TALLE. And then, secondly, the question of the fiscal and financial policies of the Government, because they affect the yardstick which
we call the doll1;tr. When the housewife finds this dollar buys less and
less when she goes to the grocer, there is naturally an unhappy household.
Mr. BODFISH. Yes, sir.
Mr. TALLE. So we should do what we carr to stiffen the backbone of
the dollar.
·
Mr. BODFISH. That is right.
Mr. TALLE. And until we take those two things into account, we will
just have higher and higher prices.
Mr. BoDFisH. That is right. Someone has said that the market
basket which the housewife used to fi.1110 years ago for $5 on Saturday
night now costs $16 to fill. You have the thing through the whole
price structure, and I personally feel while there has been considerable
mflation, there has been less inflation in real estate than in most other
commodities.
Mr. TALLE. And amazingly enough, a lot of people who say much
about high costs are the same people who ask for bigger and bigger
appropriations.
Mr. BoDFISH. That is right. We are for smaller and smaller appropriations.
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Mr. SPENCE. The gentleman said there is less real-estate inflation
than in anything else. I agree with you, except for farms. But as to
real estate as a whole, I t,hink you are correct.
The CHAIRMAN. Thank you, Mr. Bodfish, and thank you, Mr. Fahey.
(The following statements were received for the record:)
·
NATIONAL ASSOCIATION OF STATE SAVINGS, BUILDING AND LOAN SUPERVISORS,
.
New York 13, N. Y., May 20, 194'"/,
Hon. JESSE P. WoLCorT,
Chairman, Committee on Banking and Currency,
House of Representatives, Washington, D. 0.
~ DEAR MR. WOLCOTT: 'l'his letter will confirm my night letter of May 15 which
read as follows :
"Regret notice of hearing on H. R. 2798 reached me on field trip too late for
my personal attendance. National Association of State Savings, Building, and
Loan Supervisors urges favorable report on only conversion bill fair to members
of •Federal savings and loan associations, Federal and State supervisors, and
Federal Savings and Loan Insurance Corporation. Creates real two--way street.
Without giving Federal authorities power to prevent conversions when no shares
are held by Treasury or HOLC, nevertheless fully protects their interests and
those of Federal Savings and Loan Insurance Corporation. Note especiaUy page
2, lines 20, 21, 22, 23. Bill is free from objectionable features of S. 866, section
502, and S. 913, which permit FHLBA, FSLIC, or both, to prevent conversions."
The contents of your letter were telephoned to me in Buffalo. I trust that
your committee will accept the night letter and the following statement in
lieu of a personal appearance by representatives of our association.
Ir. R. 2798 will restore the reciprocal arra~ement between State and Federal
supervisory authorities whereby State savings and loan associations could convert freely to Federal savings and loan associations without the consent of the
State supervisory officials, and Federal savings and loan associations could convert to State charter, without the consent of the Federal supervisory authorities.
This two-way street has not been in effect since July 22, 1944, when Federal
Regulation 204.3 was repealed by the Federal Home Loan Bank Administr;ition.
This regulation read as follows:
•
"204.3 CONVERSION INTO A STATE-CHARTERED INSTITUTION. Any Federal association may convert itself into a State-chartered thrift and home-financing institution, upon the vote, cast at a legal meeting called to consider such action, specified
by the law of the State in wJ::tich the home office of the Federal association is
located, as required by such law for a State-chartered institution to convert itself
into a Federal association, and upon compliance with other requirements reciprocally equivalent to t,he requirements of such State law for the conversion of a
State-chartered institution into a Federal association provided legal titles are
protected by such conversion or provided proper conveyance of legal titles are
made."
You wiHobserve that when this regulation was in effect no consent on the part
of the Federal Home Loan Bank Administration or the Federal Savings and Loan
Insurance Corporation was required before a Federal savings and loan association could convert to a State charter. Now Commissioner Fahey is demanding
that no conversion be permitted unless conRent is first obtained from both of these
Federal instrumentalities. In view of the fact that most of the State statutes
permitting conversion of State savings and loan associations to Federal savings
and loan associations were passed at the direct request of the Federal Home Loan
Bank Administration and provided for conversion without the consent of the
.State authorities, the members of this association consider the Commissioner's
demand inequitable.
