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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.

Senator COUZENS. We will be back in a short time.
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

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.

your banks?

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

Senator Watson. Just a moment. We are compelled to .. Finance Committee on an important matter.

Senator COUZENS. We will be back in a short time.
Senator WATSON. It won't be very long.

(The committee recessed to attend to other duties reconvening the following further proceedings were had:

Senator WATSON. Please finish your statement, Mr.!

Mr. Bodfish. I will be very brief. Senator Couzention about the “deposits" in these 12 banks by mem! It would seem that a member association or insti. privileged to use its own home-loan bank, to whi build up modest balances for the retirement of li to keep a modest deposit there for emergency P to the funds they keep in their commercial banks functions are neither denied nor permitted in

Now, the question the Senator raised reg: those deposits in relation to Government bon I think, by the fact that the bill provides only be invested in two ways by the 12 h. States Government securities; the other, members of the system, which merely car ation and pooling of funds that the 1 facilitate.

Senator COUZENS. Did I understan these banks which "we" own?

Mr. BODFISH. No; I don't think Senator COUZENS. Will you rear! (The reporter read as follows: Senator Couzens raised a questio' member associations. It would see leged to use its own bank

Senator COUZENS. He did! permitted to deposit in or to that, but as I read t banks for a long time when I say “we,” I me: your banks?

Mr. BODFISH. We and I think the bill participating will time goes on.

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lend on a house that cost 15,000, you would be getting k of this bill.

to it being limited to $30,000 ince could be used as collateral,

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house. He lives in one half and te are valued at fifteen, twenty, or they are a very desirable type of

was not originated for the purpose of

erson who owns the other half of a is bill, as I understand it, is inspired to i for investment but for home use.

Do you not feel, Senator, that the owner living in one-half of it is a desirable nd the type that should be encouraged?

nk it is, but the question is whether we 1 make investments for the man who puts

like to submit a memorandum dealing with the language. right. Give it to Mr. O'Brien. k that is all, Mr. Chairman, unless there are

Do you want to ask him any other questions,

Have you seen a memorandum prepared by Building and Loan League-that is your league? ins. And is Mr. William E. Best your president?

Mr. Best is our president.
ZENS. Did you see a memorandum he has made up

dated December 24, 1931?
H. I did, Senator.
OUZENS. Have you covered those features in your

FISH. Those amendments or features have been embodied raft of the bill. r Watson. Do you want to ask him any questions? If not, recess now until 2 o'clock. reupon, at 12.10 o'clock p. m., a recess was taken until 2

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some return on. You know, there is a very full distribution of earnings and the spread is very narrow, approximately 1 per cent, out of which they pay all expenses and create reserves.

Senator WATSON. You feel that if this system is set up it will work?
Mr. BopFish. Personally; yes, sir.
Senator WATSON. Successfully?
Mr. BODFISH. Successfully; absolutely, in my personal opinion.
Senator WATSON. And be profitable?

Mr. BODFISH. Reasonably profitable; sufficiently to sustain the 12 banks in their normal operations. I don't think it would be the source of great profit at all.

Senator Watson. Do you look upon it as purely an emergency proposition or as permanent in character?

Mr. BODFISH. It will fill both an emergency need and also a permanent need.

Senator COUZENS. Have you any idea what the securities of these banks would sell for?

Mr. Bodfish. It is my opinion that they would sell at their par or above, at least at their price of issue, and probably remain so, because you have about four times the amount of home mortgages on real estate behind each dollar of bond issue; and we feel that that would make one of the primest bond investments possible; experience with the land bank of the State of New York, which is a State organization of somewhat similar character and which has been functioning for 18 years, bears that out.

Senator COUZENS. Would you tell us what effect you think it would have upon these bonds if we removed the tax exempt feature?

Mr. BODFISH. I doubt if they would find as active and quick a market as they would find if tax exempt. It seems to me these bonds must be so prime and so desirable that when the time of need comes they will find a very ready and a very immediate market. As you have noted I do not feel that the system as set up is designed for major real estate or credit expansion, because the power to borrow, and therefore the power to issue bonds is rigorously limited,

Senator COUZENS. Have you anything else?
Mr. Bodfish. There are one or two points I would like to present.

In the section dealing with the character of home mortgages which may be permitted for collateral, page 15, section 8, item 26, I think the intent was to deal with the unpaid principal rather than the principal sum.

Senator WATSON. What line is that?

Mr. Bodfish. Line 19 on page 15. The present language would exclude any mortgage whose original amount was in excess of $15,000, and I think the intent was to permit mortgages to be used as collateral in which the original sum may have been $30,000 at the outside.

Senator Couzens. That is the point that was raised the other day. That is the point I object to because of the fact that it endangers the Government and this agency in making loans on homes that might have cost a million dollars, for example. That was not the intent of the proponents of this legislation, that this should be a means to use for the building or maintaining of expensive homes. In other words, it was my view that the limit ought to have been $10,000 instead of $15,000, that it was the viewpoint of one prominent official that it ought to have been $20,000, and the other was a sort of compromise

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