"1. The organization and operation are similar to those of the landschaften. "2. Centralstadtschaft:

“(a) Organized by the stadtschaften to facilitate the raising of funds for real estate purposes: (1) Has adopted a uniform type of bond. (2) Has centralized the distribution of bonds of stadtschaften.

"D. Industrieschaften.-Performs the same function for industrial corporations as the above banks perform for their clientele.

"E. Provincial credit institutions.-There are 15 of these banks operated for the general welfare of the area served and without profit.

"1. Capital is furnished from public funds.

"(a) Some have no capital but are granted a working fund.

"2. All obligations are guaranteed by the province or other governmental body they serve.

"3. Classes of business:

"(a) The issue and sale of mortgage bonds (pfandbriefe). All of the proceeds must be invested in farm or urban mortgages which are the security of the bonds.

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(b) The issue and sale of communal bonds. All proceeds must be loaned to cities, communes, or banking and indsutrial enterprises. The evidence of indebtedness is the security for the bonds.

(c) Ordinary banking business for the government they serve or for any business controlled by that government.

"4. Deutsche Landesbanken Zentrale A. G.-(The Central Bank of German State and Provincial Banks (Ltd.)) organized in 1923 acts as the central agent of these banks:

"(a) It issues bonds and lends proceeds to its members.

"(b) Its paid-up capital is 2,000,000 reichsmarks ($476,400): (1) 40 per cent is held by the Preussenkasse which is a central institution of another group of banks. (2) 60 per cent is held by the 46 member banks of the system.

"II. Joint stock mortgage banks-Organization. These banks are corporate organizations. 1. Board of directors supervise operations. 2. Executive committee manages the banks.

"B. Government supervision.—

"1. This supervision is provided in the Mortgage Bank Act of 1899.

"2. Commissioners are appointed by the governmental authority of area in which located.

"3. A trustee is appointed by the commissioner for each bank: (a) It is his duty to see that the security for bonds is on hand. (b) He must also see that the mortgages are duly registered.

"Classes of business.

"1. Grant mortgage loans:

"(a) Loans granted against domestic real estate only. Ordinarily only against first mortgages.

"(b) Limited to 60 per cent of the value of real property: (1) By approval of Government, loans may be made on agricultural properties up to 66% per cent of the assessed value.

"(c) Borrowers must submit numerous documents such as extract from land register, list of tenants and leasehold contracts, valuation by certified appraiser, proof of purchase price, surveyor's maps, municipal assessment, certificate of postwar valuation, etc.

"(d) Interest is usually one-half of 1 per cent above the rate of interest on mortgage bonds issued by the banks.

"2. Issue bonds based on mortgages—

"(a) Bonds are secured by mortgages and all assets of the bank.

"(b) Bond issues limited to 20 times the capital and surplus. (1) If both mortgage and communal bonds are issued, the limit is 28 times the capital and surplus.

(c) Banks may invest surplus funds in their own mortgage bonds, thus stabilizing the price.

"(d) Bonds issued must be covered by mortgages of equal value and bearing in their total the same amount of interest.

"3. Grant loans to public credit corporations, to municipal and communal governments against certificates of indebtedness; and issue debenture bonds on this security.

"4. Any general banking business closely connected with mortgage banking.

III. Holdings of mortgages and communal loans (in millions of reichsmarks) [Source: Viertelsjahrshefte zur Konjunkturforschung]

Of particular note is the much faster increase in volume of urban mortgages as compared with agricultural mortgages. Holdings of the savings banks have increased faster than the holdings of mortgages bank of all kinds.

IV. Yield of mortgage bonds.-According the the agent general for reparations, the average return to holders of mortgage bonds in 1925 was 9 per cent; in 1927 it was 7.33 per cent; and in 1929 it was 8.03 per cent. The Konjunkturforschung showed the average monthly yield of the 8 per cent bonds was: 1925, 9.04 to 9.90 per cent; 1926, 7.89 to 9.52 per cent; 1927, 7.74 to 8.18 per cent; 1928, 8.15 to 8.29 per cent; 1929, 8.32 to 8.65 per cent; 1930, 8.00 to 8.60 per cent; 1931, (4 mo.) 7.99 to 8.08 per cent.

