small shares. If you have a $2,000,000 building and loan association, you have 2,000 or 2,200 shareholders, and even though you had accumulated 10-percent reserve, if you made a charge-off to those reserves you could not pay the 2,000 any earnings in that period.

Senator BULKLEY. As I understand it, you are for section 21 as it is written, and your remark is to stress the importance of it.

Mr. BODFISH. To stress the importance of it. The proposal in the administration bill is that an exception be made, and that you get your dividend approved in Washington in case you want to make a charge-off. We think that is entirely impracticable.

I think that on the other matters we are very much in agreement. Section 24 is rather important, and the Federal Board has no objection to it, as I understand it. We are taking no position on the provisions dealing with the F. H. A.

There is one section that we would like to have added to the bill, and then I will terminate my testimony. The original title IV of the Housing Act, which provided for the insurance of shares, had a special provision with regard to withdrawals from the insurance. You had to pay three years additional premiums if you withdrew voluntarily, or if they ejected you for some reason you paid 5 years additional penalty premiums.

We are willing to concede that institutions should not be permitted to withdraw captiously. We are perfectly willing to pay a 1-year penalty premium for the privilege of withdrawing, or even 2 years would be better than 3 or 5.

I invite your attention to the fact that in the administration banking bill-supposed to be the administration bill-which provides for a 2-year withdrawal privilege or penalty if institutions desire to withdraw. We feel that institutions would be much more inclined to use the Savings and Loan Insurance Corporation if they felt that they could get out on a reasonable basis. We have had rather strennous objection to the 3- and 5-year provision, and we object even more strenuously to the rules and regulations the Board adopted carrying out the provisions of Congress.

Senator BULKLEY. You accept the principle, but you think the provision in the law is a little severe?

Mr. BODFISH. It is entirely too severe.

I think, Mr. Chairman, that Mr. Friedlander's statement, together with my own, put our views before the committee. We think that if we can have early passage of the bill in the House form our building and loan business will begin to get going. We have improved more in the last 4 or 5 months than in the previous 4 years. We feel that this legislation perfects the three existing statutes dealing with home mortgages, and that we can get going and make a creditable showing in the next 12 months if this legislation is passed. We feel that further applications to the Home Owners' Loan Corporation, if the thing is thrown open, will set us back very substantially.

Savings, building and loan associations in United States, 1933

PETITION TO THE SENATE AND HOUSE OF REPRESENTATIVES IN CONGRESS ASSEMBLED, RE H. R. 5531 AND S. 1771

PREPARED BY UNITED STATES BUILDING AND LOAN LEAGUE, CHICAGO, ILL.

PRELIMINARY STATEMENT

The following suggestions for the amendment of H. R. 5531 and S. 1771 are submitted and their consideration respectfully urged on behalf of the savings, building and loan associations of the United States. Such amendments, in the judgment of the petitions, will not only perfect and make more useful existing legislation and administrative procedure, but will substantially aid in the encouragement of thrift and in making possible the building, owning, buying, and refinancing of homes.

This petition is presented by the United States Building and Loan League, a national organization founded in 1892, representing over 4,000 individual institutions, 46 State leagues,and over 75 percent of the assets in this type

of thrift and home-financing institutions. These associations have 9,000,000 investing members and nearly 2,000,000 persons are acquiring homes through their facilities. Over 95 percent of the assets represented in the Home Loan Bank System are affiliated with the League. The League is joined in these recommendations by the national organization of State supervisory authorities, who have participated in their preparation.

COMMENTS AND RECOMMENDATIONS RE: H. R. 5531 AND S. 1771 (SECTION BY SECTION)

Satisfactory in present form.

SECTION 1

SECTION 2

Probably satisfactory in present form. This is proposed by the Federal Home Loan Bank Board and has not been discussed or considered by our organization or member associations. The initial reaction of the leaders of the organization is to prefer to continue to pay the Government for such funds as are made available to the system. If the Federal Home Loan Bank System is to succeed, it must be a financially-sound business operation and also must be able to pay the expenses of the supervisory board in Washingtou. To date the system has paid the Government over $2,600,000 for the use of the Government funds which are very safely invested. The amendment can be justified on an emergency basis.

SECTION 3
Recommendation

Amend by striking out the entire section 3 of H. R. 5531 and S. 1771.

Explanation

There are a number of compelling arguments against this proposal of the Federal Home Loan Bank Board.

1. The Government is represented now by two public interest directors on each board, selected by the Federal Home Loan Bank Board, which also appoints the chairman and vice chairman (who are, therefore, the leaders in the boards). In addition, the Federal Home Loan Bank Board itself is exclusively a Government-appointed and controlled board, which has as substantial control over the activities of the 12 banks as any other financial board in Washington has in its particular field. The Federal Home Loan Bank Board not only has complete powers of supervision, and broad powers of regulation, but it controls the banks even in some of their most detailed policies through approval of appointment and compensation of bank officers, power to remove directors and officers, power to assess the banks without limit and power to prescribe forms, routine and procedure. Recently the board has taken over the direct employment of the examining personnel of the banks.

2. The only argument for change at this time is that the Government has approximately $80,000,000 invested in stocks in the banks, while the members' investment now totals approximately $22,000,000. The facts are that the Government's capital has been carefully husbanded, thoroughly protected and honorably managed. It was contemplated in the original statute that the stock subscribed by members would continue to increase until the banks had a sufficiently strong structure to retire Government capital completely. In spite of the severest depression in history, not a month has passed in which the investment of members has not increased. As the volume of credit in the banks expands, this increase of members' capital should be accelerated. 3. Membership in the system is voluntary. Hundreds of institutions invested in the capital stock with both business and patriotic motives. Their rights to participate in management should not be changed without long and thoughtful study of the question.

