Senator COUZENS. Do they continue to accept deposits?

Mr. BODFISH. They continue to accept money on shares, yes. Senator WATSON. Then the advantage of passing this bill, as I understand it, to a borrower, who has a mortgage on his home, making monthly payments to a building and loan association, is that it would enable you to extend further credit to him.

Mr. BODFISH. That is correct, Senator.

Senator CouZENS. And also take on new business.

Senator WATSON. I should suppose it would help them to take on new business.

Mr. BODFISH. The primary reason, Mr. Chairman, why we "freeze" is that all of our assets are invested in these long-term amortized mortgages. For example, in 1930 there was over 88 per cent of the total assets of the building and loan associations in longtime amortized mortgages.

Senator WATSON. What is your definition of long time?

Mr. BODFISH. From 8 to 12 years. It is the use we make of the money that causes us to "freeze up," so to speak.

Senator COUZENS. Have you any figures here to indicate how many of these 10,000,000 customers that you have-I understood you to say a few minutes ago that there were 10,000,000 customers, did I not? Mr. BODFISH. Over 12,000,000.

Senator CoUZENS. Twelve million customers who do not borrow? Mr. BODFISH. True. There are about 10,000,000 who have not borrowed.

Senator COUZENS. What is the aggregate investment of these 12,000,000 in all of the building and loan associations?

Mr. BODFISH. Practically $9,000,000,000.

Senator COUZENS. Where is that now? Is that all loaned out? Mr. BODFISH. The money is invested entirely in long-term mortgages on homes.

Senator COUZENS. Do you keep any surplus above that? I mean, do you keep any surplus of the $9,000,000,000, or do you invest it all. Mr. BODFISH. The surplus will probably run from 2 to 3 per cent of the total assets, and then there is a little cash on hand, and a few of the associations keep some United States Government securities on hand for liquidity purposes or to use in paying unusual demands from shareholders.

Senator COUZENS. Have you a condensed statement of the assets and liabilities of the aggregated building and loan associations of the Nation?

Mr. BODFISH. I have a statement of their assets but not of their liabilities. That is, I do not have a compilation showing all the detailed items. The statistics I presented in the beginning will give you a picture of their total resources, liabilities to members, and their mortgage loans by States and in totals for the United States.

Senator WATSON. Of all the borrowers of the country, how many have defaulted?

Mr. BODFISH. I do not know.

Senator WATSON. Is there any considerable number?

Mr. BODFISH. We have not had a great number in our building and loan associations. It has been one of the things that has helped the associations through this depression period. Home owners seem to make these monthly repayments with surprising regularity and

tenacity. I think it is a splended vindication of the long-term amortized home mortgage loan principle or plan.

Senator WATSON. I do not see then the necessity for the passage of this bill to aid building and loan associations, if you are running right along. A man will pay these loans and his life insurance to the exclusion of everything else, will he not?

Mr. BODFISH. True; but, senator, we have a large number of people who saved their money in our associations and saved it for a rainy day, due to lack of confidence they want their money at the present time.

Senator WATSON. That is, the investors, not the borrowers?

Mr. BODFISH. The investors, not the borrowers.

Senator WATSON. Yes.

Mr. BODFISH. Building and loan borrowers are not suffering, in my judgment. The home loan bank bill might also provide for a certain amount of credit mobility among home financing institutions. There have been situations in the last year and a half in which there have been ample funds, for example, in the New England section of the country, and a decided lack of funds to pay withdrawing shareholders or for new loans in other parts of the country. Such a system could serve home financing institutions much as the Federal reserve serves commercial banking.

Senator WATSON. That is, for new construction, new homes?
Mr. BODFISH. Both for that and for withdrawing shareholders.
Senator WATSON. Do you lend money on apartment construction?
Mr. BODFISH. Very rarely.

Senator WATSON. Very rarely?

Mr. BODFISH. The building and loan associations confine their mortgage loans primarily to homes.

