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with the approval of the Administrator and under such rules and regulations as he shall prescribe.”.

Sec. 29. The first sentence of section 2 of the National Housing Act is amended by striking out the word “January” and inserting in lieu thereof the following: "April".

Passed the House of Representatives March 12, 1935.
Attest:

South TRIMBLE,

Clerk. STATEMENT OF I. FRIEDLANDER, PRESIDENT UNITED STATES

BUILDING AND LOAN LEAGUE Senator BULKLEY. You are president of the United States Building and Loan League ?

Mr. FRIEDLANDER. President of the United States Building and Loan League.

Senator BULKLEY. Mr. Friedlander, we have under consideration H. R. 6021, and would be glad to have you express your views about it.

Mr. FRIEDLANDER. The United States Building and Loan League, which represents the building and loan industry, is very favorable to the legislation that is pending before the committee.

Senator TOWNSEND. The House bill or the Senate bill?
Mr. FRIEDLANDER. I shall undertake to discuss both of them.
Senator BULKLEY. There is not very much difference between them.

Mr. FRIEDLANDER. There are some items of the House bill for which we have a decided preference, and there are some items with respect to which we perhaps prefer the Senate bill. I shall take them up section by section and go through them rapidly, because Mr. Bodfish will go into more detail on some of the controversial sections.

I will state that so far as section 1 is concerned we are favorable to it. We see no reason why it should not be adopted.

As to section 2

Senator TOWNSEND. Are you reading from the House bill or the Senate bill?

Mr. FRIEDLANDER. I am reading from the House bill. As to section 2, our thought has been that the change in the requirement of cumulative dividends on Government capital may be justified at this time as an emergency proposition. We are rather proud of the fact that the Home Loan Bank System has paid its own way, and has paid the Government a 2 percent dividend upon the stock’ invested, aggregating something in excess of 21/2 million dollars, besides paying the expenses of the bank and meeting the assessments of the Board. But we do believe that by the elimination of this requirement of cumulative dividends it will be possible for the banks at this time to lower their interest rate without the fear of running into the red with the Government, and perhaps continue to earn the dividend and widen its usefulness and service.

For instance, as an illustration of that point of view, the Little Rock regional bank, of which I happen to be chairman of the board, at its monthly meeting on Saturday deferred any action with reference to the reduction of interest rate to its member associations pending the outcome of this legislation. If this cumulative dividend feature was taken out of the bill, we would have no hesitancy in making a reduction of interest rate, and we think that would widen the influence of the bank through the institutions and members.

Senator TOWNSEND. How much do you feel you could reduce the interest rate?

Mr. FRIEDLANDER. Our present rate now to member institutions is 4 percent. The board has, by resolution, authorized banks to make a rate of 372 percent. We do not feel justified in taking a chance on that reduction on the present volume of business without the elimination of this stipulated dividend which accumulates to the Government.

Senator BULKLEY. A dividend on the Government stocks.
Mr. FRIEDLANDER. Yes.

Senator TOWNSEND. That resolution was made with the anticipation of this amendment going through?

Mr, FRIEDLANDER. I think so.

Senator BULKLEY. What you are advocating is in line with what the home-loan bank board recommends, is it not?

Mr. FRIEDLANDER. Yes.

With respect to section 3, the House wrote a new section into H. R. 6021 as a substitute for the Senate provision. I shall discuss briefly section 3 in S. 1771 first, and then the substitute section. They have no relationship one to the other, but in going through H. R. 6021 in an orderly fashion, I imagine that would probably be the best procedure.

Under S. 1771, section 3, it is proposed that the directors of the regional banks be reduced from 11 to 9 members, and that the elective members elected by the membership be 6 directors instead of 9, and that the public-interest directors who, under the present act, represented constitute members appointed by the board, be increased to 3. The total reduction in directors is, as stated, from 11 to 9, but there is a shifting of the representation, decreasing the representation of elective directors and increasing the representation of

appointive directors.

Senator BULKLEY. In other words, it was proposed to make the representation on these boards exactly the same as on the boards of Federal Reserve banks.

Mr. FRIEDLANDER. As I understand, that is correct.