V. Net cost of first mortgages.-According to the Konjunkturforschung they have been: 1925, 10.13 to 10.76 per cent; 1926, 8.93 to 9.88 per cent; 1927, 8.08 to 8.96 per cent; 1928, 9.30 to 9.38 per cent; 1929; 9.58 to 10.18 per cent; 1930, 8.70 to 9.72 per cent.

VI. Bond prices.-According to the index of the Reichs-Kredit Gesellschaft, the price of mortgage bonds and communal obligations held steadier and higher than municipal, provincial, federal or industrial bonds from June 1927 to June, 1931.

SWEDEN

(Analysis by L. A. Wilson, Bureau of Foreign and Domestic Commerce)

Character of system.-Mortgage banks of a semiofficial character have been in operation in Sweden for a number of years. They were created for the primary purpose of satisfying the needs of real property owners for long-term credits on favorable terms. For agricultural needs there is the General Mortgage Bank, a central institution for 10 local mortgage institutions. For urban real estate there is the Town Mortgage Bank, to which 22 town mortgage associations are affiliated. The money needed for the proper functioning of these two banks is obtained by the issue, by the two central organizations, of mortgage bonds which are partly guaranteed by the State. On the same principle another institution for agriculture has recently been established. (It is difficult to see why another bank should have been established, since the General Mortgage Bank has a monopoly of issue in agricultural bonds and, also, is officially reported to be operating extremely satisfactorily.) In addition, an institution for building and

housing credits and one for shipping have been established. There has been no special need for an industrial mortgage bank, as Swedish banks are active in the financing of industry.

Operations of the General Mortgage Bank.-This bank was established 1861, is under State control, and has a legal monopoly for the issue of bonds secured by mortgages on agricultural land. The bank has no share capital; a Government subsidy of about $8,000,000 in Government bonds is used as a reserve fund. Few restrictions are imposed on the granting of loans, and there is no fixed ratio between the fund and the amount of bonds issued. The price at which the General Mortgage Bank obtains capital is charged to the associations with a small addition for administrative expenses and a reserve fund. All profits are used for reducing the charges of the borrowers or are placed in the reserve, which will enable an ultimate lowering of the interest rate.

The bank grants loans to the district associations (10) which act as intermediaries and, in turn, hand over to the central institution the mortgages of their members equal to the amount of the loans they receive. The General Mortgage Bank, therefore, deals only with the mortgage associations, and its only business is granting loans to these associations and selling its own bonds in Sweden and abroad. The associations are jointly responsible for these bonds, each one in proportion to its balance of debt to the bank.

Operations of the mortgage association. The 10 mortgage associations operating under the General Mortgage Bank are private institutions, but their articles must be approved by the Government. Their function is to grant loans to farmers against first mortgages on farm land. In order to eliminate unhealthy compe.ition, each one operates within one or more Provinces of the country. Very few restrictions are imposed in regard to the granting of loans, which are either on an amortization or on a fixed maturity basis. Amortization loans may be granted up to 50 per cent of the value of the landed property and straight loans only to one-third of the value. Amortization loans run from 30 to 50 years and straight loans only to 25 years. In general there are no regulations governing the use of the proceeds of the loans, consequently they can be used for improvements, repairs, or repaying other debts.

The Town Mortgage Bank.-As a result of demand for State support in the regulation of urban real estate credit, the Town Mortgage Bank was established in 1909. The attempt to make such functions come under the General Mortgage Bank upon its establishment failed because town property was not then regarded as sufficient stable. The Town Mortgage Bank grants loans to 22 urban mortgage associations against first mortgages on real estate in cities and in similar communities. It also is under Government control and has received about $12,000,000 in Government bonds as a guarantee fund. It is managed by a board of five members, four of whom are appointed by the Government and the fifth by the national debt office. Its manner of issuing bonds is similar to that of the General Mortgage Bank, but it is bound by stricter regulations. It may issue bonds up to 10 times the amount of its guarantee and reserve fund combined. Operations of town mortgage associations.-The town mortgage associations are private institutions formed by the owners of urban real estate within a certain district. The by-laws are approved by the Government. The method of granting loans is somewhat restricted, and they are made only against improved property. Loans made on an amortization basis are for periods not exceeding 50 years and must be curtailed at the rate of one-half of 1 per cent annually. Straight loans are granted only for periods up to 20 years. Amortization loans are granted up to 50 per cent of the official taxation value of the property, or 50 per cent of the value as estimated by the town mortgage association, if the latter is lower. Straight loans are made in amounts not exceeding 37 per cent of the value of stone buildings and 33 per cent in the case of wooden buildings. At present the urban associations are paying the proceeds of the loans in bonds of the Town Mortgage Bank instead of in cash. The borrower receives bonds running with the rate of interest he has to pay on his loan from the association. The borrower himself pays the discount or receives the premium on the bonds. Further, the borrowers have to bear the general administrative costs of the associations, which range from one-tenth to one-fourth of 1 per cent per annum of the amount borrowed.

