Senator WATSON. When your bank, along with everybody else,

goes crazy.

Mr. ROBINSON. If we do not profit by the lesson of this depression we ought to be thrown out.

Senator MORRISON. Your thought is that if the Government has set up the Federal reserve business to which notes for commercial transactions and manufacturing and business obligations can go for discounts and then set up another one for the farmer to go to, that it ought to set up one for the man in the town and city who wants a home and, according to long custom, is building it solely on credit, that there ought to be some place for him to go without being squeezed by userers and all sorts of people who are imposing on him?

Mr. ROBINSON. Yes, sir.

Senator MORRISON. And that it ought to be a permanent part of our financial system?

Mr. ROBINSON. I thoroughly believe it.
Senator MORRISON. Yes.

Mr. ROBINSON. There is just one question I would like to raise about the bill. I do not want to take up too much time. It was touched upon this morning by Senator Couzens.

Senator WATSON. The best way to do that, sir, is this: Of course we are now trying to pass emergency legislation. If you want this a permanent part of the governmental system at this time or from this time on, try to get the money into it and see that it functions successfully.

Senator MORRISON. It will come to pass, Senator, in my opinion, because it will be the most successful of all of them. People will join it as fast as they can get in.

Senator WATSON. Then you would have no truoble making it permanent.

Mr. ROBINSON. No.

Senator MORRISON. The bill makes it permanent if it is successful. Senator WATSON. That is right.

Senator MORRISON. I would like to ask this question, if you don't mind. Do you think it will be successful?

Mr. ROBINSON. I do. I thoroughly do. There is just one clause in the bill which I can not determine the reason for its insertion. On page 15, the clause running from 3 to 7, where it says:

If secured by a home mortgage given in respect of an amortized home mortgage loan which was for an original term of eight years or more, the advance may be for an amount not in excess of 60 per cent of the unpaid principal of the home mortgage loan.

Why was the 8-year term put in? This is running through my mind. We have a peculiar custom in Cleveland. I do not know that it obtains in any other part of the country, but it started years ago with Cleveland's oldest savings bank. It makes loans for one year and then permits them to run on as overdue paper. Other banks followed that custom for years in Cleveland, although some have departed from the custom to some extent recently. These mortgages could not be discounted under the clause. I can not see why a mortgage having three or four years to run, irrespective of whether the original term was eight years, is not just as good as any other kind of mortgage? Why put in eight years?

Mr. O'BRIEN. May I say, Mr. Robinson, that I had nothing to do with prescribing any question of policy.

Mr. ROBINSON. I just wanted to present the point so that the Senators may consider it later.

Mr. O'BRIEN. May I make this point: I did not have anything to do with any of these questions of policy.

Mr. ROBINSON. I did not know whether or not you heard any discussion about it.

Mr. O'BRIEN. Even in that case I do not know whether I could disclose what was told me in confidence.

Mr. ROBINSON. I think that is a very objectionable feature of the bill.

Senator WATSON. Why is it?

Mr. ROBINSON. Because you automatically cut out a tremendously large lot of mortgages which are just as good securities as the others, except that they don't happen to be originally made for eight years.

Mr. O'BRIEN. That is not altogether true. May I point out subparagraph 2, I think, permits a loan up to 50 per cent of the unpaid principal of the home mortgage loan.

Mr. ROBINSON. I appreciate that.

Mr. O'BRIEN. The other is 60 per cent.

Mr. ROBINSON. Why not loan 60 per cent on an amortized loan when the original time was less than eight years?

Mr. O'BRIEN. That is a question of policy, whether you are going to permit that sort of a loan to have 50 or 60

per cent.

Mr. ROBINSON. It seems to me a good loan irrespective of whether it is made for eight years or not and which is being amortized properly should be permissible here. I think it would be a mistake to write an inhibition in the bill itself of that sort. You ought to leave some latitude to the board which will run the system.

Senator MORRISON. Don't you think the banks, the savings banks and the other banks, many of whom are not known as savings banks, and these people who are authorized to join this, don't you think they would join in great numbers?

Mr. ROBINSON. I do, unless, as I said before, the entrance fee is so high that they would be scared off.

Senator WATSON. How do you want to change that No. 1, then Mr. Robinson? How do you suggest we change that?

