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per cent of the net earnings thereto annually. But whenever the reserve has been impaired below 100 per cent of the paid in capital, it is to be restored before dividends are paid.

Senator COUZENS. I want to make a note here to ask subsequent witnesses just why the Government should not have its capital paid off before any dividends are paid.

Mr. O'BRIEN. The bank is required to establish additional reserves or to make charge offs on account of depreciation and so forth, as the board may require. It provides that no dividends shall be paid except out of net earnings remaining after all reserves and charge offs.

This is the provision with respect to the investment of reserves that I spoke of before. Page 25, lines 5 to 8:

The reserves of each Federal home loan bank shall be invested subject to such regulations, restrictions, and limitations as may be prescribed by the board.

And then follows the one provision about the dissolution and liquidation of a bank.

Senator COUZENS. What page is that on?

Mr. O'BRIEN. Page 25, lines 8 to 15, the last sentence in that section. If a bank is dissolved and goes into liquidation without transferring its assets to another bank, the United States is paid any reserves or surplus remaining after the payment of all debts and remaining after the payment to members of the amounts paid in by them for stock, but they are not to be paid exceeding the par value of the stock, and after that there is paid to them the accrued dividends on the stock.

Senator COUZENS. That is a very important section. As I understand your interpretation of it, it is that in case any one of these banks liquidate, the private stockholders get theirs before the Federal Government gets its money.

Mr. O'BRIEN. That is, they get the amount they paid in for stock, not exceeding $100 for each share, and the amount of accrued dividends on such stock. They get that before the United States gets anything out of the surplus or reserves. I do not think, however, . that they come in ahead of creditors.

Senator COUZENS. I understand that. In other words, the Federal Government seems to be the goat. That is, if one of these banks fails and liquidates, all of the private stockholders are to be paid off, and then if there is anything left the Federal Government gets it.

Senator Watson. There won't be anything left.
Senator COUZENS. I don't expect so.

Senator Watson. There will not be anything for the Federal Government.

Senator COUZENS. There will not be anything for the Federal Government, that is just it.

Senator WATSON. There never was.
Mr. O'BRIEN. Section 15, page 25, lines 17 and following-

Senator MORRISON. Would it hurt to provide that the Government should get its money?

Senator COUZENS. Let us take that up later, Senator.

Senator Watson. Let us take that up later, yes; and consider whether it can be done without injustice to the main purpose of the measure.

Mr. O'BRIEN. Section 15, page 25, lines 17 and following down to and including line 11 of page 27, establishes the board. It is to

consist of five members, appointed by the President, by and with the advice and consent of the Senate. There is no restriction upon the appointment of an officer of the United States as a member of the board. There is a restriction, however, that the salary of such an officer, plus his salary otherwise as a Government officer, shall not exceed $12,000.

Senator COUZENs. I want to point out, in case there are any candidates for the job in the room, that the Senate in all probability will fix that salary at $10,000. That may affect their candidacy.

Mr. O'BRIEN. The terms of the members of the board are for six years, and the usual provision is made for staggering the terms, so they won't all go out at once, and the usual provision is made that a member appointed to fill an unexpired term shall only be appointed to fill the unexpired term of his predecessor.

Senator MORRISON. Have you anything in there about dividing them as between political parties?

Mr. O'BRIEN. Not a word. The President designates the chairman of the board, and the chairman is the head executive officer of the board. The chairman is given authority to designate a person to act as chairman in his absence or disability.

On page 27, lines 1 to 6, there is contained a general provision with respect to the board exercising general jurisdiction over the administration of this act. The board is required to supervise the banks and to perform the other duties specified in the act and to adopt rules and regulations where necessary for the carrying out of the purposes of the act.

The board is also given the authority to remove or suspend any officer or agent of the bank, but they have got to communicate the cause in writing if they contemplate removing him.

Page 27, section 16, begins the procedure for getting act started. Five hundred thousand dollars is authorized to be appropriated for the usual purposes, such as salaries, traveling, subsistence, and so on, and is to be available until the end of the calendar year 1932.