4. It seems also, when the banks are being well managed, that it would be "bad psychology to make a change which eliminates three directors who have been elected by the members. After all, these are men who have taken

their own time and at personal expense and effort have been responsible for much of the progress that the system has made. This action is, in effect, a repudiation of their splendid efforts. No useful, practical purpose is served by such a move. There is no evidence to indicate that a decrease in the number of representatives of the members will bring better management or more successful operation. The development and progress of this system is essentially a problem for men who understand the conduct of the thrift and home financing business and who have a full-time interest in the progress and future of the savings and loan idea. The work and leadership of such men is not irreconcilable with the public interest.

5. Our organization firmly believes that the system will be most effective if a fair division of responsibility is maintained, believing that the bank system should be a decentralizing influence in the business of home financing. A change at this time will certainly discourage wider membership, use of the insurance facilities, and the general enthusiasm of the institutions for the whole Federal Home Loan Bank Board program.

6. The complete elimination of this section will meet with the complete approval of our organization and of the member institutions of the Federal Home Loan Bank System.

Satisfactory in present form.

SECTION 4

SECTION 5

Acceptable, although some may doubt the wisdom of encouraging associations to make mortgages as large as $20,000.

SECTION 6

This perfecting amendment is satisfactory.

SECTION 7

Recommendation

Amend by striking out the entire section 7 of H. R. 5531 and S. 1771.

Explanation

The Congress should continue to exercise some control over the expenditures of money by public agencies. No board or bureau should have the sole power to levy assessments and to undertake such expenditures and activities as it alone desires. A portion of the funds for operating the Federal Home Loan Bank Board are paid by the 12 banks. This amendment to the Federal Home Loan Bank Act would remove the opportunity of member institutions to be heard by an impartial legislative committee in case they feel the assessment of the Board are onerous or provide for an undue expansion of Federal personnel or activity at the expense of the banks and the member associations. While the Board has broad supervisory responsibilities, its assessments upon the 12 banks are already on a $300,000 per annum basis, and this notwithstanding the fact that it has 3 other major activities under its jurisdiction.

Our organization strongly prefers that Congress retain some jurisdiction over these funds. Such fees or charges as the Federal board must make for examinations of individual institutions should be excepted from the routine appropriation procedure.

SECTION 8

This section is satisfactory in its present form, and we especially commend the present language, which confines the use of the moneys to "applications heretofore filed."

Satisfactory in present form.

SECTION 9

SECTION 10

Recommendation

Amend section 10 of H. R. 5531 and S. 1771 by adding the following language to the proposed section 10:

"The corporation is immediately authorized to purchase shares in building and loan associations, savings and loan associations, homestead associations, and cooperative banks organized and operated under State charter or under the supervision of the Comptroller of the Currency of the United States and to make deposits or purchase certificates of deposit or investment certificates in savings banks and building and loan associations upon terms agreed upon. Such funds shall be made available without discrimination in favor of Federally chartered associations."

Explanation

The purpose of investing in Federal associations is to increase the flow of mortgage money in communities around the country. There is no reason why some of the 10,000 State-chartered institutions cannot be used for the same purpose without forcing them to cast off their State charters and become Federal institutions. A program confined to Federal associations is not only an unfair discrimination in the use of public moneys, but fails to use all of the outlets in the interest of immedate mortgage-lending activity.

The Federal Home Loan Bank Board has had $100,000,000 approved exclusively for the use of Federal associations for over a year and a half, of which less than $14,000,000 has been disbursed to date. Numerically there are 688 Federal associations, in contrast to 10,727 State-chartered associations. The assets of the Federals are 22 percent of those of the State institutions. It should be noted in this connection that in the Reconstruction Finance Corporation legislation for banks, even where national banks were greater in numbers and assets, the Congress did not exclude the State banks from the privilege of receiving stock investments. It should also be recalled that the House of Representatives passed a share-purchase provision for State-chartered institutions in the last session of Congress.

State supervisory officials are unanimous in requesting equal share-purchase provisions for State-chartered institutions. Both as a matter of fairness and in the interests of getting the desired action, the share-purchase facilities should be made available to all sound thrift and home-financing institutions. Conversion to a Federal charter should not be required unless the purpose is to eliminate our whole system of State-chartered community thrift and home-financing institutions, thousands of which have made an enviable record in assisting people of small means in thrift, as well as in the building and buying of homes.

SECTION 11

Recommendation

Amend section 11 of H. R. 5531 and S. 1771 by adding at the end the following sentence:

"Such funds shall be used impartially in the promotion and development of local thrift and home-financing institutions, whether State chartered or Federal."

Explanation

The original section 6 of the Home Owners' Loan Act of 1933 provided $150,000 for the promotion and development of Federal savings and loan associations "or similar associations organized under local laws." In the act of Congress approved April 27, 1934, an additional $500,000 was made available, and now a further $200,000 is proposed. Every dollar of these public funds has been used to organize Federal savings and loan associations, or to encourage the conversion of State-chartered institutions into Federals. It would seem that this work has passed the first stages in which extensive subsidy is necessary, or at least the funds should be constructively used in the interests of all institutions, as was clearly the intention of Congress in the original Home Owners' Loan Corporation Act. This is not a request for elimination of this item, but a suggestion that the use of the funds be substantially broadened in accordance with the original legislation.