Success of the system. The Swedish mortgage bank system has operated very successfully, particularly since Sweden became a creditor country. These wellsecured bonds are issued in large volume. Because of the high standing and strict requirements of the associations, these bonds are readily marketable in Sweden, and their interest rates are relatively low. Since the two central organizations are semiofficial institutions and are State-aided, they have been able to

place some of their issues in France and Switzerland on very favorable terms. The market prices of the bonds have been firm, and it is noted that many of them maintained quotations above par value throughout 1930 and early 1931.

Senator COUZENS. Would you think it practical, Mr. Secretary, if we should devise a plan whereby the Federal Government withdrew its money within a certain period of time so as to force the private institutions to take over the enterprises?

Secretary LAMONT. If the banks are used, and there is reason for thinking that they will be, the Government will be out very soon. In fact, one group of associations thought that their group alone would probably subscribe for practically all of the stock and that there might not be any Government money needed. I think that is a little optimistic, but that thought was expressed.

Senator COUZENS. They write to me that for a number of years, until just the present--I have not looked it up; I only got the letter yesterday-whereby it was proposed that the building and loan associations provide the capital. They proposed a bill for that purpose, whereby the whole matter was provided by capital; there have been several bills before Congress in years past where capital was provided.

What I am afraid of is, if we create this thing and there is no incentive for capital to go in unless they want a rediscount, they will drag it along, and if we could provide some incentive to these people who want this bill to come along with their own capital by just saying the Government will withdraw so much over a period of years, or withdraw entirely unless private capital provides the means, then it would be an incentive for these people to come across and use their facilities.

Secretary LAMONT. Yes.

Senator WATSON. Would that interfere with the original sale of the Government's bonds?

Senator COUZENS. I do not know. That would have to be studied. Senator WATSON. Now on the other question: Would it interfere with the sale of bonds to private individuals if they thought that the Government was going to be forced to withdraw at a fixed time? Senator CouZENS. I do not know.

Senator WATSON. I don't either.

Senator COUZENS. If we were to set up the agency and give them two years to withdraw, we might not have any bonds to sell. I do not know. It would depend on whether they even use up the capital without so many bonds, but it would be giving these people a start and let them say, "Well, we think we have enough to come over and maintain these banks and let the Government out."

Senator TOWNSEND. Mr. Chairman, I wonder if it would be helpful to the committee to get the statement from the Reconstruction Corporation developing the applications that they have and what per cent of them have been taken care of by the building and loan associations.

Senator WATSON. That is a very good suggestion, indeed, and I think it would be fine if either General Dawes or somebody representing him would come up and give us all those facts. I would like to know what the situation is.

Senator CouZENS. Why doesn't the chairman write him a letter and ask him to respond by classes the loans that were made?

Senator WATSON. Well, I can do that, or call him on the phone. Senator COUZENS. Yes; because I think there are quite a few building and loan associations that have helped themselves to this Reconstruction Finance Corporation.

Senator TOWNSEND. That would help solve the problem that you have just brought up.

Senator WATSON. Yes; and I would like to know how many have actually applied. That would give us some index as to the urgence, or in the fact the necessity of something of this kind.

Senator ToWNSEND. Yes.

Senator COUZENS. That is a good point too. We will leave that to the chairman. Is there anything else, Mr. Chairman?

Senator WATSON. Not that I know of. I turn these requests over to Mr. O'Brien as fast as I get them. I have some others over in my office, and I suggest if any of you have any that you turn them over to him; and just as soon as we can get together to consider them we will do so.

(Whereupon, at 4.20 o'clock p. m., the subcommittee adjourned, to meet at the call of the chairman.)