Mr. ROBINSON. That is a trust company, a State bank. Mr. ROBINSON. About 37 years. Senator WATSON. What is the capitalization? Mr. ROBINSON. We have $7,000,000 capital, $9,000,000 surplus, and $1,000,000 undivided profits. Senator WATSON. How long have you been connected with it? Senator TOWNSEND. You do a general commercial banking business? Mr. ROBINSON. Yes. Senator WATSON. Now proceed with any statement you care to make. Mr. ROBINSON. I have no prepared statement. Senator WATSON. I understand that you are more or less familiar with this. Mr. ROBINSON. I happen to be familiar with the bill because I was a member of the Finance Committee of the President's Home Owneraship Commission and the proposal for a home discount bank wss discussed in that committee on several occasions. In my opinion the bill is desirable from two standpoints; first, as a relief measure and also as a permanent addition to our banking facilities in this country. First, in regard to it as a relief measure and what I say regarding that has particular reference to the situation in Ohio-Ï think the relief which this measure will afford to Ohio, and particularly around my home city, will be very great from a building and loan situation standpoint. Unfortunately, I am not as well posted about building and loan procedure as I might be, because I have not functioned in that field at all. But Ohio has been unfortunate in this respect: Through the liberality of our Ohio State legislature building and loan companies or associations have been permitted to function almost like banks in the State, without setting up those reserves which the banks have been compelled to set up to protect their deposit liabilities. Building and loan associations have followed the practice in Ohio of soliciting deposits at a higher rate, generally at 1 per cent beyond the rate paid by savings banks and trust companies. Senator WATSON. Deposits like a bank? Mr. ROBINSON. Like a bank, yes. In other words, the depositor has been given the impression that he could receive his money on demand whenever he went to his building and loan association and demanded it. Senator TOWNSEND. Is that permitted under your State law? This procedure worked fairly well in normal times because whenever the building and loan associations required money to pay off their deposits, or to meet their requirements or commitments in reference to loans, the State banks would loan the building and loan associations. money, taking their mortgages as security. Senator WATSON. Do you know how much money was deposited in building and loan associations? Mr. ROBINSON. I am told on pretty good authority that there is $1,200,000,000 tied up in the State of Ohio now, that is not available for commercial or construction purposes or can not be received by depositors except in small doles. Senator TOWNSEND. Pardon me, but how much was that? Mr. ROBINSON. $1,200,000,000. There is not a building and loan association in and about Cleveland, as I understand-and I think that is true of Youngstown and the other large Ohio cities-which does not require the filing of a notice of withdrawal. No building and loan association can be thrown into receivership in Ohio without the consent of the department of commerce of the State, and of course things are in a static condition and there is no relief in sight, because the banks are not making loans now as formerly to the building and loan associations, because they have their hands full to protect their own deposit liabilities and are striving for liquidity, so no relief is afforded in that direction. I do not know what the reconstruction corporation will do; perhaps it will give some relief; but there will be such a scramble for the money that is appropriated and can be obtained through the sale of debentures that the amount of money which will be allotted to northern Ohio, will not go very far in liquidating that $1,200,000,000 now tied up in the associations. Senator TOWNSEND. What in your judgment would be required to give relief to this $1,200,000,000 that is tied up, that you just spoke of? Mr. ROBINSON. I have no opinion about the amount of money that would be needed, but whatever relief that is furnished would be most beneficial. Assuming for a minute that this corporation is functioning, that the home loan bank is established, the building and loan associations naturally will become stockholders if they can qualifyand I want to say something about the entry fee later once in it probably they will borrow from the bank immediately. The natural thing for any association then to do with the money so received is to pay off those depositors who are in distress. This money will find itself back in the channels of trade. Some of it may go into construction, and some of it may go into the repair of homes. Senator WATSON. Let me ask you this right there: In what form is that $1,200,000,000? Mr. ROBINSON. That is practically all invested in mortgages now, and it is just frozen credit. Senator WATSON. Was that building and loan stock purchased outright or by the deposits in the building and loan associations? Mr. ROBINSON. The individual