To continue, there were some questions raised Thursday upon which the building and loan point of view might be helpful to the committee. A question was raised with regard to the 56 per cent preference which is established in the bill as now written, as between amortized loans and straight loans. We feel that this policy is justified on the grounds of public welfare and the long-time welfare of the home buyer. The desirable thing in connection with home owning is to give the home owner a type of credit that turns him out some day with a free and unencumbered home. Our experience indicates that the long-time amortized monthly repayment mortgage seems to get the borrower out of debt and encourages a proper and debt-free type of home ownership. We very heartily approve of that recognition of the desirability of long-time monthly repayment credit for home owners that is set up in the bill.

There is also a feeling that, from the point of view of the popularity of the bonds, that the monthly repayment or amortized mortgage is more safe and desirable collateral than the straight mortgage.

Senator COUZENS. How far does your knowledge go back in the history of building and loan associations?

Mr. BODFISH. Well, I was the editor of the only book that has been written, to my knowledge, on the "history of building and loan associations." I think I could be helpful there.

Senator COUZENS. Do you recall any time since 1870, for instance, when the building and loan associations were requiring such legislation as this?

Mr. BODFISH. Building and loan associations were interested in this type of legislation as early as 1919. A committee prepared a plan of organization for Federal cooperative banks or land banks designed to promote thrift and home ownership, working through building and loan associations. The structure or arrangement proposed was not as adequately conceived and worked out as the system in the bill that is before you. There had been talk in building and loan circles prior to that concerning some devise or organization for pooling cash reserves and providing for exchange of funds between building and loan associations.

Senator COUZENS. So after the depression of 1920-21 was over, from that time on for 10 years practically you have not found any great need for such an agency as this?

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Mr. BODFISH. There has not been a major need, although there has been considerable talk about it among building and loan men. number of States have studied the problem and attempted to set up agencies which would accomplish in a State area what this bill proposes to accomplish in a national way. I would say, Senator, that there has been a pretty sustained interest in the general question.

Senator COUZENS. Was any effort made to have Congress do anything in 1919 with respect to this matter?

Mr. BODFISH. Yes. There was a bill at that time, as I recall it, known as the Calder-Nolan bill.

Senator COUZENS. Were any hearings held on that?

Mr. BODFISH. There were hearings held on that, yes, sir; before the Senate committee on Banking and Currency on October 8, 1919, and a similar House committee on October 31, 1919.

Senator COUZENS. Then, since then no bill has been introduced to provide such a measure as this?

Mr. BODFISH. Yes, the bill was introduced in later Congresses and was later sponsored by Senator Copeland.

Senator COUZENS. When was that?

Mr. BODFISH. I think it was during several sessions between 1920 and 1927.

Senator COUZENS. But there was no pressure then brought to have the legislation enacted?

Mr. BODFISH. There was considerable. Of course, it was a day when money was flowing abundantly. One of the problems was that sometimes there was too much money rather than too little and naturally interest waned.

Senator COUZENS. That is the point I want to bring out. If we ever get back-and I make that "if" with big letters-to where we were in 1927 and 1928, and so on, there will not be the need then for these banks, because, as you say, there was a surlpus of money during those years, and sometimes there was more money than was needed. So what I want to find out is what we may expect as to the sustained and continued need of these banks.

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Mr. BODFISH. I think the answer to that is very clear. There is a need for this type of institution or bank at all times, in order that the home-financing institutions could pool some of their cash reserves and have a certain liquidity which will keep the association functioning normally in case there is a loss of public confidence in some area or unusual demands are made by their shareholders or a pressing need for home building. I think the first reason alone justifies the existence

of such an institution or system and it will draw sufficient support from the home financing institutions to pay the bill or costs of maintenance.

Senator WATSON. Just a moment. We are compelled to go to the Finance Committee on an important matter.

short time.

Senator CoUZENS. We will be back in Senator WATSON. It won't be very long. (The committee recessed to attend to other duties, and upon reconvening the following further proceedings were had:)

Senator WATSON. Please finish your statement, Mr. Bodfish. Mr. BODFISH. I will be very brief. Senator Couzens raised a question about the "deposits" in these 12 banks by member associations. It would seem that a member association or institution should be privileged to use its own home-loan bank, to which it belongs, to build up modest balances for the retirement of loans, and possibly to keep a modest deposit there for emergency purposes in addition to the funds they keep in their commercial banks. All other banking functions are neither denied nor permitted in this bill.

