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 out Or 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. 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," or "banking" or "trust," or words of similar meaning in any foreign language as a designation or name or part of a designation or name 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 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. 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. 66 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 you could not sell it at par at all. be conditions arise under which Then where would you be? Senator BULKLEY. Mr. Chairman, I understand that people do not buy the stock on account of its being a desirable investment as such, but they buy it in order to become members of these banks. Senator WATSON. Of course, that is true. Senator BULKLEY. And the membership is the thing that is of value. Senator WATSON. But the provision here is that The minimum capital stock shall be issued at par. Stock issued thereafter shall be issued at such price as may be fixed by the board. Does that vitiate it in any way, Senator? Senator BULKLEY. I would not go so far as that, but I am inclined to agree with the witness here that it would be a good limitation not to permit them afterwards to issue it below par. It is not a question of the stock having a market value. It is not transferable at all. It only represents membership in the bank. Senator TOWNSEND. I was just wondering if the thought in the bill was not that the stock might be worth more than par after it had earnings of a few years. Senator BULKLEY. Of course, if it is worth more than par there is no reason why the board should not fix the price at more than par to sell it to new members. Senator WATSON. That is a good suggestion, anyhow. We will take that down. Mr. MONKS. Paragraph (c), line 10: The board shall from time to time adjust the amount of stock held by each member so that, as nearly as possible, such members shall at all times have invested in the stock of the Federal home loan bank at least an amount calculated in the same manner as in the case of the member's original stock subscription. Does that mean that the member is to have 1 per cent of its home mortgages plus $2,500? Or would you not clarify that if you would state it that way? Mr. O'BRIEN. There has been criticism of that language, and I am sure that it is probably inadequate to express the whole intention. I am sure you have expressed the intention. It probably will be improved. At least I would like to get a chance to improve it. Senator WATSON. It looks a little ambiguous to me. What is your suggestion there, Mr. Monks? We will take it down. Mr. MONKS. We think that that can be clarified, Senator, by saying that the board shall, from time to time, adjust the amount of stock held by each member so that, as nearly as possible, such member shall at all times have invested in the stock of the Federal home loan bank 1 per cent of its home mortgages plus $2,500 entrance fee. Senator WATSON. Yes; that is a very good suggestion. We would be very glad to take that up. What else have you, Mr. Monks? Mr. MONKS. Under paragraph (e) on page 6, line 7: The board shall prescribe terms and conditions under which such deposits are made so that the obligations of the institution to the bank will be adequately secured. Now, that is talking there about an institution that is unable to subscribe for stock. Maybe the State law does not allow them to. And in lieu of buying stock they deposit bonds or stocks or money. We think that ought to be clarified a little bit better. Senator WATSON. How? What would you suggest there by way of language? Mr. MONKS. Well, the language is: The board shall prescribe terms and conditions under which such deposits are made so that the obligations of the institution to the bank will be adequately secured. If their stocks or bonds that they pledge are put in escrow, or something of that sort, temporarily, until the law of their State is changed so that they can become a member. There ought to be some specific way of taking care of that written in there. On page 9, in paragraph (i), lines 20 and 21. It starts on line 17: Upon the liquidation of such indebtedness such member shall be entitled to the return of its collateral, and, upon surrender and cancellation of such capital stock, the member shall receive a sum equal to its cash-paid subscriptions for the capital stock surrendered * We ask the question there: Suppose he has not paid it in cash and has put up bonds and withdraws from the system, what becomes of his bonds? It talks about "a sum equal to its cash-paid subscriptions." How do they take care of the bonds or his other stock that has been deposited? The provision there is "shall receive a sum equal to its cash-paid subscriptions." There ought to be some different provision there. Do you see what I mean? Senator BULKLEY. No; I do not exactly. Upon the liquidation of such indebtedness such member shall be entitled to the return of its collateral, and, upon surrender and cancellation of such capital stock, the member shall received a sum equal to its cash-paid subscriptions for the capital stock surrendered * The question I asked there was: Suppose he has not paid it in cash and has put up bonds and withdraws from the system, what becomes of his bonds? Senator WATSON. These are all interesting questions you are raising, Mr. Monks. They all raise questions in our minds. You know we go over these things and then do not see them again for a week or 10 days or 2 weeks, and we have to jog our own minds about the meaning of some of these provisions. That is the reason we are very glad to have your suggestions. Mr. MONKS. On page 10, line 8, paragraph (k), we suggest that you change that to read: All stock of a Federal Home Loan Bank, including the stock subscribed by the United States Government, shall share in dividend distributions without preference. Senator WATSON. Well, that is a mooted question. Senator TOWNSEND. Your point being there that the Government should receive return the same as any other stockholder? Mr. MONKS. I think so. Senator WATSON. Well, that is a mooted question, and there has been much dispute about it. I know Senator Couzens has been much insistent on that feature of it all the way through. All right, proceed. Mr. MONKS. Yesterday I proposed in regard to the directors some changes there, and there is just one addition that I think should be |