The United States Building and Loan League opposed that suggestion before the House committee, and the section was eliminated. We object to a change at this time for two reasons. First, we feel that the psychological effect upon the system, which is a voluntary system-in other words, the member institutions voluntarily come in and become members—will be bad, at a time when we are doing what we can to induce the institutions that are not members to come in.

Senator STEIWER. Why would it be bad?

Mr. FRIEDLANDER. For the simple reason that it interlocks with the additional reason that we do not see any reason for it, as I will try to develop in the second reason, except the tendency to concentrate, perhaps, more power in the board at Washington.

There is a wide disagreement as to whether or not that is wise. The institutions that have not become members might hesitate longer and be more reluctant to come into a system where the present members were induced to come in with a certain representation on the Board, and now having that representation reduced.

If the suggestion as made was one whereby the Board would predominate, in other words, if they were overturning completely the

majority of representation, we feel that perhaps that might be one argument given for it. If the banks are not being properly run, and the Board needs that additional power to control and regulate the banks, and were achieving it in the suggestion, and were getting a majority of the directors, there might be some argument for it. But under the present act the Board has the power to remove any director or all directors of any bank. It has almost complete power of regulation in the operation of the banks.

Senator BULKLEY. Do you object to that power to remove?

Mr. FRIEDLANDER. I am not urging any objection to it at all, but I am only calling the attention of the committee to the fact that it has that power, and, therefore, if there is anything wrong in the banks they can correct it without the necessity of having more representation upon the individual boards. I do not think it is a matter of great moment, but it will work some inequities if the suggestion that has been made be adopted.

For instance, take Regional District Bank No. 2. That is the bank located at Newark, N. J. As you know, this proposal is to eliminate the election this year. It just so happens that the directors of the New Jersey bank whose terms expire this year-A, B, and C terms—are all from the State of New York. They have four directors upon that bank board at this time. Carrying out the provisions proposed will leave New York State with one director and New Jersey will have five. It will work an inequity. It will discourage the New York member institutions that are members, and will very seriously retard, in my judgment, the obtaining of new membership. We feel that there is no good purpose to be served by the suggestion so far as the bank is concerned. They have had, we think, good management. The records show it. I think the board will agree that . that is true, and we just think that the change at this time will be a disturbing effect in the development of the system.

Senator BULKLEY. I would like to ask you a question, apart from the matter of disturbing it at this particular time. Just forget for the moment, that it has been organized any other way, and tell me whether you know of any reason, if we were starting the system anew, why the set-up should be any different from the Federal Reserve bank set-up.

Mr. FRIEDLANDER. On the basis of the argument that has been made for this proposal, I do not think that it is very convincing along the line of the Federal Bank System.

Senator BULKLEY. What I am inquiring about is whether there is a difference in the nature of the case.

Mr. FRIEDLANDER. I am just coming to that. As I understand it, the argument has been made that because the Government owns at this time 80 percent of the capital of these banks, that is a compelling reason why there should be a change made. The Government does not own any of the capital of the Federal Reserve banks.

Senator BULKLEY. I did not suggest that argument at all. I am trying to find out what there is that is wrong with the Federal Reserve set-up, and why this case is any different, if there is any difference. In respect to ownership of stock, it would argue for a larger Government representation, but I am trying to find out if you have any argument why it should be a smaller representation.

Mr. FRIEDLANDER. I have none, Senator. I do not think either one is based upon any purely logical reason, perhaps. That is just my judgment about the matter. I do not know any logical reason why the Federal Reserve should have six, or why, in the Federal Home Loan Bank System, it should be six. It is just set-up in that manner, and inasmuch as it does not represent control, I cannot see any occasion at this time to make a change.

There has been this crop out of this discussion in our circles, which may or may not be material, but we are engaged—the Federal Home Loan Bank Board and the banks, in some sections in the encouragement of the development of Federal savings and loan associations, which, as you know, are individual institutions. The Government is putting in, in some cases, or has the authority to put in, $3 in capital for every $1 of community funds. If this proposal can be logically sustained on the ground that the Government capital predominates, some of these institutions and proposed institutions are wondering when the proposal will be made that the Government shall have representation upon these local community boards for the same reason. It will establish a rather bad precedent that may retard the development of those institutions. I think one argument is just as logical as the other. As you know, the act ultimately calls for the retirement of Government capital. That may be a long time off, but the plan is there. The bill, you know, provides that as private capital comes in and reaches a certain point, Government capital will go out, so that the situation with regard to the predominance of capital may not remain the same.

