NECESSARY APPROVAL BY TREASURY DEPARTMENT

Mr. MCMURRAY. And each issue we have has to be approved by the Treasury Department.

Senator MAGNUSON. Yes.

Mr. MCMURRAY. Under the Government Corporations Control Act.

Senator MAGNUSON. Because you have to correlate this with the Treasury offerings?

Mr. MCMURRAY. Yes; very definitely.

Senator MAGNUSON. Because you might collide if you didn't, isn't that right?

Mr. MCMURRAY. Yes; and we have a very good cooperative relationship with the Treasury Department developed, because we are a fairly important part of the short-term market.

Senator MAGNUSON. Yes.

PROPORTION OF LOAN ASSOCIATIONS INSURED

Now, when you say that you represent the insured associations represent-70 percent of all the savings and loan associations, by that you mean numerically?

Mr. MCMURRAY. Yes, sir.

Senator ALLOTT. Membership.

Mr. MCMURRAY. Although assetwise

Senator MAGNUSON. Assetwise you hold 96 percent of the assets of all.

Mr. MCMURRAY. That is right.

Senator MAGNUSON. So there are now out from under the Insurance Corporation approximately 4 percent of the total savings of people of the United States in savings and loan associations.

Mr. MCMURRAY. That is correct. Although it must be pointed out that in savings and loans in Ohio, there is State insurance, and Massachusetts cooperatives banks are members of the Massachusetts Share Insurance Fund of the Cooperative Central Bank.

ASSOCIATIONS OUTSIDE INSURED GROUPS

Senator MAGNUSON. So that if you subtracted that from the 4 percent, there would be a very small segment of savers in this country in savings and loan institutions that were not insured, almost a minimum?

Mr. MCMURRAY. That is right. Although I want to point out that unfortunately sometimes the few that are outside can give a bad name to the whole industry, because sometimes people, as when we had the trouble in Maryland, didn't distinguish between insured associations and noninsured, and in spite of all the publicity it is surprising that people still don't make the distinction as well as you would expect them to.

SIMULATION OF AGENCY SEAL

Senator ALLOTT. Do you have trouble in that respect with associations that are insured in a manner other than with you, using some kind of a seal or insignia similar to yours?

Mr. MCMURRAY. Yes. We had that. It was one of the troubles in Ohio.

(Discussion off the record.)

Senator ALLOTT. Well, the simulation of your insignia here is still being done to some extent.

Mr. MCMURRAY. I don't know to what extent that is being done. Dr. Husband from the Insurance Corporation, is not here, but it used to be simulated much more than it is now. Do you have any

Mr. AMMANN. There is not so much of it now. were in Maryland and that has been stopped.

The worst offenders

Mr. MCMURRAY. Yes, they were the big offenders but I think pretty substantially that the problem has been gotten rid of there. Senator ALLOTT. Let me ask you this question.

Mr. MCMURRAY. But I have seen ads where they say, "Insured in a nonfederally insured association."

Senator MAGNUSON. Senator Allott.

SIZE OF UNINSURED LOAN ASSOCIATION SEGMENT

Senator ALLOTT. What I am surprised at is that there is 30 percent of the membership that is still not a member of your insurance.

Mr. MCMURRAY. Yes, the difference between 6,328 associations and 4,423, almost 2,000 in number. Of course, as a matter of fact, some of the strongest associations in terms of reserves, in terms of length of service to the community are uninsured although, they are usually smaller sized associations. You take in places like Illinois, you have various national groups.

In Baltimore and throughout the country, other ethnic groups have organized these truly mutual neighborhood kind of associations. So the fact they are not insured doesn't necessarily mean that they are unsafe. But we have tried to get them to be insured, because we think generally it would be better if most associations were insured,

AMOUNT OF LOANS NOT FEDERALLY INSURED

Senator MAGNUSON. What would the 4-percent total be in dollars? The 4 percent of the total savings, wouldn't it

Mr. MCMURRAY. Assets. I think the total would be in the neighborhood of $4 to $5 billion, not more than that and of that I would say about $2 billion is really not protected by some kind of legitimate insurance; $4.3 billion is the exact figure.