He claims that his Administration is obligated to watch out for the best interests of the members of Federal savings and loan associations, and must, there'fore, be in a position to prevent conversions. In making this statement he overlooks two things: (1) State supervisors are equally zealous in protecting the
interests of members of State savings and loan associations and would giv~ the
members of a converting Federal just as much protection as the Federal Home
Loan Bank Administration could. (2) It is these very members of the Federal
savings and loan association for whom the Commissioner is so solicitous who
would decide whether their institution should remain under Federal supervision
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HOUSING ACT AMENDMENTS
or convert to State charter where it would be under State supervision. Members
of savings and loan associations have an ownership not a creditor relation to their
institution. They have the right to participate in the choice of its management
and to vote upon such questions as conversion. H. R. 2798 is fair to the members
of the converting association and protects their interests.
If shares of a Federal savings and loan association are owned by the Secretary
of the Treasury or by the Home Owners' Loan Corporation, the interests of these
Federal instrumentalities should be protected. H. R. 2'.798 protects them. When
they, or eit!]er of them, are the owners of such shares, conversion may take place
only with the approval of the Federal Home Loan Bank Administration and the
Federal Savings and Loan Insurance Corporation. H. R. 2798 is fair to these
Federal instrumentalities.
As the converting Federat will continue to be an insured association, the interests of the Federal Savings and Loan Insurance Corporation should be protected.
H. R. 2798 protects them. Without giving to the insurance corporation the right
to prevent conversions, it nevertheless requires that the converting institution
"shall continue to be an insured institution and bound under all of the agreements
contained in the original application for insurance of accounts, and by such conversion shall accept and be bound by all agreements required by section 403" oI
title IV of the National Housing Act." H. R. 2798 is fair to the Federal SavingS
.and Loan Insurance Corporation.
H. R. 2798 is supported by this association, which represents supervisors of savingS and loan associations in 38 States and Territory of Hawaii, b;y: the National
Asociation of Supervisors of -State Banks, which represents such supervisors in
48 States, and by the United States Savings and Loan League, which has 3,500
:member associations and represents by far the largest number of savings and loan
·members in the Nation.
We respectfully urge your committee to report H. R. 2798 favorably arid to work
for its passage in the House of Representatives.
Faithfully,
E. H. LEETE,
Chairman, Emecutive Committee.
NATIONAL ASSOCIATION
OF
MUTUAL SAVINGS BANKS,
New York, N. Y., May 15, 194''/.
Hon. JESSE P. WOLCOTT,
Chairman, Committee on Banking and Currency,
United States House of Repn'sentatives,
Washington 2.5, D. C.
MY DEAR REPRESENTATIVE WOLCOTT: This letter is addressed to you as chairman of the House Banking and Currency Committee and through you to the
other members of the committee. I am writing on behalf of the National .Association of Mutual Savings Banks whose members comprise most of the mutual
savings banks of the country. These mutual savings banks are nonstock banks
located in 17 States with total deposits of approximately $17,000,000,000. They
:are separate and independent institutions playing an important part in the
home' mortgage field. The National .Association of Mutual Savings Banks has
.a membership of approximately 531 banks which· represent close to 100 percent
of the mutual savings banks in the country.
It has just come to my attention that the House Banking- and Currency Com-·
mittee opened hearings on three bills-H. R. 2798, H. R. 2799, and H. R. 2800-0n Tuesday, May 13, 1947.
With respect to H. R. 2798, we would like to make the suggestion that this
bill be modified to include savings banks among the types of institutions into
which a Federal savings and loan association may convert. This bill as now
written would authorize any Federal savings and loan asseociation to convert
itself into a State-supervised local thrift institution, but savin!!s banks are not
mentioned. This suggested modification could be accompli.:hed by inserting the
·words "or a savings bank" after the last comma in line 10 on page 1 of the bill.
