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very badly demoralized one, especially in the smaller towns. The smaller banks in the smaller communities do lend very largely on real estate, homes, and farm lands, and that is one of the reasons why they are in such great distress to-day in our part of the country. They have so large a part of their loans on real estate.

Senator MORRISON. And your bank has been extensively engaged in helping those smaller banks throughout this period?

Mr. Wood. Yes. We have done business with other banks in our part of the country for years. We have been one of the big clearing banks of that section. We have lent money to banks, and have carried accounts from them for many years. I feel very strongly about the benefits of this home loan bank system, if you propose to organize it, especially in this present situation. I think in normal times, how

ever, that

Senator WATSON (interposing). Do you look upon it as desirable as an emergency proposition, or as a permanent institution?

Mr. Wood. Well, I think its great need is in this emergency. I think it will be beneficial as a permanent thing if operated along the lines of the Federal reserve system. In normal times the Federal reserve will not permit a member bank to borrow from it continuously. It is a seasonal proposition, the borrowing is, with them, and should be. And that should be the policy, I think, with the proposed home loan bank system.

Senator COUZENS. How could a home loan bank be seasonal like merchandizing?

Mr. Wood. I do not think it could be in this emergency, but in normal times it could.

Senator COUZENS. How?

Mr. Wood. Well, they could require member banks to do as is done in the case of the Federal reserve system. They need not borrow from them in normal times, permanently on new real-estate loans, and they should be required to pay them off once a year and stay out a while, just like the Federal reserve does, in order to prevent too much inflation along that line. I think under present conditions they should not encourage any more building, not during this depression, because I think we have a tremendous oversupply of buildings now, and no encouragement should be given for the present toward new building. What they want to do is to take care of this tremendously distressing situation now in real estate-homes. I think it would be a great work in that respect, and be a great stabilizer of the present situation.

Senator COUZENS. Well, you certainly do not want the present situation stabilized, I take it.

Mr. Wood. Not exactly where it is, but I want it held up from its demoralization. It is going further all the time.

Senator COUZENS. But you said you wanted the present situation stabilized.

Mr. Wood. I did not mean to stabilize it at its present condition. I want it kept from going on to further demoralization in the value of homes. They seem to have no value any more.

Senator MORRISON. Mr. Wood, isn't it a fact, in your opinion, that thousands of people who under normal conditions would be able to keep their homes are going to lose them in North Carolina is something is not done?

Mr. Wood. Yes, sir. I think thousands would be able to keep them if banks, building associations, and other organizations that lend on homes had some place of rediscount, like the commercial banks have in the Federal reserve. I think under present conditions it would save thousands of homes from foreclosure.

Senator MORRISON. Do you think there is anything in this bill that will hurt commercial banking?

Mr. Wood. No, sir.

Senator MORRISON. Isn't the sentiment of commercial bankers in North Carolina in your opinion quite favorable to this measure?

Mr. Wood. So far as I know it is. I have heard no one express any objection to it.

Senator CouZENS. Have you made any computation as to the volume of business that the banks might expect during this stabilizing period you refer to?

Mr. Wood. Do you mean during a period like this?

Senator COUZENS. Yes. I am talking about stabilizing periods. But, of course, you do not want this present period stabilized.

Mr. Wood. You mean like normal times?
Senator COUZENS. Yes.

Mr. Wood. I think they would do quite a volume of business, but I have no figures on it. I do not think it would be near as much business as they would do now, and ought not to be.

Senator COUZENS. I was wondering whether the business would be adequate to sustain such a large organization as 12 discount banks. I mean during the normal times that you preferred to.

Mr. Wood. I do not know whether it would or not. There is some question at least about that.

Senator COUZENS. That is a question that has been running in my mind. And I am glad to hear that there is a question about it in your mind. I have not been here all the time, but there has been no testimony given as yet, so far as I know, as to the volume of business that these 12 discount banks might expect to receive, and what the cost of operating the banks would be, or whether they would be selfsustaining

Mr. Wood. I think that is a very interesting question, and one that I could not answer.

