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Mr. Monks. I do not think so.

Senator TOWNSEND. The $150,000,000 capital subscribed by the Government-suppose that you exceeded the amount in each of the 12 districts, might not all of the capital be taken up in that?

Mr. Monks. Well, the more that will go in the more capital you will have, and the Government will be paid back. It will be working on the members' capital. Some districts will not need as much as others. Others will need more. So, that we think that ought to be left to the discretion of the board as to what the members should be allowed to borrow.

Senator TOWNSEND. That is your suggestion as an amendment to paragraph (c) beginning on line 21?

Mr. MONKS. Yes, sir.
Senator WATSON. All, right, go right on, Mr. Monks.

Mr. Monks. On page 20, line 16, section (g). Starting in with line 16:

Each Federal Home Loan Bank shall have power to accept only such deposits as are made by members of such bank, or by other Federal home loan banks. Such deposits shall not be subject to check, and no rate of interest in excess of 3 per centum per annum shall be paid thereon.

We are of the opinion that this should be entirely stricken out. Senator Watson. You do not want them to do a banking business?

Mr. MONKS. No, sir. That will necessitate the rewriting of (h), (i), and (i). Our reasons for asking that that be stricken out are that you are creating a Government bank, you are taking deposits to the detriment of commercial, agricultural, and industrial pursuits. You are setting up another bank of deposit, which we do not believe should be allowed.

Senator WATSON. Have you read that carefully, Mr. Monks?
Mr. MONKS. Yes, sir.

Senator WATSON (reading):
accept only such deposits as are made by members of such bank,

Mr. MONKS. Yes, sir.

Senator WATSON (reading): or by other Federal home loan banks.

That does not mean the general banking business. Mr. Monks. Well, that means that the members of the Federal home loan bank would deposit their funds in this bank, and we do not think that is necessary. In doing that you are just taking away from the commercial banks of the country the amount of money that otherwise would come to them that could be used in commercial, agricultural, and industrial pursuits. Page 23, line 21, section 12:

When designated for that purpose by the Secretary of the Treasury, each Federal home loan bank shall be a depositary of public money, except receipts from customs, under such regulations as may be prescribed by said secretary; and it may also be employed as a financial agent of the Government, and it shall perform all such reasonable duties as depositary of public money and financial agent of the Government as may be required of it.

We believe this should all be stricken out. Our reason for that is that section 15 of the Federal reserve act designates the Federal reserve banks as Government depositaries and also as fiscal agents for the United States. And they are functioning at present in these

capacities. We do not believe that the business of the Government is so rushed as to need either additional depositaries or more fiscal agents.

Senator WATSON. That provision is lifted from the land bank bill. Has that done you any harm?

Mr. MONKS. The land bank bill?
Senator WATSON. Yes.
Mr. Monks. No; not that I know of.

Senator Watson. It is put in there to make the law constitutional. That is the fact about it. Without it, it is unconstitutional. So if the bill passes it will stay there, and it will do you no harm. What is your next proposition ?

Mr. Monks. On page 24, lines 9, 10, 11, and 12: The Federal reserve banks are authorized to act as depositaries, custodians, and/or fiscal agents for Federal home loan banks in the general performance of their powers under this act.

I am just asking the question : Why is it tied up to the Federal reserve system?

Senator WATSON. Well, why should it not be? How are they going to get along without some fiscal agents somewhere? Why shouldn't they be fiscal agents of this institution? How is that going to interfere with the banking business? I assume that is what you are here to safeguard, Mr. Monks, and very' properly so—I have no objection to that.

Mr. Monks. I would not put it that way, Senator. We are here to be enlightened on some of the things that we just could not work out to our own satisfaction.

Senator Watson. Well, we have got you here to enlighten us. Mr. Monks. All right, I will try to do it the best I can. Senator WATSON. All right. Mr. Monks. On page 24, line 15, where it talks about reserves and dividends :

Each Federal home loan bank shall carry to a reserve account semiannually

We think that ought to be to a surplus account. That ought to read “surplus." instead of“ reserve."