Subsection (b) of that section is very important. That is page 27, line 22. The board is to make a semiannual assessment upon the banks to pay the estimated expenses of the board for the half year succeeding the assessment. That begins with the half year after the end of the calendar year 1932. The expenses of the board beginning January 1, 1933, are to be paid from such assessments and the board is given authority to make up deficiencies by additional assessments. If a surplus remains at the end of the half year in the amount which has been assessed, that is deducted from the next succeeding half year assessment.

Section 17 gives the board the authority to appoint its officers and employees without regard to the civil service act, also, I think, without regard to the classification act. The board is given franking privileges under the postal laws.

There is one provision on page 29, section 18, wherein the board at least twice annually, and at such other times as the board thinks necessary, shall require examinations and reports of the condition of all Federal home loan banks, and the board is authorized to appoint. examiners for this purpose.

The next section deals with unlawful acts and penalties.
Senator WATSON. Yes; that is the usual thing.

Mr. O'BRIEN. Page 31, subsection (d) is quite important. That is at line 11. Any individual, partnership, or association which is not a bank created under this act is prohibited from using the words “Federal home loan bank” or a combination of the words as the name under which that individual and so forth does business, but it is not to prohibit any organization that now has that name, that is now doing business or is at the time of the enactment of the act, from doing business and continuing to use its name.

Then, in the rest of that subsection institutions other than the institutions which are members are prohibited from representing they are members, and any institution except a bank is prohibited from representing that it is a bank. The Secret Service Division of the Treasury is authorized to arrest them, and so forth.

Page 32, section 20, authorizes the Treasury Department, the Comptroller of the Currency, the Federal Reserve Board, and the Federal reserve banks to make available, in confidence, for the use of the Federal home loan bank, reports and other information that may be available relating to the condition of anybody who may do business with the Federal home loan bank—that is, for their confidential use.

Subsection (b) of that section, page 33, line 9, requires the members trying to secure advances to consent to such examination of their books and so forth as the bank or the board may require.

Section 25 authorizes the banks to have succession until dissolved by Congress or by the board.

Section 22, page 33, authorizes a bank, with the approval of the board, to establish branches within the district in which the bank is located. It can not establish branches outside of the district. I might point out that this is true: That there is contemplated in this bill—I have forgotten where it is cited—that it is going to be possible for a member to subscribe to the stock of a bank which is located in a district adjacent to the district in which the member's principal place of business is. Now, a bank under this provision, is given authority to establish branches, but not outside its own district.

The board is also given authority to liquidate or reorganize any bank, and the stock paid off and provisions made for paying its liabilities.

In a case where there is liquidation or reorganization of one bank, another bank, with the approval of the board, may acquire the assets of the liquidated or reorganized bank.

There is one respect in which the act is not clear, and that is whether that new bank must be a bank organized within that district. It specifically says that the district shall consist of 12 banks.

The next provision is the usual one, about the constitutionality. The next provision is highly important-section 24, page 34. I am informed that under the law in the District of Columbia, institutions organized under the laws of the District of Columbia are not authorized by law to purchase stock in the bank contemplated to be formed under this act. This really amends the District of Columbia law, so that institutions that qualify under this act will not be prohibited from subscribing for the stock by reason by the present state of the law in the District of Columbia. In other words, this is the idea: If the law of the District of Columbia is such that they can not subscribe to stock, but for this provision they would have to deposit cash or securities in lieu of such subscriptions. This section contemplates that they will not have of deposit, but may subscribe. Of course, it is not contemplated that if they are not sound financially or do not fall within the classes eligible to subscribe, it does not mean that they can subscribe ipso facto, by reason of this provision.

The last section provides for the right to alter, amend, or repeal the act.

Senator WATSON. Considering the time you have worked on this, I think you have given us a marvelous exposition of it.

Mr. O'BRIEN. Thank you.

Senator MORRISON. I would like to concur in all the compliments our chairman has given you, sir.

Senator WATSON. Which of you gentlemen desires to be heard? Have you made any agreement among yourselves as to how you shall testify or in the order in which you shall appear? Somebody ought to come representing each of these institutions, like the building and loan associations. There is no use of having 8 or 10 fellows representing one phase of it, but just have some one present familiar with each phase of the operation of the bill come forward and testify. This is a very complex and complicated piece of legislation.

