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Mr. Scott. Ten years. Not for the purpose of bringing out prior servitude, but as a background for the expression of my own opinion on the subject of this proposed legislation, I would like to say that prior to that time for eight years I was general counsel of the Federal Land Bank of St. Paul, the largest of the farm loan banks, and prior to that assistant in the attorney general's office in St. Paul.

Senator WATSON. How many building and loan associations do you represent?

Mr. Scott. There are at the present time 79 associations functioning in the State of Minnesota.

Senator WATSON. In the whole State ?
Mr. Scott. In the entire State; yes.
Senator WATSON. What is their present condition?

Mr. SCOTT. Their present condition, so far as the payments on their home loans is concerned, is better than it was a year ago.

Senator WATSON. How do you account for that?

Mr. Scott. I attribute it to the fact that Mr. American Citizen to-day is not thinking of a new automobile, a new electric washing machine or a new radio or matters of that sort, which a few years ago were considered necessities but are now regarded as luxuries. He writes out his check on the first of the month on his building-andloan mortgage.

The situation as far as withdrawals are concerned is about 60 per cent stronger than it was a year ago. I can safely say that.

That, as Judge Warren stated, is due to the conditions of the time and the necessity that many persons feel, not because of a lack of confidence in the building and loan association as a medium for their investment, but they must recapture some of their savings.

Senator WATSON. You have read this bill, of course, the last draft of it?

Mr. SCOTT. I have, Senator.

Senator Watson. What is your opinion and why? Give us your statement on the whole subject as you see it.

Mr. Scott. I have just sketched off a few points, Senator.

As this measure has been proposed by the President in his relief program, I am reluctant to oppose it, but I do so in order that the record may be kept clear, as I feel it is my duty to point out wherein it will not fulfill the purpose nor attain the objectives that the sponsors desire.

The associations in Minnesota and the Northwest need no relief legislation, but if they did, this measure would not afford it. If we needed such relief, the passage of this legislation would be like sending a pulmotor to a drowning man by freight. At this time permissive legislation is necessary in most States of the Union before building and loan associations can qualify as members of the system and be entitled to avail themselves of the borrowing privileges.

Senator WATSON. Tell us why.

Mr. Scott. For instance, in our own State and all of the Northwestern States and in many other States in the country, a building and loan association has no legal right to assign or hypothecate its mortgages as collateral. It can only borrow by using its own unsecured note. That would mean that in our own State it would be necessary to wait until the next session of the legislature a year from now if some of the associations desire to avail themselves of the benefit that they see in the system, assuming that this legislation were enacted into law. It would be necessary to amend our laws to provide that the hypothecation of their securities would be perfectly legal. And in many States of the Union that is the situation.

In some of the States there is grave question with regard to the provision that during the first 42 months of the functioning of the act a building and loan association situated in a State where the law will not permit it to buy stock in any corporation it would be just as acceptable for the association to pay for its stock by putting up bonds or securities or cash to be entitled to participate in the system. There is a grave question in some of the States that a building and loan association can even do that, that it would be investing its money for the time being in a Federal corporation and depositing its money away from home.

Consequently, it would take at least three years before the necessary legislation could be secured from the various State legislatures. This would mean that the benefits of the act would be postponed for over three years. Any measure whose benefits accrue after three years can not be put in the emergency class.

We, in the Northwest, believe that if it is to be regarded as emergency legislation, so far as the building and loan associations are concerned, we could not avail ourselves of the benefits of the act for a 3-year term, and some one has an entirely different idea of the length of this so-called depression from what we have.

The general outline of the act follows that of the Federal reserve bank act, with this fundamental difference, that there is in the pending bill no authority to bring in the instutions listed as eligible to membership.

When the Federal reserve act was passed I believe I am correct in stating that it took at least two years before it was successfully on its way. But under the Federal reserve act you already had Federal units in existence by way of your national banks who were compelled to join the system whether they wanted to or not. In this particular case you have no such Federal units or any units in existence over whom you have authority to insist that they join the system. There are existent at this time none of these Federal units which can be compelled to join.