Senator YOUNG. Mr. Chairman, in the case of Maryland, was the State able to make good on the losses?

MARYLAND SITUATION

Mr. MCMURRAY. No, sir. If I remember correctly, the savings invested in Maryland associations totaled around $37,500,000. What was that, Mr. Ammann?

Mr. AMMANN. I think the question implies that the insurance may have been by the State. It was by a fly-by-night insurance company with no assets. It paid off nothing.

Senator YOUNG. It wasn't a State organization then?

Mr. AMMANN. It was a private organization.

Mr. MCMURRAY. As a matter of fact, the State-sponsored insurance corporation was only formed in the last year; the legislature approved it a year ago.

Mr. DELAITTRE. As a result of the difficulties, you see, sir, the State of Maryland has now formed an insurance corporation, but it is not backed by the full faith and credit of the State.

Senator YOUNG. What assets do they have in back of them?

Mr. DELAITTRE. They are just acquiring assets now by the premiums they charge to their members who are obviously new members since it only became effective some time last year.

Mr. MCMURRAY. They require 2 percent capital contributions based on the savings in the association.

LACK OF INFORMATION BY INVESTORS

Senator YOUNG. I would think a high percentage of investors wouldn't know any of these technicalities, and they would assume most of them are insured.

Mr. MCMURRAY. That is correct.

Senator MAGNUSON. Well, this is the same kind of problem we went through in the early thirties when all these savings and loan institutions went broke and people thought they were banks. They looked like a bank, they just went in and thought they were banks. Now it is changed around to only in this particular field but a very, very small percentage.

DIFFERENCE BETWEEN SAVINGS AND LOAN AND BANK DEPOSITS

Senator YOUNG. For the record, what is the difference between a deposit in a savings and loan association and in a bank.

Can you withdraw your savings from a savings and loan association at any time the same as a bank?

Mr. MCMURRAY. Very simply and briefly, the savings and loan association essentially invests its money in long-term types of investments, primarily residential mortgages, and other kinds of real estate to a lesser degree, and whereas the commercial banks can invest in short or long-term maturities. Traditionally it is in the shorter term kind of investments although more recently the banks have entered the mortgage field and to a greater extent are investing in longer time maturities and investments.

REQUIRED PROVISION FOR WITHDRAWAL

As a practical matter you can withdraw your money any time you want from a savings and loan association just as you can in a bank. Technically, they can require that you wait in line, so to speak, for your turn. That has not happened since 1932-33 period, as a practical matter. They pay on demand.

Senator ALLOTT. What is the required provision in a Federal charter, 90 days' notice of withdrawal?

Mr. MCMURRAY. Sixty days.

Senator ALLOTT. Sixty days.

Mr. MCMURRAY. In some States they have that requirement. Ken, do we have a requirement about time of withdrawal?

Mr. SCOTT. Thirty-day notice and then a process of rotation can be used by the association in making its payments.

Senator MAGNUSON. What you mean is if all three of us went in to get our money, gave 60 days' notice to get our money 60 days from now, if I came in first I would get mine first if it was there, and Senator Allott would get his next and Senator Young would get his next?

Mr. SCOTT. This assumes first of all that the association can't meet the immediate request and requires the notice, and secondly, that at the end of the notice period it still isn't in a position to pay fully.

PROCEEDINGS IN ASSOCIATION'S FINANCIAL DIFFICULTY

Senator MAGNUSON. I understand as a practical proposition it doesn't happen but supposing they were in financial trouble, we would have to stand in line?

Mr. SCOTT. You could stand in line and take up to a thousand dollars at a particular withdrawal, and then you would have to await your turn again.

Senator YOUNG. Do the savings and loan have-associations have the option of making you wait 1, 2, 3, or 4 years before they pay your money if you demand it?

