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all. I can not see why they should accept deposits at all. They get their capital from the Government or from the members. They get their funds for loaning from the sale of debentures or shortterm securities. Now, why is there any necessity for their, in addition to those two sources of funds, having still a third source, namely, deposits ?

You are setting up there just exactly what I described a few minutes ago has happened in Ohio. The building and loan association in Cincinnati, for example, gathers in the savings of its members. Some of those it lends. Some of those it deposits in Cincinnati banks. The money which is deposited in the Cincinnati banks is used for making loans for industry and for other purposes in Cincinnati, thereby helping the members of the building and loan association to have a job and keep on working and making their payments into the association.

Now what happens here? Instead of its being deposited in the banks in Cincinnati, the money is sent to the Federal home loan bank of the district, thereby reducing the amount of money available for industry in our community. And the only way it can come back would be through the discounting of mortgage loans by our association in Cincinnati. It is a pooling of money which should stay in the community where it belongs rather than being pulled out and put into a central reservoir.

Mr. O'BRIEN. May I ask you one questions?
Mr. MYLANDER. Yes, Mr. O'Brien.

Mr. O'BRIEN. Your objections to (g) and (j) are several; are they not?

Mr. MYLANDER. No; I do not think so.

Mr. O'BRIEN. Let us suppose there is a decision to the effect that no Federal home loan bank should be able to take deposits from members, would you still object to the language in lines 23 to 25 on page 21 which authorizes investments of assets other than reserves and other than deposits?

Mr. MYLANDER. Of course, I might criticize section (j) by saying that you do not invest the assets of any financial institution. You invest their liabilities. And then they become assets. That is technical language.

Mr. O'BRIEN. Well, I am glad to get that corrected. But what I meant was this, that whether or not the bank is permitted to accept deposits does not determine the question as to whether that language should remain in lines 23 to 25.

Mr. MYLANDER. No; you are absolutely right on that.
Mr. O'BRIEN. I wanted to get your idea.

Mr. MYLANDER. But I would have the same objection to section (j) that I have already stated, that certainly the door should not be left wide open to these Federal home loan banks making investments of any character that they pleased.

Now, so far as depositors are concerned, I think I have stated very clearly that the money raised in savings institutions of any character in any community ought to stay and work in that community and not go out somewhere else, except in cases of emergency. That is the investor's province, not the depositor's province. The person who has invested in these debentures, this act provides, will be setting up the reservoir on which the individuals may draw.

Having said this—and I think I have taken enough of the committee's time-let me say just this in closing, as the position of the Ohio Bankers' Association on this bill. We are not opposed to the President's request that some method for the financing of homes be developed. We are very definitely opposed to this bill, which, to us, discriminates between financial institutions and sets up a separate banking institution under the Federal Government, which we believe will very definitely handicap and further confuse the public.

One word more, Senator Bulkley. You were not here when I was discussing the question of the use of the word “ bank” in this bill

. I pointed out to the committee that the members will be very proud of their membership in the Federal home loan system, and they will very clearly advertise, all over the lot, that they are members of the Federal home loan bank. You, of course, coming from our good old Buckeye State, are cognizant of the confusion in the minds of the general public of Ohio that there is no difference between a bank and a building and loan association, and that you can put your money in either one and it is safe, and you can get it out at any time. That being the case, certainly that belief should not be increased by anything which will give the building and loan associations the right to get the word “bank” all over their front windows.

Senator MORRISON. Do you think that advertisement would help them, to put that on their windows?

Mr. MYLANDER. Yes, sir; I do, and the present situation in Ohio

Senator MORRISON. I just thought that had something to do with the merits of the bill.

Mr. MYLANDER. The question was raised this morning when Mr. Monks was discussing that, about the Federal farm loan bank. The Federal farm loan banks do not deal directly, through any financial institution located in the community, with the investor or the depositor. They deal only with the borrower, and the bonds are sold outside.

If the committee has any further questions to ask, I will be perfectly willing to answer. If not, I think I am through.

