half 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 a. 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? 98195-32-PT 2—11 355 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 (j). 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? 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. 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. |