Iu addition, it is suggested that the hill be modified so that in the case of a
conversion to a savings bank, the present requirement in H. R. 2798 that the
-converted institution shall continue to be insured by the Federal Savings and
Loan Insurance Corp0rntion be eliminated. Savings banks are not el;gible under
the law for insurance with the Federal Savings and Loan Insurance Corporation
but Congress made savings banks eligible for deposit insurance with the Fed-
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HOUSING ACT AMENDMENTS
83
eral Deposit Insurance Corporation. Accordingly, the language should be further modified by inserting after the word "and" in line 18 on page 2 the following "except with respect to institutions converted to savings banks".
Mutual savings banks in some States are insured by State-wide and Statecontrolled organizations. In other States mutual savings banks are insured by
the Federal Deposit Insurance Corporation. Savings banks are State institutions regulated primarily by State supervisory banking authorities. It would
seem proper that the policy with respect to deposit insurance should be governed
by the responsible State supervisory authorities. If, however, the committee
requires Federal deposit insurance as a condition to conversion, it could be
accomplished by the insertion in line 2 on page 3 of a new sentence to the following effect :
"With respect to institutions converted to savings banks, the converted institution shall have its deposits insured by the Federal Deposit Insurance Corporation".
Considerable interest has de.eloped in certain States with respect to the possibility of converting from Federal savings and loans into savings banks. We
respectfully suggest that such an association should have the choice of conversion into a savings bank if it elects to do so.
We have no comments to make upon H. R. 2799 or H. R. 2800.
Your consideration of the suggestions made herein will be greatly appreciated.
Respectfully submitted.
FRED N. OLIVER, General OounseZ.
( Statement of American Bankers Association on H. R. 2800 :)
The bill (H. R. 2800) which is before the Committee on Banking and Currency of the House of Representatives, represents a legislative proposai which
has been embodied in other bills before Congress in recent years. During these
years the American Bankers Association, through its appropriate committees, has
given careful consideration to the basic iatents and purposes of this legislation~
including H. R. 2800.
In 1940, Mr. A. L. M. Wiggins, of Hartsville, S. C., then chairman of the committee on Federal legislation of the American Bankers Association, and later
president of the association, in testimony before the Senate Banking and Currency
Committee, stated certain principles which have since served as a guide in the
consideration of all legislative proposals relating to the Federal savings and loan
associations and the Federal Home Loan Bank System. Mr. Wiggins said:
"We wish to emphasize that the American Bankers Association has always
favored a sound building and loan system, soundly administered. ·we believe that
such a system, operating in its natural and proper field, utilizing private capital
and under private management, with sound governmental regulation, serves a
valuable public service and is infinitely to be preferred to the inevitable alternative-a Government-owned, Government-operated, and Government-financed homemortgage banking system."
As we understand the purpose of H. R. 2800, it is to permit any Federal savings
and loan association to make property alteration, repair, or improvement loans,
without security of any kind, whether by mortgage or otherwise, either (1)
insured under title I of the National Housing Act, or (2) guaranteed or insured under the Servicemen's Readjustment Act, or (3) without such insurance
or guaranty.
We believe that the proposal in this bill to permit these associations to make
unsecured loans is a departure from their natural and proper field of operations. Traditionally these associations have been mortgage lending institutions.
These institutions have had no experience in making loans such as these where
their soundness is entirely dependent on the character of the borrower.
Even the insurance under title I of the National Housing Act or the guaranty
or insurance under the Servicemen's Readjustment Act is no substitute for the
experience of a lender in avoiding losses in making this type of loan. The
reason for the favorable loss experience on FHA title I loans has been because
these insured loans in large measure have been made by experienced lenders
who were competent to evaluate the risks involved. It seems reasonable to
€Xpect that a lending institution which has been accustomed to rely on mortgage security in making loans will suffer. considerably greater losses than a
lender which is accustomed to make unsecured loans. It must be kept in mind
that the insurance provided both under title I of the National Housing Act
and under the Servicemen's Readjustment Act is not on the individual loan
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HOUSING ACT AMENDMiNTS
but rather is on a certain percentage of the -loss sustained on the aggregate of
such loans. Also the guaranty under the Servicemen's Readjustment Act covers
not more than 50 percent of the outstanding balance of the loan. Therefore,
if larger losses are taken on a substantial number of individual loans, the insurance or guaranty may be insufficient.
