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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

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.

way?

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. Mr. Monks. The provision in the bill is: 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 made to what I proposed yesterday. To use the same phraseology as in the Federal reserve system on your class C directors.

Senator WATSON. Well, you want that stricken out. Two groups, A and B alone. That is what you want, do you not?

Mr. Monks. No, but I wanted to add a little to what I said yesterday in regard to class C directors, Senator.

Senator WATSON. All right.
Mr. Monks. I will have to give you that.
Senator WATSON. Put it in the record.

Mr. Monks. Just the same as it is in the Federal reserve bank. Add this to it, in line 9, page 11, in the correction of yesterday: No class C director shall be an officer, director, or employee of any member.

And the suggestion that we made yesterday, on page 15, line 18, we would correct that to The home mortgage loan secured by it has more than 15 years to run.

And we would make the same correction, to make it uniform, on page 15, under paragraph (1) as we changed it yesterday. We changed that from 10 years to 15 years. Inasmuch as the insurance companies make 15-year loans, we think that should be 15 years.

Senator WATSON. It seems to me like a very reasonable suggestion. Now, you represent the bankers!

Mr. Monks. Yes, sir. Senator WATSON. Did you have all these suggestions with you when you came yesterday?

Mr. Monks. Yes, sir.

Senator WATSON. Now you come back this morning with other suggestions. How does it come that you did not present all those yesterday? Is it because you did not have time?

Mr. Monks. The last ones I made there, Senator, were simply suggestions. The ones that I made yesterday were amendments that we ask for.

Senator WATSON. As the bill at present stands the members that you represent in your group are not for the bill? Mr. MONKS. No, siree; we are not.

Senator WATSON. No. Well, if these suggestions are adopted, or many of them are adopted, that you might consider vital suggestions, would your group then favor the measure?

Mr. Monks. I think I am justified in saying to you that if everybody goes in on an equal basis and everybody is taken care of, no preference is shown-yes, sir.

Senator Watson. I do not know what you mean by that.

Mr. Monks. What I mean by that is that as this law is drawn now it excluded savings banks and trust companies, national banks, unless somebody passed judgment on them before they were allowed to get in.

Senator Watson. I do not know what you mean by that.
Senator TOWNSEND. No.
Senator Watson. Any further questions, Senator Bulkley?
Senator BULKLEY. No.
Senator Watson. We are very much obliged to you, Mr. Monks.
Mr. Monks. I thank you, gentlemen.
Senator WATSON. Col. Gavin L. Payne.

Senator Watson. Who signed that letter?

Mr. PAYNE. Mr. Elmer W. Stout signed the last letter, and Mr. Frank D. Stalnaker signed the other letter.

Senator Watson. Mr. Stalnaker, president of the Indiana National Bank?

Mr. PAYNE. President of the Indiana National Bank; yes. These gentlemen are the presidents of our two largest banks of Indiana.

At a meeting of probably 400 building and loan and real estate men at the Columbia Club, a meeting which filled the ball room of the Columbia Club a week ago, these resolutions were adopted :

Whereas, the resumption of the flow of mortgage money is one of immediate essentials for relieving the unprecedented economic crisis which the Nation is enduring; and

Whereas the availability of loans on real property has been one of the chief factors in establishing values and markets for property itself, and the lack of these mortgage funds reduces values tremendously, even to the extent of jeopardizing the functions of government which depend on taxation based on valuation ; and

Whereas the distress is particularly affecting the huge army of home owners, in whom this Nation has ever vaunted the strength of its fabric; and

Whereas the President of the United States, in his program for relief, has urged Congress to pass the Federal home loan bank bill, which has been generally indorsed over the country, and which bill is now in legislative committees: Therefore be it,

Resolved, That we, gathered in a representative assemblage of men interested in home ownership and building and loan membership, heartily indorse said measure sponsored by the President and urge its speedy enactment into law, believing as we do that the facilities of said home loan bank, functioning for mortgage loans on somewhat parallel lines as the Federal reserve banks function for member banks, will give the necessary impetus to start again the flow of money and save the heartbreaking losses to the innumerable home owners of the United States, as well as encourage the resumption of building homes in this country.