Senator MORRISON. I imagine everybody wants to get away as soon as he can. Mr. Hill of North Carolina is here. He is quite an important character in the business life of our State right now, and it is a very serious situation down there and I think he ought to go home as soon as he can, for the welfare of the State.

Mr. CLEMENT. May I ask a question?
Senator Watson. What is your name?
Mr. CLEMENT. Dudley L. Clement.
Senator WATSON. What is it?

Mr. CLEMENT. I have lived in North Carolina most of my life, but I am in Philadelphia now, and I want to know if an ordinary citizen would have the right to appear before this committee and be heard.

Senator WATSON. You certainly may.

Mr. CLEMENT. Then I would like to have that privilege, sir, at your convenience.

Senator WATSON. You certainly may.
Mr. CLEMENT. Thank you.

Senator MORRISON. Mr. Chairman, Mr. Hill is connected with our financial life down there and I would like if possible for him to be examined, because in all sincerity I think he ought to go home.

Senator WATSON. Might we begin with him then at 2 o'clock?
Senator MORRISON. Yes.

Senator Watson. Very well. The committee then will rise to meet at exactly 2 o'clock in this room.

(Whereupon at 12:20 o'clock p. m., January 14, 1932, the committee recessed until 2 o'clock p. m. of the same day.)



Senator Watson. Tell the committee your name, Mr. Hill.
Mr. Hill. John Sprunt Hill.
Senator WATSON. Where do you live?
Mr. Hill. Durham, N. C.

Senator Watson. What is your business, Mr. Hill?
Mr. HILL. Banking.
Senator WATSON. How long have you been a banker?
Mr. Hill. Twenty-nine years.
Senator WATSON. A national banker?
Mr. Hill. Savings bank and trust company and building and loan.
Senator Watson. You are in the building and loan business, too?

Mr. Hill. I have organized two building and loan associations. I am a large stockholder in several. I have been in the building and loan business for 28 years, too.

Senator Watson. Have you studied this bill, Mr. Hill?

Mr. HILL. Yes, sir. The first bill I read rather carefully. The second bill, as amended, I have heard discussed only this morning.

Senator Watson. I should like to have you make any statement you care to make in regard to the bill. Give us your full views on the situation.

Mr. Hill. I shall try to be as brief as possible.

I assume that there is such a demand for legislation to relieve the owners of small homes throughout this country that it is not necessary for me to go into the facts showing this demand. I therefore will confine myself to the bill as it is.

Senator TOWNSEND. It is your opinion that the banks and the building and loan associations are not in position to take care of that demand from the small home owner?

Mr. Hill. Yes. On account of conditions in the country, building and loan institutions and savings banks and trust companies and small banking institutions that have always been sound and always had the confidence of the local communities are now denied the privilege of reasonable banking facilities.

Senator WATSON. Do you regard this bill as being as important in reference to new construction as it is in saving those homes that are now mortgaged?

Mr. Hill. I regard the bill as just as important as any other bill that this Congress can consider. It is of tremendous importance, and has been for some time. The need for legislation along this line has been pressing for some time.

Senator WATSON. Do you think that need refers to new construction of homes?

Mr. Hill. I am not able to say how much new construction is needed. It depends upon the geographical question. Certain sections are perhaps overbuilt. Where I live there is no overbuilding. We have few vacancies. The population of the town of 55,000 people is increasing at the rate of three or four thousand a year, and therefore there is need for home construction. The bill will help along that line. People who want to build new homes, small homes for their own use, will receive considerable benefit from this bill. In my judgment, the greatest benefit, however, will be to steady the nerves of people who are owners of small homes, and to provide proper banking facilities.

Senator Watson. How many building and loan mortgages on small homes are there now in your town of Durham?

Mr. Hill. I can not answer. There are probably 5,000 mortgages of building and loans and savings banks. I am president of a sayings bank that lends almost exclusively on small homes, and has for 28 years.

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