Senator TOWNSEND. What are your reasons for that?

Mr. Monks. Well, there is a difference between a reserve account and a surplus account. A surplus account will be better for the bank than a reserve account.

Also on page 24, line 19, starting on line 18: After said reserve has reached 100 per centum of the paid-in capital of said bank, 25 per centum of its net earnings shall be added thereto semiannually.

We are wondering why you made that 25 per cent when in the Federal reserve bank only 10 per cent is added yearly. This would be 50 per cent annually. We think that amount is much larger than it need to be.

Senator WATSON. What do you suggest, Mr. Monks!

Mr. Monks. I think if you follow along the Federal reserve act, you would be perfectly justified in doing it.

Senator Watson. All right.

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Mr. Monks. The next is on page 32, starting with line 18, under “Miscellaneous.". We think that that paragraph should stop after the word “ act” in line 4, on page 33. “And strike outOr relating to persons whose obligations are offered to or held by any Federal home loan bank, and to make through their examiners or other employees, for the confidential use of the board or any Federal home loan bank, examinations of such institutions.

We feel that this bank should have the right to get any information it can from the Treasury Department, the Comptroller of the Currency, the Federal Reserve Board, and the Federal reserve banks. But, inasmuch as you are loaning on mortgages, the value of the property mortgaged is supposed to be the basis of the loan, and we do not believe that any further information than that is needed.

Senator Watson. I do not see how that is possibly going to do you any harm, Mr. Monks. I am entirely willing to see this bill changed in any respect wherein it would weaken the banking system of the country or do any injury to any other fiscal or financial institution. I do not see how that is going to do you any harm.

Mr. Monks. Well, they could carry that, Senator, to a much further degree than is necessary.

Senator WATSON. Of course that is quite true. That can be done by almost any governmental agency, and in many instances they do go too far. I agree with you about that. But we must assume that everybody in this connection are going to act honestly, that the act is going to be honestly administered, and not for the purpose of spying into other people's business. I do not see how that is going to injure you. But we will consider this. We are glad to have any suggestions, of course.

Mr. Monks. We would look at this the same as a collateral loan. You take the collateral of a man, and of course you look to something of the moral character of your borrower.

Senator WATSON. Certainly.

Mr. Monks. And we think this should be taken virtually on the same basis. The property is the security.

Now we have a few suggestions to make, if you will go back over the bill. In the first place we want to talk about your caption. This is called a Federal home loan bank. We believe it should be called a Federal home loan corporation, or some other term other than bank. Our reasons for this are that State laws prohibit the use of the word “bank” by any institution not organized as a bank. Under this act you are taking in the building and loan associations and various loaning agencies, such as the cooperative banks.

Senator WATSON. You say there are State laws that prohibit the use of the word “bank"?

Mr. Monks. Yes, sir. The Ohio State law absolutely refuses anybody other than a bank incorporated as a bank to use the name “bank."

The term “bank” shall include any person, firm, association, or corporation soliciting, receiving, or accepting money or its equivalent.

Then it goes on: The use of the word "bank” prohibited. The use of the words “bank." " banker, banking” or “trust,” or words of similar meaning in any foreign language as a designation or name or part of a designation or name

or

under which business is or may be conducted in this State is restricted to banks as defined in the preceding section.

Now, I do not know how many more States in the Union have laws similar to Ohio, but that is the case in Ohio.

Senator WATSON. You do not think, then, as provided here if organized in accordance with the provisions of this act this is a bank?

Mr. Monks. No; I do not say that. I think it is a bank. But I think the members that join this bank, Senator, may run up against the same law as we have got in Ohio. Senator BULKLEY. I do not quite see the force of that. Senator Watson. I do not, either.

Senator BULKLEY. The members would not be made banks by being stockholders in this bank.

Mr. Monks. No; but suppose they wanted to use the fact in their advertising that they were members of the Federal home loan bank, I doubt very much whether, if they are not a bank, they could use “ bank.” I am looking at the other fellow's interest.