depositor did not recognize any responsibility as a stock owner. He deposited his money because of the higher rate of interest offered and because he was told that he could get it on demand at any time. Senator TOWNSEND. They deposited moneys there just like you would go and deposit it in a bank? Mr. ROBINSON. Yes. Senator WATSON. At 6 per cent? Mr. ROBINSON. They paid 5 per cent. Senator WATSON. They paid 5 per cent? Mr. ROBINSON. And the State banks at that time were paying 4 per cent. Senator WATSON. And that has slowed down building and loan operations very greatly in your State, has it? Mr. ROBINSON. Yes. When you consider the amount of money frozen in these associations you can readily see what it has done to the commercial life of the community. Senator WATSON. Yes. Mr. ROBINSON. This home loan bank will afford some relief. It won't correct the situation entirely. That has got to come about gradually, but it will give relief to a lot of these poor people who have their all in these institutions. If it affords relief in that respect, it will afford relief to the trust companies and to the savings banks also. Senator TOWNSEND. Pardon me, there, if you will. It will afford relief to the trust companies and banking institutions from the fact that when they get this money it will be deposited in the banks and trust companies, is that your idea? Mr. ROBINSON. Money released through the operations of the discount bank probably will find its way back into the commercial banks and trust companies, through the normal operations of trade. Now, so far as State banks are concerned, I do not know just how long ago, probably seven or eight years ago, most of the large corporations of the country were issuing and selling their own commercial paper. During the boom time most of these corporations were able to sell large amounts of their own stock and long time obligations, thereby putting themselves in a very strong cash position. The result was that the old time commercial paper market dried up. In order to take advantage of the facilities offered by the Federal reserve system, you have to have paper for discount which grows out of commercial transactions. I am not speaking of acceptances or livestock paper or agricultural paper. I am talking about paper which comes out of industrial centers like Cleveland. That paper, in order to be eligible, has to have a 2 for 1 position. In other words, the quick assets must exceed the quick liabilities twice over. There is very little of that paper coming into the banks at the present time. We used to carry large investments in this kind of paper. Because of this lack of supply of rediscountable commercial paper. State banks, national banks, and trust companies have been obliged to use other methods for investing their money in order to earn interest on the money on deposit with them. For example, my bank has about $33,000,000 invested in real-estate mortgages. Senator WATSON. Are those city mortgages? Mr. ROBINSON. Those are city mortgages. We have always tried to keep a certain ratio between our savings deposits and the amount that we invest in mortgages. The savings deposits run around fiftysix million and the mortgages about thirty-three million. Senator WATSON. Is any building and loan mortgage or paper of other kinds rediscounted by your banks? Mr. ROBINSON. No. Senator WATSON. None at all? Mr. ROBINSON. You can not use any paper based upon real estate for rediscount in the Federal reserve. Senator WATSON. I know you can not in the Federal reserve. Are you connected with the Federal reserve? Mr. ROBINSON. No. Senator WATSON. I see. Mr. ROBINSON. The Guardian Trust Co. is a member of the Federal Reserve Bank of Cleveland, however. Senator WATSON. You are members? Mr. ROBINSON. Yes my bank is a member of the Federal reserve, but about the only paper you can use at the Federal reserve is paper which grows out of commercial transactions or Liberty bonds. Senator TOWNSEND. Did you participate in this first reconstruction program, where the banks put up 2 per cent? Mr. ROBINSON. The National Credit Corporation? Senator TowWNSEND. Yes. Mr. ROBINSON. Yes, we are a member of the Credit Corporation. In order to join the Credit Corporation, the minimum amount you can subscribe to become a member is 10 per cent of your bank's capital and surplus. The size of that entrance fee has restrained a lot of banks from joining the Credit Corporation. So when I saw in the original bill 1% per cent of the home mortgages in any institution was required to obtain membership in the Home Loan Bank, I felt that the entrance fee was too high, that it might better be lowered, even to one-half of 1 per cent. I see you have lowered it in this new bill to 1 per cent. In other words, broaden your base and get more institutions to come in, rather than try to get a larger sum which could only be handled by the larger institutions that have cash available for stock. You will find a lot of small home loan institutions which will be foreclosed from joining perhaps, because they have not the money and would hesitate to go and borrow the entrance fee. So much for the