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tions which would, we believe, be very helpful to the management of all the banks in determining business policies. Furthermore, these directors could be generally regarded as representing the public interest when the time came to offer the bank's debentures in the market.

On page 15 strike out lines 3 to 7, inclusive, and rewrite as follows:

(1) If secured by a home mortgage given as security for an amortized home mortgage loan having a maturity date not exceeding ten years, the advance may be for an amount not in excess of 60 per cent of the unpaid principal of the home mortgage loan.

Senator WATSON. You have no objection, then, to the 60 per cent ?

Mr. Monks. No, sir. Our reasons for this, Senators, are that we can see no justification for a specified time the mortgage has to be drawn for to qualify. Any good mortgage, be it a short-term mortgage or a long-term mortgage, should be eligible for advances to be made upon it.

I think, Senator Couzens, that answers your question, does it not, that you asked a moment ago?

Senator COUZENS. Yes.

Senator TOWNSEND. I thought you had a limit of 10 years in there?

Mr. Monks. Up to 10 years.
Senator Watson. You are not making the term 10 years, are you?
Mr. Monks. No; anything less than 10.

Senator WATSON. I see. Anything less than 10. You would not go beyond 10.

Mr. Monks. Well, it is perfectly proper for you to go beyond, but I can not see why the original term should be eight years or more. That is what we object to.

Senator WATSON. Yes.

Mr. Monks. We say that any mortgage that is a good mortgage, whether it is a short-term mortgage or a long-term mortgage, should have the advantage of this law when it is enacted, if this bank becomes operative.

Mr. O'BRIEN. Just a moment, Mr. Monks. Do you mean that in the case of mortgages running for more than 10 years they are to have some other figure?

Mr. MONKS. What is that?

Mr. O'BRIEN. Mortgages with maturity dates of more than 10 years, are they to get higher or lower discount rates!

Mr. Monks. Well, that is for the committee to decide.
Mr. O'BRIEN. I was interested in-
Mr. Monks. We are putting this in here on a 10-year basis at 60

Mr. O'BRIEN. Well, how about those more than 10 years? What do they get? Anything?

Mr. Monks. We would see no objection to a 15-year mortgage.
Mr. O'BRIEN. Getting how much?

Mr. Monks. Along the same line as your insurance companies are now. If they are 50 per cent mortgages, started to be amortized in two years; if they are 60 per cent mortgages, to be amortized immediately.

per cent.

you see fit.

Mr. O'BRIEN. How much would your idea be that they should get? You say you are providing specifically that mortgages running 10 years or less shall get 60 per cent. Now, have you any provisions about mortgages running more than 10 years, or are you just omitting them from the bill?

Mr. Monks. Why, if they run longer than 10 years, instead of loaning them 60 per cent you could cut that down to some other figure if

On page 15, line 18, where it tells about that they are not to take mortgages that run more than 20 years, we question the wisdom of taking 20-year mortgages as collateral without some provision being made for reappraisals. Many districts in the larger cities experience great changes in far less time than 20 years, and values decrease rapidly. Furthermore, many of the buildings as constructed to-day will have very little value in 20 years unless they are kept right up to the minute during this period.

We have always figured that the best part of a building is its first 10 years. After 10 years it starts to deteriorate and it is on the down grade. And unless there is a lot of money spent to keep it right up to date it soon goes to rack and ruin.

Line 20, where it says three-fourths of the appraised value, we think should be made 60 per cent.

Senator Watsox. How much?
Mr. Monks. Sixty per cent.

Line 22, where it says 60 per cent, we think it should be made 50 per cent. And our reasons are, as above stated, on account of the deterioration.

Senator Watson. What have you written there about a reappraisal?

Mr. Monks. We question the wisdom of taking 20-year mortgages as collateral without some provision being made for reappraisals.

Page 16, line 23. You have, in fact, to start on line 21 to get the sense of that paragraph, to get what I want to tell you there. [Reading :)

At no time shall the aggregate outstanding advances made by any Federal home-loan bank to any member exceed 12 times the amount paid in by such member for capital stock subscribed for by it.

Inasmuch as we recommended over on page 5 that 1 per cent be changed to one-half per cent, we think it would be wise if on page 16 that that was all cut out. That is, starting

At no time shall the aggregate outstanding advances made by any Federal home loan bank to any member exceed twelve times

We think that all ought to be cut out. That that ought to be left to the discretion of the board.

I think I can show you why. For instance, a member pays $2,500 entrance fee. Take our own case, for instance. We have got $36,000,000 worth of mortgages in the Guardian Trust Co. Let us say that half of them are eligible. That would mean that on a 1 per cent basis we would pay $180,000 in there, if half of those were eligible. That would make $182,500 that we would have in capital in the bank. If we could only borrow twelve times that amount, it would not amount to a larger sum. Now, if we cut that to onehalf in order to let in the little fellow who we think should be in here, we would have only cut one-half that amount.

Senator Watson. Mr. Monks, will you kindly suspend. Because of the situation in the Senate we rather think it would be necessary for us to be there this afternoon, as there may be a number of votes taken. The committee will adjourn to meet to-morrow morning promptly at 10 o'clock, and then we will undertake to hold a meeting to-morrow afternoon and run right through until as late as 5, if we can, so that you people that are from out of town will not be compelled to stay here more than three or four days. Although we are glad to have your company, we want to get through.

(Thereupon, at 12 o'clock noon, an adjournment was taken until 10 o'clock à. m., the next day, Tuesday, February 16, 1932.)

CREATION OF A SYSTEM OF FEDERAL HOME LOAN

BANKS

TUESDAY, FEBRUARY 16, 1932

UNITED SATES SENATE,
SUBCOMMITEE OF THE COMMITTEE
ON BANKING AND CURRENCY,

Washington, D. C. The subcommittee met at 10 o'clock a. m., in the hearing room of the Committee on Interstate Commerce, the Capitol, pursuant to adjournment on February 15, 1932, Senator James E. Watson presiding.

Present: Senators Watson, Townsend, Couzens, Bulkley, and Morrison.

Senator WATSON. The committee will come to order. Mr. Monks, , you were in the midst of a statement yesterday when we adjourned, and you may go right on with it, if you please.

CONTINUING STATEMENT OF THOMAS E. MONKS, VICE PRESIDENT

GUARDIAN TRUST CO., CLEVELAND, OHIO, REPRESENTING THE OHIO BANKERS' ASSOCIATION

Mr. MONKS. I think I had gotten down to the foot of page 16 of the bill. Starting with line 21:

At no time shall the aggregate outstanding advances made by any Federal home loan bank to any member exceed twelve times the amounts paid in by such member for capital stock subscribed for by it.

We wonder why that is made twelve times.

Following the recommendation we made farther back that the change be made to one-half a per cent instead of 1 per cent, you can figure out that the amount that any bank could borrow, that was a member of the Federal home loan bank, would not be a large amount. For easy figuring we will say that would give them $50,000 in capital. Twelve times that would be $600,000.

We think that that amount, or the limitation there for the amount, should be stricken out. It should be left to the judgment of the board whether they should have fifteen times, twenty times, or thirty times. If you are going to get any relief from this bill, the amount that can be borrowed should be an amount that would really give relief.

Senator TOWNSEND. Would that require a greater subscription on the part of the United States in the initial capital?

Mr. Monks. I do not think so.
Senator TOWNSEND. Might that not require that?
9819532-PT 211

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