Now, the question the Senator raised regarding the interest on those deposits in relation to Government bonds is partially answered, I think, by the fact that the bill provides that those deposits can only be invested in two ways by the 12 banks: The one, in United States Government securities; the other, in short-term loans to the members of the system, which merely carries out the form of cooperation and pooling of funds that the whole system is designed to facilitate.

Senator COUZENS. Did I understand you to say something about these banks which "we" own?

Mr. BODFISH. No; I don't think so.

Senator COUZENS. Will you read the answer he gave?

(The reporter read as follows:)

Senator Couzens raised a question about the deposits in these 12 banks by member associations. It would seem that a member association should be privleged to use its own bank

Senator COUZENS. He did say that, "own banks"; "we are to be permitted to deposit in our own banks." I am perfectly agreeable to that, but as I read this bill it is going to be the Government's banks for a long time because we are going to put up the capital; when I say "we," I mean the Government. So how do you make it your banks?

Mr. BODFISH. We look to the early retirement of the Government, and I think the bill is built on the plan that the members who are participating will put in the capital and take the responsibilities as time goes on.

Senator COUZENS. Would you be willing to have this organization set up with the interested parties supplying all the capital?

Mr. BODFISH. Yes; but I do not think it could be done quickly enough to take care of the present situation.

Senator COUZENS. So the real demand is the present situation? Mr. BODFISH. Yes; coupled with the need over a long time for such an institution, It will take care of two things: The present emergency, which is very real, and then the need to have this sort of an institution to take care of the varying conditions that will come in the future.

Senator COUZENS. Would you be willing to have a provision in this bill that the Federal Government will draw all its capital within a 2-year period or a 3-year period?

Mr. BODFISH. No because such a short set period would affect the sale of the bonds, but the Government should withdraw within any period in which the banks have an opportunity to get functioning satisfactorily and an ample opportunity to bring in the home financing institutions.

Senator COUZENS. Do you not think it would be a good means of inspiring private interests to get back of their bank if the Government should withdraw its capital at an early date?

Mr. BODFISH. I think that is desirable except this: If you put too sharp a provision in the bill it may hamper your intitial sale of bonds, which is very important in getting the system started.

Senator COUZENS. Then, you would be perfectly willing also to adopt the procedure of the Government getting 4 per cent on its capital stock before it is withdrawn?

Mr. BODFISH. I would not say that, Senator, for this reason: I see no reason why the Government should not take the same attitude in creating this system which is to help the home financing institutions for city people that it has taken in connection with the system that is created for the farm lending institutions and for the general banking institutions.

Senator COUZENS. I think that you missed the point.

Mr. BODFISH. I am very sorry.

Senator COUZENS. In the case of the Federal reserve, that was created to expedite commerce.

Mr. BODFISH. Yes.

Senator COUZENS. The loans are automatically liquidated. They are self-liquidating. The farm' land bank bill was proposed for productive purposes; that is, the land on which we lend the money is used to produce foodstuffs. I see a clear distinction between those two activities and the Government engaging in capital investments. Certainly a home is a capital investment; I mean that that is not a producer unless the production of families may be included in the category; but certainly it is not producing commodities and it is not aiding commerce in the same sense that the Federal reserve and the Federal land banks do. I just want to make that distinction because I think there is a distinction.

Senator WATSON. My recollection is that the Government never did put a dollar into the Federal Reserve System. I am just not clear on that.

Are you willing to have the Government pay some interest on its deposit there or on its capital?

Senator CoUZENS. Mr. Bodfish said not.

Senator WATSON. And are you willing to have that interest paid before any dividends are paid?

Mr. BODFISH. If interest is paid I think it can be paid ahead of dividends to members. However, I think it would be wise from the viewpoint of getting the system into early operation and having it popular, if the participating members could be assured of some earnings from the outset. For example, the building and loan associations always operate on very, very narrow margins, they are very reticent to place capital in an institution which they can not have