relief afforded by the bill. I will just finish my statement and then I will answer any questions. In the finance committee of the President's commission we had quite a lot of discussion regarding secondary financing. Heretofore in a great many localities this secondary financing was taken care of by the second mortgage, generally at a pretty high rate of interest, ten or eleven per cent. This depression has slaughtered real estate values in certain sections of the country to such an extent that it has practically wiped out the individual second-mortgage lender, and the second-mortgage company, so that money is not available in anything like the quantity it formerly was, if at all, and perhaps will not be in the future. What are we going to do to bring about new construction, if we can not find something to fill the gap between the amount of the first mortgage, say 60 per cent, and the amount of money which the home owner can provide, say 20 or 15 per cent of the cost to bring a complete building into existence? It seems to me that the only instrumentality that can do that job is the building and loan association. In Ohio they can loan up to 100 per cent, but in practice they restrict it to 75 per cent of the appraised value of the property. The building and loan associations must perform that function if we are going to construct new homes and destroy the huddling which is taking place in many communities at the present time. The Ohio building and loan associations ought to function strictly on a mutual basis. Senator WATSON. Haven't they been there always? Mr. ROBINSON. They have been there, but they have not been functioning in that way. In other words, Í do not believe they will be able to attract the money formerly flowing to them when they functioned as banks. Also, banks are not going to be as liberal with loans. to building and loan associations in the future as in the past, because they have had their experience in this time of strain and depression. Their aim will be to have greater liquidity in the future and consequently will not carry as many real estate loans in their portfolios as formerly. Senator WATSON. Do you know of any other State in the union where building and loan associations can receive deposits like banks? Mr. ROBINSON. I do not. As I say, I am not familiar enough with the building and loan practice to answer that question. Senator WATSON. I did not think it was done anywhere. Mr. ROBINSON. Heretofore, when one of the building and loan associations had a loan which was paid down by amortization to a certain point, say 60 per cent of the value of the property, the association was able to go to a bank and the bank would refinance the loan by making a new mortgage and paying off that of the building and loan association. That source of relief will not be available to any great extent in the future, I feel. Where can they go now? No place, except to a corporation of this sort. If you follow the thought of the President when he announced the plan for a home discount banking system in order to stimulate building in the future-a corporation like the one outlined in this bill is needed to provide financing facilities for that purpose. I agree thoroughly with what the other witnesses have said about Government aid in furnishing facilities for. discounting paper created in developing wealth by agriculture, commerce, and manufacturing and the need for one now to discount paper brought into existence by the creation of property values. Senator TOWNSEND. Mr. Robinson, what in your judgment is the greatest need of this corporation; to further new building or to take care of the situation that now exists? Mr. ROBINSON. As I said in the beginning, I think it would function in two directions; first, as a relief measure now; and later on it will be a great factor in stimulating building and also stabilizing building operations. Senator WATSON. You are not advocating this merely as an emergency proposition then? Mr. ROBINSON. No, sir. Senator WATSON. But as a permanent basis proposition? Mr. ROBINSON. Yes. I think I can visualize certain things following the enactment of this measure which will be very helpful in the general situation throughout the country. You have a clause in this bill somewhere-I am not familiar enough with it to put my finger on it right away-where the home bank can refuse applications. I think that is very vital because it will have a tendency, if the bank is well managed, to restrict overbuilding. This will in turn react upon municipal expenditures, and, Lord knows, we are suffering now from that at the present time. Special taxes, paving, sewers, the putting in of water out in districts that can not be built up for a long timeSenator TOWNSEND. For 50 years. Mr. ROBINSON. Yes. For example, a building and loan association or a bank applies for a loan to furnish money to a speculative builder to build homes out in a section where the bank knows they are not needed, it could properly refuse the application. I can see a great stabilizing influence there. Senator WATSON. That is true, unless we get in to boom conditions. Mr. ROBINSON. Yes. |