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 to get 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

borrow in a certain portion of the year and then you will have to pay out. It would not be seasonal exactly, but they would have to handle it in somewhat that way.

Senator MORRISON. Mr. Wood, it is a fact, is it not, that while the farmer can look for help through the farm land bank, can get the benefit of loans and discounts; and while the merchant and the manufacturer can hope to get the benefit of discounts through the regional banks, yet there is no provision looking to the home owner and the town man whose home does not come under the definition of farm.

Mr. WOOD. That is true.

Senator MORRISON. He does not have the benefit of anything of that sort under the present banking and currency laws.

Mr. WOOD. No. There is no place like that for him to go.

Senator MORRISON. As a commercial banker don't you think it would be wise to supplement the banking system and constitute such an agency as this proposed here?

Mr. WOOD. Yes, sir; I do.

Senator WATSON. Any other remarks?

Senator COUZENS. I should like to ask the witness whether or not he does not distinguish between putting up money for capital investment and putting up money for commerce or production.

Mr. WOOD. How do you mean?

Senator COUZENS. I mean as to the Government doing it. The Federal reserve system of course was set up to expedite the flow of currency in commerce. The Federal land banks were set up to expedite production in the matter of maintaining farms and producing food supplies. Now comes along a proposal to set up an institution to take care of capital investments in homes.

Senator BULKLEY. The Federal land banks and the joint stock land banks are capital investment institutions.

Senator COUZENS. Yes; but for the purpose of enabling the farmer to produce food supplies. That is not the case here. If this goes through as a permanent agency of course we will have another set or rediscount banks set up for there will be a demand for the purpose of supplying money for hotels, apartment houses, factories, and all that sort of thing, because they obviously are entitled to the same consideration, it seems to me, from the Government as any other activity. I am just pointing out that if the Government is going into the matter of furnishing capital for building operations in any one line of activity will not the same thing arise when it comes to needing money for other capital investments? That is the point I should like to add now. The witness is a commercial banker. He knows the distinction between a fixed asset and a liquid asset.

Here is a case where we are proposing to set up an agency to take care of fixed assets. The witness knows that he is engaged in doing business mostly with concerns that have liquid assets, and he tries to keep his bank going with credits to liquid organizations. But here is a case whereby there is to be a set-up for furnishing capital. It seems to me there is a clear line of distinction. I am just wondering whether the witness doesn't believe there is a distinction between the several groups that the Senator from North Carolina (Mr. Morrison) points out.

Mr. WOOD. There is supposed to be a distinction, but as a matter of fact in practical application there has not been in the case of the Federal land banks. They have furnished too much capital in my opinion. And so have the joint-stock land banks.

Senator COUZENS. And won't this proposal invite the same thing? Mr. WOOD. Not if it is properly managed.

Senator COUZENS. Oh, well. As a matter of fact I do not believe any of these other institutions now that have frozen assets would have been perhaps in the same difficulty if they had not gone into lending too much money on apartment houses and other fixed assets, and to foreign nations through international bankers, and secured assets that are not liquid.

Senator MORRISON. They are not in much worse fix than the commercial bankers of the country at the present time, are they, Mr. Wood?

Mr. WOOD. No. In fact, taking everything into consideration, I think the Federal land bank system has done very well.

Senator COUZENS. I thought you said they had overloaned.

Mr. WOOD. I think they have, but everything considered they have done pretty well to come out as well as they have. I think they have loaned too much and probably should have been more strict in their lending policy.

Senator BULKLEY. Do you mean their appraisals are too high or that they have made loans they should not have made?

Mr. WOOD. They have made loans they should not have made. I think in many cases they were loans used too much for buying other real estate. They were pyramided. And also for buying luxuries, and so forth. In other words, I think they were encouraged to borrow on such long terms that they felt they never had to pay it back, it was such an easy thing.

Senator BULKLEY. They went beyond the intent of the act, you mean?

Mr. WOOD. I think they did. I know that the joint stock land banks did.

Senator COUZENS. Are you lending now to industry and to merchants?

Mr. WOOD. Yes, sir. We are taking care of our customers. Senator COUZENS. But you are not taking on any new business? Mr. WOOD. Not any outside business.

Senator COUZENS. Are you refusing money by way of loans to your regular customers for their normal business?

Mr. WOOD. No, sir; not where they are entitled to credit.

Senator COUZENS. I suppose you are more strict in analyzing their trial balances.

Mr. Wood. Oh, yes. The credit situation is so dangerous you have to be.

Senator COUZENS. Are you keeping unusually liquid during these times?

Mr. WOOD. Yes, sir.

Senator COUZENS. Is that fact contributing at all to a lack of adequate credit?

Mr. Wood. Oh, I think it is; yes, sir. But the banks are in this situation. They admit I think that the banks started a lot of the trouble by being run improperly, by extending too much credit. I