Furthermore this bill would permit these associations to make these unsecured
loans without the insurance or guaranty protection. It is interesting to note
that although eligible, relatively few of these associations, as compared to other
eligible lenders, have participated in the mutual mortga1?:e-insurance program
under title II of the National Housing Act by having their home mortimge loans
insured. In the light of this attitude towards the mutual mortgage-insurance
program, it seems reasonable to suppose that these associations will be more
likely to make these unsecured loans without having them insured in order u,
obtain a larger income by avoiding the payment of the insurance premium
required under title I of the National Housing Act.
Another objection to this bill is that its language appears to be broader than
its purpose. The bill, as written, would appear to permit a Federal savings and
loan association to make loans for any purpose which qualifies for the guaranty
or insurance under the Servicemen's Readjustment Act. Loans insured under
title I of the National Housing Act are limited by the terms of that title to
property alteration, repairs, and improvements and the terms of this bill similarly limit loans other than those insured or guaranteed. However, no such
limitation apr,ears to apply to loans made by these associations which are
guaranteed or insured under the Servicemen's Readjustment Act, either by the
terms of this bill or the terms of that Act. Thus, if this bill became law as
now drawn, a Federal savings and loan association could make loans for any
of the purposes for which loans may be guaranteed under the Servicemen's Readjustment Act though they be wholly unrelated to home financing. For example, such associations could make working capital loans to businesses or
crop loans to farmers. This is surely going far afield from the traditional home
financing functions of these institutions.
There appears to be only one area in which these unsecured property alteration, repair, or improvement loans might justifiably be made by these associations.
That is where they already hold a mortgage on the property which is to be altered,
repaired, or improved with the proceeds of the unsecured loan. In such circumstances an unsecured loan might be warranted to save the borrower or the association the additional expense of rewriting the mortgage, searching· the title,
recording papers, etc., which one or the ·other would have to bear. Also since the
association will already have a mortgage loan on the property it should have
some knowledge of the borrower's character and the propects of repayment of
the unsecured loan according to its terms.
It is submitted that if Federal savings and loans· association are to be empowered to make unsecured loans as contemplated under H. R. 2800, they should
be permitted to make such loans only for the purpose of alteration, repair, or
improvement of properties on which such associations hold mortgages at the time
sucl'I unsecured loans are made.
'PRE
AMERICAN BANKERS ASSOCIATION,
New York 16, N. Y., May 19, 197,7.
Hon. JESSE P. WOLClOTT,
Chairman, House Committee on Banking and Curre1wy,
House of Representatives, Washington, D. 0.
DEAR CONGRESSMAN : In the May 19 issue of the American Banker, on page 8,
reference is made in an article· to an alleged agreement between the United
States Savings and Loan League and the American Bankers Association relative
to certain proposed legislation.
For your information, in order that the record may be clear, Mr. Bodfish during the past 4 or 5 months has submitte'1. to representatives of the American
Bankers Association proposed legislation. These proposals have been discussed,
but at no time during those conferences, nor at the present time, has there ever
been any agreement between the United States Saving and Loan League and the
American Bankers Association as to legislation which was considered by your
c-ommittee last week and which was referred to in the above-mentioned American
Banker article.
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HOUSING ACT AMENDMENTS
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If you will be good enough to place this letter in the record it will be appreciated.
Yours sincerely,
D. J". NEEDHAM:, General Counsel.
The CHAIRMAN. That concludes the open hearings on these four
bills.
We will take them up in Executive Session at 2 o'clock this afternoon.
We would also like to take up the bill which was introduced yesterday, H. R. 3492.
The committee will now adjourn until 2 o'clock when it will go into
Executive Session.
(Whereupon the committee adjourned.)
X
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