I would like to have these resolutions placed in the record.
Senator WATSON. Certainly.

Mr. PAYNE. You have heard, gentlemen, a great deal in respect to this bill. Particularly from the quarters opposing it you have heard that it will produce inflation.

Senator Watson. In home building?

Mr. PAYNE. Yes, sir. Before leaving Indianapolis I happened to be in the office of the president of one of our leading trust companies. He had just received a telegram from the Mortgage Bankers Association asking him to wire his congressman and asking him to furnish an estimate of the number of vacant houses in Indianapolis. I presume that this is in line with their endeavor to establish the fact that there is a great surplus of homes in America to-day and that this bill is not needed.

If you will permit me to speak a word or two on this subject of inflation in homes, I think I can speak advisedly of conditions in my own home town. In the middle room they have mother-in-law and some of her family. In the front parlor is Cousin Joe, his sister, and his old uncle. In the kitchen are two or three second cousins. And so on through the house. And parked in the rafters are the children.

Now, gentlemen, those are the premises on which they base the fear of inflation. Those are the same conditions which existed in London in the early Victorian days—that crowded, congested home life. You who have read Dickens know of those conditions that is wandering about in search of some one who wants to borrow on a piece of real estate. I don't know how we are going to classify him yet. I think we shall call him a superoptimist. Even an optimist is rare enough nowadays.

Senator Watson. Do you speak of Mr. Rome C. Stephenson?

Mr. PAYNE. I am speaking of Mr. Rome C. Stephenson, who was the former president of the American Bankers Association.

Senator WATSON. Yes.

Mr. PAYNE. There is not much I care to say towards refuting his statement. I think it is so obvious to all these gentlemen present, or to any man engaged in borrowing or lending, what is the real status of borrowing and lending to-day in the United States on real estate, that not very much evidence is required to rebut a statement of that kind.

But if this committee will bear with me for the moment, I would like to introduce two letters written by the presidents of the two largest banks in Indiana, whose familiarity with conditions in Indiana, and in almost any city in Indiana, in respect to the supply of mortgage funds, has value.

The first letter I wish to read is a letter addressed to a committee of the Indianapolis Real Estate Board by Mr. Frank D. Stalnaker, president of the Indiana National Bank. The letter is as follows:

INDIANAPOLIS, February 13, 1932. Mr. ALBERT E. UHL, Mr. GAVIN L. PAYNE, Mr. FRANK E. GATES,

Indianapolis, Ind. GENTLEMEN : I understand that your committee is to appear before the Senate committee which is having hearings on the Federal home loan bank system.

The question arises as to the sufficiency of real-estate mortgage funds in Indiana. I think it is quite obvious that there is a large deficiency rather than a sufficiency. I know of no part of Indiana where anybody seeking to place mortgage money. It is a very important thing to restore the flow of mortgage money in this State or any of the Mid-Western States and this Federal home loan bank system is well calculated to aid in bringing us back to normalcy in this respect.

I attended a very large luncheon last week at which the representative real-estate men and building and loan association men of this city attended and the enthusiastic support of this bill was quite marked. Very truly yours,

FRANK D. STALNAKER, President. The second letter I wish to read is from Mr. Elmer W. Stout, president of the Fletcher American National Bank, which statistically is the largest bank in Indiana :

INDIANAPOLIS, February 13, 1932. Mr. ALBERT E. UHL, Mr. GAVIN L. PAYNE, Mr. FRANK E. GATES,

Indianapolis, Ind. GENTLEMEN : Being advised of your trip to Washington to appear in behalf of the Indianapolis Real Estate Board before Senator Watson's committee which is considering the proposed Federal home loan bank system, permit us to say we believe this system will be very helpful in relieving the present difficult real-estate mortgage situation in Indiana. We know of no district in the State in which there are adequate funds to meet the present real-estate mortgage distress. A Federal home loan bank which can discount acceptable first mortgages on a conservative basis, certainly should aid in restoring the flow of mortgage money, a prime essential in bringing the Nation back to normalcy. Very truly yours,

ELMER W. STOUT.

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