Mr. ROBINSON. I have not thought about that.

Senator MORRISON. It was made with the idea that the long term was a little bit more valuable than the short term.

Mr. ROBINSON. It would base it more on the value of this property. Senator WATSON. I am talking about that one on page 15, "if secured by a home mortgage given in respect of an amortized home mortgage loan which was for an original term of eight years or more." Do you object to the years?

Mr. ROBINSON. Yes, I object to the years. Don't put in any time, or make it "not to exceed eight years before maturity."

Mr. O'BRIEN. You will want all amortized loans, regardless of their term, to be eligible to secure an amount of not more than 60 per cent of the unpaid principal?

Mr. ROBINSON. Yes.

Mr. O'BRIEN. That is, amortized; unamortized 50 per cent.
Mr. ROBINSON. Yes.

Mr. O'BRIEN. Of course, this is true; paragraph 3 of section 8 (a) provides that in no case shall any loan exceed 40 per cent of its appraised valuation.

Mr. ROBINSON. That is correct. But you have got a limitation in this paragraph 1 that restricts you to an original 8-year period. Mr. O'BRIEN. That is quite so.

Mr. ROBINSON. I think it is a mistake to let that in. I think you ought to give some discretion to the board which will provide regulations to make this bank work practically and equitably for its members. Senator MORRISON. I got it just the wrong way; not exceeding eight years, instead of eight years or more.

Mr. ROBINSON. Yes.

Senator MORRISON. I agree with the witness. It ought not to be there at all. I would just take it the other way.

Senator WATSON. Anything further, Mr. Robinson?

Mr. ROBINSON. Just one other point; Senator Couzens spoke about the investment privileges of the bank. It seems to me there could be a clause in it permitting open-market operations by this bank. There is one in the Federal reserve act, which permits the bank to buy certain securities under certain regulations. I refer to page 21. It seems to me the bank should be privileged to buy mortgages, say, that mature in one or two years. Such a privilege might be very helpful in the future.

Senator MORRISON. They can not under the general provisions. Mr. ROBINSON. I don't get that.

Senator MORRISON. They can make loans.

Mr. ROBINSON. They can make loans, yes.

Senator MORRISON. I see what you mean, however.

Mr. ROBINSON. But you can only buy Government securities and certificates of deposits and advances with maturities not greater than one year. I do not know whether that means real-estate mortgages or not. But I can see where it would be very helpful to this bank at times to go to a State or National bank and say, "You have got some fine loans which will mature in one or two years, which have been paid down to a very small percentage of the value of the property they cover. We would like to buy them with this fund." Why not invest some of your surplus funds in that manner?

Senator MORRISON. Well, now, leaving that, I would like to ask you if you do not think, on account of this difficulty about getting mortgage loans on homes, that over the country generally there is great imposition being practiced upon the home owner by usurers and other people making loans to him and charging him excessive rates and all that sort of thing?

Mr. ROBINSON. We have not experienced much of that in our particular section of the country. We have a better business commission that has been functioning pretty effectively.

Senator MORRISON. Which prevents that?

Mr. ROBINSON. It prevents that sort of thing. Although the building and loan associations have charged up as high as 8 per cent. But home owners have been robbed by the second-mortgage fellows. Senator MORRISON. That is what I mean.

Mr. ROBINSON. In order to get a second mortgage a home owner often pays 8 or 10 per cent interest, and then a big discount on top of that.

Senator MORRISON. If there is not some such reljef as this gives, is not there danger of that condition coming about in your section, where to get the money the fellow to save his home will resort to sharks, who will let him have the money under conditions that will destroy him?

Mr. ROBINSON. I would not be at all surprised at that.

Senator MORRISON. There is that danger, and it is coming. It has already arrived down in our country.

Senator TOWNSEND. Is it your belief that this organization when set up will help commercial banks?

Mr. ROBINSON. I think it will, Senator.

Senator WATSON. What do you think of Senator Couzens's proposition, to compel this institution to pay the Government interest at the rate of 3 or 4 per cent and that that interest should be paid before any dividends are paid?

Senator TOWNSEND. That is on the money that the Government furnishes?

Senator WATSON. On the money that the Government furnishes;

yes.