Consequently, the number of financial institutions eligible to membership who would join is problematical. The passage of this bill would be comparable to the building of a department store on a country crossroad without visible assurance of any customers.

A canvass of the larger concerns convinces me that there is no demand for legislation of this character. The machinery provided in the pending bill will cost a lot of money. In this period we are economizing. Why create another spending agency, or tax-eating bureau? We could get along as well without it.

Senator Watson. Your building and loan associations are not now distressed?

Mr. Scott. I will say this, Senator, that there are a few whose demands for withdrawals are pressing them somewhat; but we have the same protection in that State as in almost every other State in the Union, that after the shareholder serves a 30-day notice of withdrawal and the 30-day period has expired, if your withdrawal commitments at that time are more than 50 per cent of your monthly receipts and you hold your withdrawal payments to that 50 per cent and follow the law strictly and not try to imitate a bank, paying it on demand, the building and loan associations can never be in distress even from the withdrawal standpoint.

Senator Watson. What about the monthly payments ?

Mr. Scott. The monthly payments have fallen off quite appreciably; I would say, 40 per cent.

Senator Watson. Where men have borrowed and are paying so much a month on the loan, are they defaulting to amount to anything?

Mr. SCOTT. As I have stated at the outset, the collections are better this year than they were a year ago.

Senator Watson. Does that mean that they are many or few or none? “ Compared with a year ago” does not mean anything unless you have the figures.

Mr. SCOTT. The associations up there are paying 5, some 542, and one or two 6 per cent to the shareholders. That means that by the loan payments they have been able to pay that rate of return to the shareholder after paying the cost of operation and after meeting the contingent reserve fund requirements of the law; because we can not pay dividends out of interest earned but not collected.

Senator. Watson. Do you have maturing stock? When it matures, is it paid by stock issued ?

Mr. SCOTT. Yes.
Senator WATSON. Is that taxable in Minnesota?

Mr. Scotr. It is not, because of the fact that we have a mortgageregistry tax, and the State tax commission has ruled that inasmuch as all of the money invested in a building and loan association is immediately loaned out on a mortgage on which the registry tax has been paid, the building and loan association must be exempt, or it would be double taxation.

Senator WATSON. Has that been tested in the courts?
Mr. Scott. Not in Minnesota.
Senator WATSOX. Is there anything else that you desire to say?

Mr. Scott. Just this, that on January 18, 1932, the Department of Commerce sent out a circular letter to building and loan associations to secure their reaction as to this particular proposed legislation, but they did not send a copy of the new amended act. I merely suggest that if you want to get from the building and loan associations a true reaction, Mr. Building and Loan Man should receive from the Department of Commerce a copy of the act before he is asked to express his opinion on it.

Senator WATSON. It would look as if that would be the natural process. I would not want to ask a man to pass on something that he had never seen.

(Witness excused.)

STATEMENT OF B. C. HARDENBROOK, VICE PRESIDENT IN CHARGE

OF THE BANKING DEPARTMENT OF THE FIRST NATIONAL TRUST & SAVINGS BANK, AND VICE PRESIDENT OF THE FIRST NATIONAL BANK OF CHICAGO, CHICAGO, ILL.

Senator Watson. You represent a financial concern whose solvency and stability is never in question. I congratulate you.

Mr. HARDENBROOK. Thank you, sir.

Senator WATSON. That is a rare distinction. You represent Mr. Traylor's bank?

Mr. HARDENBROOK. Yes, sir.

Senator WATSON. Your business in connection with that bank is what?

Mr. HARDENBROOK. I have been connected with it for 41 years, and I think I have done almost everything.

Senator WATSON. What are you doing now?

Mr. HARDEN BROOK. I am vice president in charge of the banking department of the First National Trust & Savings Bank; also in charge of the real estate department. I am also vice president of the First National Bank of Chicago, doing whatever I am told to do.

Senator Watson. Mr. Hardenbrook, you are a banker and accus. tomed to loans and all that sort of thing, and mortgages in the city of Chicago, and have been for years and years!

