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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 contem

plates 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.)

AFTER RECESS

STATEMENT OF JOHN SPRUNT HILL, DURHAM, N. C.

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 savings bank that lends almost exclusively on small homes, and has for 28 years.

Senator WATSON. Are your building and loan associations no longer able to carry those mortgages?

Mr. HILL. The building and loan associations in North Carolina, with assets of more than $92,000,000 owe about $3,500,000; and at this time it is very diflicult for a building and loan association in our section to borrow money anywhere. Its paper is not discountable at the Federal reserve. It is not land mortgage paper; and most financial institutions are so loaded with United States securities that have decreased in value that they are unable to extend normal credit or any kind of credit, and have been for some time.

Senator WATSON. And the normal flow of capital into the building and loan associations is not sufficient to enable you to take care of these problems?

Mr. HILL. It is not.

Senator WATSON. So that unless relief of this kind is granted do you think many of those mortgages will be foreclosed, and a great many people will lose their homes? Is that right?

Mr. HILL. Yes, sir. A great many will lose their homes.

There are two kinds of institutions in the mortgage business. One kind is what I will designate as building and loans, mutual institutions with us, that are perfectly sound; and savings banks that are sound and always have been; and trust companies that use gilt-edged first mortgages on real estate. Then, there have been more or less wildcat institutions in the mortgage business. Nobody knows what they are doing; and they have foreclosed a great many mortgages.

Senator TOWNSEND. What do you mean when you say "nobody knows what they are doing"?

Senator MORRISON. There are no statistics about them.

Mr. HILL. There are no statistics about them.

Senator WATSON. What do you mean by "wild-cat institutions"? Mr. HILL. They do not follow the usual sound principles of appraisal and the usual course of consideration of a loan.

Senator WATSON. Are they home institutions?

Mr. HILL. Generally not; generally foreign institutions.

Senator TOWNSEND. Have you not State supervision over all the concerns of this nature?

Mr. HILL. No, sir; we only have State supervision over building and loan associations and over trust companies and savings banks. We have no regular State supervision over ordinary mortgage companies.

Senator MORRISON. Especially those doing business from outside the State, making mortgages at 14 per cent.

Mr. HILL. Many insurance companies have loans falling due. They were loans for 3, 4 or 5 years; and most of those in our section are not behind on interest or payments.

Senator TOWNSEND. How do you account for that?

Mr. HILL. It happens to be a strong section; but when they apply for a new loan the insurance people say, "We are sorry, but we can not lend any more money at this time," so that we are being choked with good mortgages all the time for renewals.

Senator TOWNSEND. What do you mean by "new loans"-additional loans?

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Mr. HILL. No, sir; I mean a loan to be transferred to somebody else. Institutions with which I am connected have taken over seven or eight hundred thousand dollars of those loans during the past 18 months.

Senator TOWNSEND. From the insurance companies?

Mr. HILL. From different sources; some from insurance companies, and some from one and some from another.

For instance, a woman will owe $5,000 on a piece of property worth $12,000, and she has owed it for five years, and it comes due at an insurance company or a trust company, maybe outside of the State somewhere. Where is she going to get her money? The local bank can not take it because of the stress and strain, and because of the strong pressure against any bank loaning on real estate mortgages. Senator WATSON. Are there more building and loan association mortgages than there are trust-company mortgages?

Mr. HILL. Yes, sir; there are more building and loan mortgages. The savings bank of which I am president has about a million and a quarter of deposits, and has about $800,000 loaned on real estate. We have banks that have trust departments, and they loan a considerable amount, probably five or six hundred thousand dollars more in our town; maybe a million.

Senator TOWNSEND. Your savings banks are without stock?

Mr. HILL. No, sir; ours is not a mutual savings bank. It operates like a mutual savings bank, but in our section savings banks are stock institutions, like other banks, with double liability, and so forth.

Senator TOWNSEND. And the profits have been paid to the stockholders in dividends?

Mr. HILL. Yes, sir. The two classes of institutions are those that do not permit a commission on a loan, like the building and loan associations and the savings banks and the trust companies, and those that do operate on a commission basis. The loans of the first class are sound, and have proven good investments-more sound than Government securities, even. The second class have proven poor investments on the part of people, because they paid more attention perhaps to high appraisals and big commissions than they did to the soundness of the loan.

I see no serious objections to this bill. It follows the usual line. It is very much like the institutions in other countries, and the bill is adapted to service in this country. It is perfectly sound in its general principles. It will prove an immensely profitable institution, in my judgment. The bonds will be the best bonds on the market, in my opinion. I have had many years experience in buying bonds-mostly buying, and sometimes selling-because they have the best security behind them.

The land-mortgage banks were unable fully to function in this country because they were not able to organize local institutions on sound business methods to furnish the mortgages. Our building and loan associations and savings banks and trust companies are sound institutions; and you have not only the mortgage on the home of the man of reasonable means on a 50 per cent basis, but you have also the capital and surplus and the good management and good name of the institution that is pledging this bond to the regional home loan bank.

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