The House took that provision out, and substituted for section 3 a section providing for an advisory council, a Federal Savings and . Loan Advisory Council, which was a suggestion of the United States Building and Loan League. I am in a rather peculiar position with reference to that advisory council. The Board has created one by resolution, and I happen to be the chairman of the advisory council selected by the group. Therefore, I am in the position of arguing against losing a job. Inasmuch as it does not pay any salary, I presume it is all right. The advisory council, as created by the Board, by resolution, has done effective work. The United States Building and Loan League, however, feels that it could be more effective if it were a statutory body.

Senator BULKLEY. This provides merely statutory recognition for something that exists already.

Mr. FRIEDLA NDER. It exists already. The only difference is that the Board, under the present system appoints the membership. Under this proposal the banks themselves elect their membership to the advisory council which advises the Board. This suggestion is taken from the Federal Reserve Bank System, which has its statutory advisory council.

Senator STEIWER. In either case there are as many members as there are Federal Home Loan bank districts.

Mr. FRIEDLANDER. In either case there are 12 members, yes. There is no difference in the set-up at all.

Senator BULKLEY. May I interrupt there to ask Mr. Fahey if the Board is in accord with that suggestion of an advisory council ?

Mr. Fahey. The recommendation or suggestion for the appointment of an advisory council was made something more than a year

ago by the League, and the Board promptly adopted the suggestion and appointed such council, and it has been meeting from time to time. It also has a second advisory board, made up of the presidents or the operating officials of the banks, and they meet regularly also. The council is made up at present of about half of publicinterest directors and the other half of those who are directly connected with the building and loan associations, as officials in some capacity. At least, that was the representation at our last meeting.

Senator BULKLEY. Is the Board opposed to this provision as it passed the House?

Mr. Fahey. The Board feels that it is covered already and covered very adequately.

Senator BULKLEY. In other words, that it is unnecessary ?
Mr. Fahey. Yes, sir.

Mr. FRIEDLANDER. Of course, our position is that perhaps an advisory council that was not appointed by the body which it seeks to advise might be just a little more courageous and independent in its action than one that received its authority and appointment from the Board which it seeks to advise. That is about the germ of the difference as between the League views and the Board views with regard to this matter. It is not one of those acrimonious things that there should be any squabble about.

Section 4 of H. R. 6021 is identical with section 4 of S. 1771, with the exception that the House reduced the term of years in their eligible collateral for advances in the Home Loan Bank System from 8 years, under the present act, to 6 years; in other words, permitting a 6-year amortized note to get the same advantages as to advances as collateral as an 8-year note or more heretofore has been given. Aside from that, the purpose of the section is to give to the obligations of the United States, or obligations that are fully guaranteed by the United States, the collateral privileges behind long-term obligations or advances in the bank system. I think that is perhaps the only change made in the present act.

Senator BULKLEY. You would rather have it 6 years than 8 years?

Mr. FRIEDLANDER. We have no objection, and there are some States where they have quite a lot of collateral of 6-year notes, that would expand the services of the bank, and we see no objection whatever to that being passed.

Section 5 of the House bill is identical with section 5 of the Senate bill, and again affects the collateral for advances. It permits 20-year loans to be used, instead of loans that have only 15 years to run to maturity. As you know, since the passage of the original Home Loan Bank Act, we have got into longer-term loans, and this will permit the advances to be made upon insured mortgages that may run up to

It also irons out a conflict in the language between the $20,000 provision of the Home Loan Bank Act and the Home Owners' Loan Corporation and the National Housing Act. This Federal Home Loan Bank Act did not permit advances where the property or the home itself was worth more than $20,000. The other acts have limitation based upon the unpaid principal of the note. It might be a $20,000 note on a $30,000 or $40,000 home. This merely makes the acts consistent. We are favorable to the changes as recommended.

20 years.

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