Senator BULKLEY. You do not support Mr. Monks's contention that advertised membership in the home loan bank would be contrary to law in Ohio, do you?

Mr. MYLANDER. I am not so sure about that, Senator. That Ohio law has been construed very strictly.

Senator BULKLEY. It says, however, as a part of the name of the bank.

Senator WATSON. Senator Bulkley has a dollar bet on this. Be very careful.

Nr. MYLANDER. Senator, that dollar has passed back and forth here so many times that I do not know where it is.

The investment bankers tried to use the term, merely, " investment bankers," not as part of their name, but as a description of their business, and our Ohio courts have held that they can not even do that.

Senator BULKLEY. Do you think it would be a description of their business if they said they were members of the Federal home loan bank?

Mr. MYLANDER. I would think so—“ building and loan association; member of Federal home loan bank.”

Senator WATSON. Aside from these objections you have made, have you other objections to this bill?

Mr. MYLANDER. Of course, we want to go along with all the amendments Mr. Monks has submitted here, not only the formal amendments which he prepared, but the suggestions, some of which he gave yesterday, and some to-day. If you have rather wondered where they came from, Tom and I were together all last evening.

Senator WATSON. I understand this was a major operation. [Laughter.]

Mr. MYLANDER. It was a major operation.

Senator MORRISON. Before you leave, I would like to ask you this question. Do you not think it would help commercial banking if there was provided some safe and sound way by which they could discount home-mortgage paper?

Mr. MYLANDER. That depends on two or three things. First, I do not believe that the purely commercial bank, Senator, which has nothing but demand deposits, commercial deposits, and checking accounts, to get it down to common, every-day language, has any business making any real estate mortgage loans.

Senator MORRISON. But, as a matter of fact, they do it all over the country, do they not, and you could not run a bank in most sinall communities without it?

Mr. MYLANDER. Even in our recent wildcat days, when we were living in the “New Era," I doubt if you will find that many strictly checking accounts were invested in mortgages. Most banks, National and State banks, of all kinds, have both checking accounts and savings accounts in the banks, and if the banker has invested in realestate mortgages, he has felt that he was investing his savings accounts.

Senator MORRISON. According to my recollection, a gentleman from Cleveland, in your State, testified that his bank had $35,000,000 invested in these mortgages.

Mr. MYLANDER. And I think that same institution, which is the one with which Mr. Monks is also connected, has much more than $35,000,000 in savings deposits.

Senator TOWNSEND. Are the savings deposits and the general deposits segregated in your State!

Mr. MYLANDER. No, sir; they are not in our State.

Senator MORRISON. There is not any law requiring them to be kept separate?

Mr. MYLANDER. No, sir. There is only one State that I know of where that is the case.

Senator MORRISON. But your idea is that the bank itself does, in making investments of the funds, keep in mind how much of it is from the savings accounts!

Mr. MYLANDER. The banker keeps in mind that he has received so many deposits. Part of those he must be ready to pay instantly, because somebody may write a check down in New York and draw out all of his deposits. That has to be invested in strictly liquid

On the other hand, there is a savings department, in which savings have been built up for years and years. You would be surprised at some of those savings accounts. They start with nothing, and they build up, and build up, and there is never a withdrawal.

Senator MORRISON. So, as I understand you, generally speaking, the banks in Ohio have only invested in paper eligible for rediscount at the Federal reserve bank?

Mr. MYLANDER. By no means. There is a lot of paper in which we invest that is not eligible for rediscount. The eligibility rules of the Federal reserve system are very strict as to the type of paper that is eligible for rediscount.

Senator MORRISON. That is what I have in mind. Would it not help the banks if this additional provision were made to create some more paper eligible for discount somewhere?

Mr. MYLANDER. That is exactly what I said, Senator. We are in favor of the principle of this bill, but not the form in which it is drafted.

Senator MORRISON. Very well. I have not any quarrel with you. I did not understand you.

Senator Watson. By special request of Vice President Curtis the committee agreed to hear next Mr. Charles W. Thompson from Topeka, Kans.