Senator WATSON. We are just asking in general terms now whether in Mr. Wood's opinion this would be a profitable institution.

Senator COUzens. That is hardly an adequate showing. If I were asked to make an investment in the banks I would want to know the volume of business you expect to be done, and what would be the return thereon, and whether the business would continue. And I think we should protect the Government which puts up the capital to a similar extent, in addition to whether we should protect some building and loan association and some savings bank.

Mr. Wood. I think that is something that will have to be decided on experience.

Senator COUZENS. It would be too late after we establish all these banks, to depend then upon experience.

Mr. Wood. That is true. But I think they will have quite a volume of business. Whether it will justify the expense of the operation of 12 banks, I do not know. But I think they would have quite a volume of business. I imagine the board that would be appointed, that the Senate would appoint, would comprise a body of men who would not let it go along in normal times in a way that would cause another big inflation of overbuilding. Therefore I think in normal times the operations would be very small as compared to what they would be now.

Senator COUZENS. Do you know anybody who has made an estimate of what it would cost to operate these 12 rediscount banks?

Mr. Wood. No; I do not. I should think you could arrive at that somewhat by comparing it with the operations of these other banks.

Senator TOWNSEND. Do you mean the Federal reserve banks?
Mr. Wood. The Federal reserve and the Federal land banks.

Senator Watson. When this matter was first brought to me I objected to 12 banks. I rather doubted whether 12 banks could become self-sustaining under the provisions of a bill like this. But the people interested said that a sectional feeling entered into it, and that possibly some parts of the country might be alarmed if they were allocated to the larger centers. For instance they feared there would be a bank established in New York, and one in Chicago, and one in San Francisco, and so forth, and that the South might be frozen out. Therefore they insisted upon a certain number of banks, so that the South would have its adequate proportion. And I could understand that thought.

You know we constantly have before us propositions to zone the Interstate Commerce Commissioners and to zone the Radio Commissioners, and all that sort of thing, and that same spirit entered into this proposition. That is a perfectly frank statement of the situation. And one is bound to sympathize with that more or less, provided, as Senator Couzens well stated, that these banks may be made substantial and safe.

Senator MORRISON. Mr. Wood, in normal times, I mean when times were good, there was always a large demand in our State and in the South to rediscount home loan mortgages and mortgages on farm lands; not so great as now, but commercial banks have always done certain rediscounting, I take it.

Mr. Wood. Yes, sir; commercial banks always have them and could use them in normal times. I think there would be quite a volume, but whether enough to support the existence of 12 banks, I do not know.

Senator COUZENS. I am glad you are frank about that, because it occurs to me that now we have greatly curtailed immigration, the growth of the country in the future will be less than in the past, and yet in all our period of development we have not required this system of rediscount banks for mortgages. I have just wondered what it is that stirred this up, except the present depression. And if this present depression is not to continue, then just what function will these banks have when we get back to normal. I do not just get the needs of the proposition when we have gone through our great period of expansion without them; just how we will maintain these 12 rediscount banks after we get back to normal.

Mr. Wood. That is true, that we in this country probably, as I understand it, had one of the greatest volumes of home building of any country in the world, and we did it without these banks, and we overdid it without them.

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Senator COUZENS. Yes. And what will you do when you get. them?

Mr. Wood. Well, I think if you get them now you are going toget a great deal of good in this present situation.

Senator COUZENS. I am not talking about the present situation. I am not opposed to helping out in the present situation. But what about the future? If you once get this set up there will be twelve banks with large fixed overhead, and a lot more bureaucracy as you know, and I just can not visualize what the need for them would be after we get out of this depression. That raises the question whether or not some temporary situation might not be better than to set up a permanent system of this sort. Mr. Wood. I think that is a very interesting question all right.

Senator BULKLEY. In the present emergency what is there that could be accomplised by this set-up that could not be accomplished by the Reconstruction Finance Corporation, I mean if you are going to refer to it as only an emergency measure.

Mr. Wood. Well, if the Reconstruction Finance Corporation is. permitted to function with real estate loans, home loans.