Mr. HARDENBROOK. Yes, sir. I have lived there all my life.

Senator WATSON. Give us a statement about this bill as you see it and understand it.

Mr. HARDENBROOK. I am opposed to it. I might say opposed to it, because if I understand it, the real purpose of this bill is to permit people to acquire homes.

Senator Watson. To keep the homes which they have already acquired under mortgage. It is supposed to be an emergency proposition and a permanent proposition.

Mr. HARDENBROOK. I would like to conclude my sentence by say. ing that it does not accomplish it if that is the alleged purpose of the bill.

As to retaining homes, I have heard a lot of talk about foreclosures and that the banks are calling loans and insisting upon their repay, ment and that the borrowers are unable to refund elsewhere, and they are doing this because they are trying to keep their assets liquid.

In our State it takes us, at a minimum, 18 months to foreclose a loan, and it will probably be closer to two years, if not two years and a half, before we acquire title. We are certainly not maintaining our liquid condition by foreclosing loans. We can not do any. thing with it after we get it foreclosed.

Senator WATSON. How many loans on homes have you got ir.

we

are

your bank?

Mr. HARDENBROOK. That I can not answer.
Senator WATSON. Many!
Mr. HARDEN BROOK. Yes; quite a few.
Senator WATSON. Paid directly by the bank to the home owner?

Mr. HARDENBROOK. No; not directly. We were never able to develop a counter contract with our home owners. That is done largely through our outlying banks.

Senator WATSON. It is done through a system of rediscount by your bank?

Mr. HARDENBROOK. Purchase rather than rediscounting.

Senator Watson. Do you rediscount any building and loan securities?

Mr. HARDENBROOK. The First National Bank loans to building and loan associations as it would to any other enterprise.

Senator WATSON. On their securities?

Mr. HARDENBROOK. Probably on their securities in some instances; certainly on their name.

Senator Watson. Do you know in value how many of those loans you have in the First National Bank?

Mr. HARDENBROOK. I am sorry, but I do not.

Senator Watson. Have you ever had any trouble with them on account of lack of payment ?

Mr. HARDENBROOK. I can only cast my mind back and say that in 1893 to 1896 we had a great deal of trouble. We have not had any recent trouble. We had trouble with real estate at that time, and I think other large cities had. I know we had plenty of it in Chicago.

Senator WATSON. You have plenty of trouble of other kinds?
Mr. HARDENBROOK. Along with that.
Senator WATSON. Did you ever discuss this bill with Mr. Traylor ?

Mr. HARDENBROOK. Frankly, no. I think he left it to me to express my own opinion. I do not think, however, that that opinion is at all at variance with Mr. Traylor's.

Senator Watson. Could you revamp this bill or rewrite it so as to make it effective for its purpose ?

Mr. HARDENBROOK. I would not care to, Senator, at the present time; no. At present I can see no necessity for this bill, that is, for its alleged purpose, at this particular moment. I have heard a great many statements made this morning in reference to this bill and how it could be amended. Mr. Adams, for instance, has a scheme that might work.

Senator WATSON. I do not know his scheme, as you call it, is. We will get to that later.

Mr. HARDENBROOK. I want to say that I am not making this statement as a self-serving statement, but as a general statement that I should think most intelligent people could realize. We are trying to overcome a depression, if possible. That, I presume, means lack of work, lack of business, and also means a steady dropping of prices. We certainly have had a dropping of prices without any question, and I do not know of any particular line that is not affected. If it were possible, which, in our opinion it is not, to stimulate home building by this act, it would just create more vacancies than we have at the present time in our present real-estate housings.

Senator WATSON. Are you overbuilt in Chicago?
Mr. HARDEN BROOK. Absolutely.
Senator Watson. In the home phase ?

Mr. HARDENBROOK. Probably not as much in the home phase of building, although I would question very seriously the statement that there is a 5 per cent vacancy in a survey of 32 cities. I think those figures are not correct

But suppose we could build homes under this plan: that means vacancies somewhere else, and that means lowering of rents. If you

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