STATEMENT OF CHARLES W. THOMPSON, PRESIDENT ÆTNA

BUILDING AND LOAN ASSOCIATION, TOPEKA, KANS.

Senator WATSON. What is your name?
Mr. THOMPSON. Charles W. Thompson.
Senator WATSON. You live in Topeka, Kans. ?
Mr. THOMPSON. Yes, sir.
Senator WATSON. What is your business, Mr. Thompson !
Mr. THOMPSON. The building and loan business.
Senator WATSON. How long have you been in it?
Mr. THOMPSON. From 15 to 18 years.

Senator Watson. How are you connected with the building and loan association ?

Mr. THOMPSON. I am president of the Etna Building and Loan Association.

Senator Watson. How many Building and Loan Associations are there in Topeka !

Mr. THOMPSON. I think we have six. Senator WATSON. How many are there in the State of Kansas ? Mr. THOMPSON. One hundred and fifty-one or one hundred and fifty-two.

Senator WATSON. What is their general financial condition at this time?

Mr. THOMPSON. I should say that it is not anything like as good as it was two or three years ago. The people have been pulling out their savings, and using them, and for that reason they are not as full handed in the way of cash as they have been for some time. They have not been able to make any loans, I would say, for a year.

Senator WATSON. You have not?
Mr. THOMPSON. No; we have not.
Senator WATSON. Why?

Mr. THOMPSON. We have not had the money to make loans and meet the demands for withdrawals.

Senator WATSON. And could not get the money?

Mr. THOMPSON. I would not say we could not get it. We could borrow money. Conditions in Kansas are such that building and loan associations can borrow money temporarily.

Senator WATSON. Borrow it from whom?
Mr. THOMPSON. The banks.

Senator Watson. What assets have you on which you can borrow money?

Mr. THOMPSON. Our association has $18,000,000 resources. We have shrunk about $2,000,000 in the last two years. Some of that was due to a law that repealed the intangible law in Kansas, and left building and loan associations out on a limb, on an advalorem tax, and there were a lot of people who could not afford to pay 342 or 4 per cent on their savings, who were not satisfied with that, of course; but before the session was over, they passed a law exempting our mortgages, which brought it down to where the associations

ould pay their own taxes, without burdening them, and the shareholders were not taxed.

Senator WATSON. It has been claimed for this bill that it would set up a permanent establishment of great value in the future, and also that it would meet an emergency, in that a very great number of borrowers on home mortgages are not able to carrry their debts and pay the monthly installments. Is there any of that in your country?

Mr. THOMPSON. Yes, sir.

Senator WATSON. How many mortgages has your building and loan association foreclosed in the last year?

Mr. THOMPSON. I could not tell you exactly, Senator. I think I can give you a fair estimate of it. We have about 10,000 mortgages. There is only one reason we have for foreclosing a mortgage, and that is to get possession of the property after the borrower can not carry it any longer. Kansas, as you know, has an 18-month redemption law, which operates very adversely to any lender, but we put up with that, and get along all right with it. I would say that we have had around 100 foreclosures.

Senator TOWNSEND. Out of 10,000.

Senator Watson. How many have you been carrying along and not foreclosing, when you might have done so under the law?

Mr. THOMPSON. A great many of them, Senator.
Senator WATSON. How do you deal with them?

Mr. THOMPSON. We operate a little differently. I do not know of anyone who operates just as we do. If a borrower gets delinquent, say five or six months—six months puts him in the foreclosure realm. We can not foreclose under the law until he is back six months on his interest and dues, or whatever his indebtedness is. We do this. We substitute. You understand that we have stock with our loans.

Senator WATSON. Yes.

Mr. THOMPSON. It is hard for me to describe it. A lot of people do not understand the distinction. We call our loans amortized, although the stock is paid for, and eventually wipes out the loan. We substitute the stock, and credit all they have paid, with the earnings on the mortgage, and start them out with the new mortgage, a new 10-year loan, in other words, at a reduced amount of principal.

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