Senator BULKLEY. There is nothing to prevent it, is there?

Mr. Wood. I do not know. If so, then they could take care of this emergency

Senator BULKLEY. I had the thought that the whole value of this legislation was to set up a permanent system as distinguished from an emergency system. Now, you do not think it is of much value as a permanent system.

Mr. Wood. Well, I do not know. I think it would have a value, but whether it would be justified or not based on the expense I can not say, but I think it would have a value all right.

Senator MORRISON. Suppose we were to cut down the number of banks as proposed here.

Mr. Wood. I was wondering why you could not try it out first with a lesser number of banks, and then enlarge the number if it is found practical to do so.

Senator MORRISON. Mr. Wood, don't you know that right through the flush times our State was plastered all over with mortgages bearing 12 and 14 per cent.

Mr. Wood. Yes, they charged high rates of interest in a great many parts of the country on real estate.

Senator MORRISON. And that there was more demand for credit for homes and for people to get homes and to keep them, than by reason of the vicissitudes of misfortune, could be accommodated, and that foreign companies went in making loans ostensibly at the legal rate of interest, but that they so amortized them as to mean 12 per cent and 14 per cent.

Mr. Wood. Yes, that is true.
Senator MORRISON. All over our State.

Mr. Wood. Especially in the smaller towns. In the small towns, insurance companies, as a rule do not care to go into the matter of making loans.

Senator MORRISON. That went on in the most prosperous days that we had, and very extensively.

Mr. Wood. That is true. And a man who owned a home that did not come to the full requirements or conditions that the insurance companies had surrounding their making of loans, could not get a loan except at a higher rate from a financing company, and he paid the higher rates, too. That particularly applied to the smaller towns. Senator MORRISON. Isn't it also true

Mr. Wood (continuing). They had to go to the banks in many cases, if they got any money at all, and the banks got loaded up in that way in real estate.

Senator MORRISON. Isn't it true that the banks in the smaller cities and particularly in the smaller towns took a good many of these loans as a matter of necessity, and yet they did not want them, and thereby it diminished their effectiveness as ordinary commercial banks?

Mr. Wood. Yes, it did.

Senator MORRISON. Wouldn't it have helped the situation if there had been some outlet to rediscount those mortgages, and wouldn't it have tended to prevent the present conditions?

Mr. Wood. It would have saved a lot of banks from failure.

Senator COUZENS. No one questions that, but I am trying to get at the volume. I can not visualize yet an adequate volume to maintain 12 rediscount home-loan banks.

Senator MORRISON. Personally I am not a witness, but I believe they would do more business than the Government ought to let them do, and they would have to put some restraint on them.

Senator Watson. It might have a tendency to take people out of apartment houses and put them in individual homes.

Senator COUZENS. That would be interesting to apartment house

owners.

Senator WATSON. No doubt. But I am talking about the individual home, which is after all pretty much the basis of society. I have never known anyone to shoulder a musket in defense of a boarding house.

Mr. Wood. Well, I think if the board permitted it in normal times they would do more business than they ought to do. I think they would get the business if it were permitted, but I say it ought not to be permitted in normal times.

Senator TOWNSEND. Do you mean that they would get the business because of the low rate of interest offered by the Government?

Mr. Wood. Yes. And I think there would be overbuilding. If the board countenanced it you would have another overbuilding program. I think in normal times the board would have to restrict the banks more or less, like is done with member banks of the Federal reserve system, that they could only borrow in season and then pay out.

Senator COUZENS. You have referred to the matter of seasons. Is there any season for home building?

Mr. Wood. There is no season for home building. I use that word because that is the way the Federal reserve system operates.

Senator CouzeNS. Yes; but they operate when grain is moving or some goods are moving.

Mr. Wood. Yes.
Senator COUZENS. Therefore, they have seasons of the year.

Mr. Wood. Yes. I think the proposed home loan bank board would have to restrict their members in the matter of borrowing in normal times, in the same way as is done in the case of the Federal reserve system. In other words, they would have to say: You can

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