Mr. ROBINSON. I would not go as far as that. If down here you feel that the government should have some return on its moneySenator WATSON. We do.

Mr. ROBINSON. Then if the bank earns enough to pay 6 per cent, then pay the subscribing member, who needs the dividends more than the Government at the present time, perhaps 4, and the Government 2. Senator TOWNSEND. In other words, pay half to the Government that you pay to the stockholder?

Mr. ROBINSON. Yes. Give the stockholder a little edge on the earnings, then give the Government something on its stock. Mr. O'BRIEN. As dividends or as interest?

Mr. ROBINSON. As interest.

Mr. O'BRIEN. As interest?

Mr. ROBINSON. I have no choice in the matter whether it is dividends or interest.

Senator MORRISON. Do not the commercial banks, notwithstanding the fact they can not carry the notes to the Federal reserve system and discount them, take a great many mortgages anyway on real

estate?

Mr. ROBINSON. Yes.

Senator MORRISON. They have to do it.

Mr. ROBINSON. We have $35,000,000 of them. We have 130,000 customers and because of this large number we are bound to make a lot of real-estate loans.

Senator MORRISON. And in time of stress there is not anywhere, however good they may be, where you can go and get them discounted. Mr. ROBINSON. No; there is not, as far as mortgages are concerned. Senator MORRISON. That is the trouble with this country to-day. Mr. ROBINSON. There was some opposition initially to this proposal of the President from the insurance companies. I assume that they felt that they furnished a market for all good merchantable loans the country could provide. That is not so at all. Adjoining the city of Cleveland, we have a very beautiful suburb known as Lakewood. The homes are attractive and built by thrifty people who live there and take pride in the appearance of their property.

They will always take pride in it. Their streets are wide and well paved and the transportation facilities are good. But the insurance companies won't make a loan in some parts of that suburb. Why? Because the houses happen to be 15 years of age. I don't blame the insurance companies. Theirs is a sound policy, but the banks must loan to their customers who live there.

Senator MORRISON. It would help the commercial banks in time of strain to have a place where they could go and get discounts on their real-estate mortgages, would it?

Mr. ROBINSON. Absolutely. In times of credit stress, unemployment and loss of confidence, in our business situation, banks which have to borrow of the Federal banks in order to pay their depositors demands would welcome, I am sure, an additional place of discount where the mortgages in their portfolios could be discounted the same as their commercial paper.

Senator MORRISON. And the ultimate safety is frequently superior, is it not, to the commercial loan?

Mr. ROBINSON. Yes, sir. Just as the other gentleman pointed out, the status of a corporation whose paper you hold may change in a month's time.

Senator MORRISON. And where this paper that is subject to discount at the Federal reserve bank is liquid in the sense that you can get the money right away on it, it is about the most perilous paper bankers deal with, is it not?

Mr. ROBINSON. It is.

Senator WATSON. We are much obliged to you, sir.

Mr. ROBINSON. Thank you.

(Witness excused.)

Senator WATSON. Who is the next gentlemen?

Mr. MORTON BODFISH. Chairman Watson, I am connected with the United States Building & Loan League. We had intended that our president Mr. William E. Best, of Pittsburgh, would be with us, but he is detained at home through illness. However, he has asked Mr. Stickle, from Newark, N. J., and myself to make a brief presentation in his behalf. We would like to be heard.

Senator WATSON. Very well, sir.

STATEMENT OF FRED G. STICKLE, JR., NEWARK, N. J.

Senator WATSON. Give the committee your name.

Mr. STICKLE. Fred G. Stickle, jr.

Senator WATSON. Where do you live?

Mr. STICKLE. Newark, N. J.

Senator WATSON. What is your business?

Mr. STICKLE. I am a lawyer, a former judge, and also I have been engaged in the building and loan business for some 20 or 22 years. Senator WATSON. Actively in it or as a lawyer?

Mr. STICKLE. As a lawyer and as a director of various associations, and also I am in the mortgage business, guarantee mortgage business, in our city, as general counsel of one of the mortgage companies.

Senator WATSON. What is your opinion of this bill and why? Mr. STICKLE. I think the redraft of this bill is a very, very great improvement over the original draft, in that it takes care of the longterm needs as well as the immediate needs of the various associations,