Senator BULKLEY. You doubt whether they could say that they are members thereof?

Mr. Monks. Yes, sir. You are branding an institution that is not a bank virtually half a bank, and I do not believe the law would allow it.

Senator WATSON. Very well. Proceed, Mr. Monks.
Mr. Monks. On page 3, lines 10 and 11.' It starts in on line 6:

Such districts shall be apportioned with due regard to the convenience and customary course of business of the institutions eligible to and likely to subscribe for stock of a Federal home loan bank to be formed under this act, but no such district shall contain a fractional part of any State.

We suggest that you strike out" but no such district shall contain a fractional part of any State.” Our reasons for that are that the customary course of business may necessitate the division of a State. For instance, right now Kentucky is divided into two different parts of the Federal reserve districts in our part of the country.

Senator WATSON. Suppose two adjoining States had different laws about the control of building and loan associations, what are you going to do with diverse laws on the same institutions, on the same subject, which is the whole subject of the legislation?

Senator BULKLEY. Well, you necessarily have more than one State in the district, anyway, do you not?

Mr. MONKS. Yes.

Senator BULKLEY. Then you have got diverse laws within the district? That is a fair question.

Mr. Monks. Well, as I said, that is simply a suggestion on our part that we thought might improve it.

Senator WATSON. All right, Mr. Monks. Mr. Monks. Now on page 4, starting in with line 12: (b) An institution eligible to become a member under this section may become a member only of the Federal Home Loan Bank of the district in which is located the institution's principal place of business, or of the bank of a district adjoining such district.

Now this takes in insurance companies. I will use the Metropolitan Life Insurance Co. The Metropolitan Life Insurance Co. places a lot of loans all over the country. For instance, they make mortgages in Ohio and they take those mortgages back to New York. Would they have to make their loan through the New York bank, say, for instance, there was one there, loans could only be made in that district? Or would they have to join the 12 districts, if there were 12 districts? Where would they make their loan?

Mr. O'BRIEN. In New York. Mr. Monks. For mortgages from any State in the Union? Mr. O'BRIEN. Yes. Mr. Monks. All right. That is satisfactory. Senator Watson. What was your question? I was reading this over again. What was your question?

Mr. Monks. I asked the question, Senator, using the Metropolitan Life Insurance Co.: Would they have to join the 12 Federal home loan banks, one in each district, or could they make their loans all through the New York bank, if there was one there?

Senator WATSON. We will let the legislative drafting agent answer that question.

Mr. O'BRIEN. The theory of the bill was, at least as outlined by the House committee, that in such a case the Metropolitan would discount all its mortgages on real property, wherever held, in the New York bank. Now, that might be unduly restrictive, but that is the theory of the bill. So that the California institution which was lending on New England land would discount its mortgages in the San Francisco bank, if there was a bank in San Francisco.

Mr. Monks. On page 5, line 4: "Stock issued thereafter shall be issued at such price as may be fixed by the board.” I think that would be much better if after the word "price" you were to add "but not less than par." There is no reason why anybody becoming a member of the Federal Home Loan system later on should get a chance to buy his stock for less than par.

Senator WATSON. You think these securities should be tax exempt, do you, Mr. Monks! ?

Mr. Monks. Yes; I do. But this has not got anything to do with the tax.

Senator WATSON. I understand that. But I am talking about buying at less than par. I should think that a tax-exempt bond ought to sell at par.

Mr. Monks. I am talking about the stock.

Senator WATSON. I understand. But, then, the stock, backed up by tax-exempt bonds, in an institution of this character I should think ought to sell for par.

Senator BULKLEY. There would not be any market for this stock, would there? It would not be transferable.

Senator Watson. Why take away from the board the power to regulate that?

Mr. MONKS. Sir?

Senator WATSON. Why take away from the board the power to regulate that at the time and under the conditions?

Mr. Monks. I do not think that they should have the right to sell it for less than par.

Senator Watson. There might be conditions arise under which you could not sell it at par at all. Then where would you be ?

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