Mr. SCOTT. Well, there are some variations here in law from jurisdiction to jurisdiction. If the association is continuing to devote its available income to meeting its withdrawal requests that have been filed and stacked up in line, and is paying them off in certain amounts, even though not fully, and then putting them back at the end of the line to wait until they come up again, this process could go on for a substantial period of time without constituting legally a default or ground for throwing the institution into liquidation.

Senator YOUNG. Even if they are insured by your Corporation, the person who has his deposits there may be required to wait for a long period of time?

Mr. SCOTT. That could happen, because the Insurance Act defines default, which is what makes the Insurance Corporation pay the insurance of accounts, as basically an institution being taken over for liquidation. Where, under either State or Federal law, it can avoid giving grounds for liquidation through this process of rotating payout for a substantial period of time, then there is technically no default and there is no ground for either liquidation or payment of insurance.

DIFFERENCES FROM INSURED BANK

Senator YOUNG. How does that differ from the insured banks? Mr. SCOTT. Well, the insured bank can likewise institute a notice requirement before they make any payout, and the bank likewise could go into a conservatorship for a while, during which period there would be neither actual payout nor a payment of insurance. The main distinction is that it is grounds for liquidation of a bank if it is failing to meet these demands in full.

A savings and loan association, even though it is failing to meet them in full, if it is paying out in accordance with its law on this rotation system is not giving grounds for receivership and liquidation. Senator YOUNG. The insurance business isn't as good as I thought it was.

Senator MAGNSUON. Well, usually what they do with the bank is if a bank looks like it is in shaky condition they just put a hook on the door, and then they wait until they can, everybody can come and get

their money. You can't do business with them, that is all. There is no place to do business.

Senator YOUNG. But, as you indicate, you might have to wait for 5 years to get your money.

Senator MAGNUSON. You could.

PAYMENTS ON DEMAND SINCE 1932-33

Mr. MCMURRAY. As a practical matter, of course, since the 1932-33 period this has never happened and we hope this will never happen, either; they have paid actually on demand.

As a matter of fact, we had a couple of associations that the State had to take over in Chicago, and the people were paid in, I believe the number of days was about 12.

Mr. AMMANN. It was within 30 days.

Mr. MCMURRAY. As a matter of fact, one of the interesting things was that we expected long lines of people waiting. In fact, the newspaper reporters and photographers were out there waiting for large crowds and they didn't show up. They didn't have a good story. People took their time and came in gradually over the next month, those people who did withdraw, and this happened in four instances altogether. So people have a great deal of confidence in the Insurance Corporation.

Senator MAGNUSON. Well, utlimately, the Insurance Corporation would have to pay up to $10,000; wouldn't it? Mr. MCMURRAY. Yes, sir.

BANK REQUIREMENTS FOR INTEREST PAYMENTS

Senator MAGNUSON. Of course, in banks, the savings account, they have what they call time deposits, 6 months, 2 years, a year, or 18 months, if you want to go into a savings account, but you get a better interest rate if you make a time deposit at the bank.

Mr. MCMURRAY. There are deposits they don't pay anything on. Senator MAGNUSON. Well, some banks do if you have a large

amount.

Mr. MCMURRAY. Well, they require that it be a savings account or time account, but actually not on any demand account.

AVERAGE SAVINGS AND LOAN INTEREST

Senator MAGNUSON. Do you have the average or could you get this for the record, the average interest rate paid in the insured savings and loans?

Some are, I know some are 4%, some are 4%, some are 4.

Mr. MCMURRAY. We have that figure exactly and we will be able to produce that.

Senator MAGNUSON. The average throughout the United States. Senator ALLOTT. Don't you have it here?

Mr. MCMURRAY. In fact, I think I have it. I remember reading it in the last couple of days. Yes; here it is. Let's start at the present time, December 31, 1963; this is a preliminary estimate for insured associations, the average rate for all was 4.27. Federals, 4.21, and State chartered 4.34.