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As we understand, questions regarding procedures for effecting the purchase of Class A capital stock issued by the Bank to the Secretary of the Treasury have been discussed with you by Mr. Paul H. Taylor, Fiscal Assistant Secretary. In his letter of April 1, Mr. Taylor indicated to you that we will address the issue of amounts appropriated for Salaries and Expenses and Self-Help Development in our response to your March 18 letter.

The Government Corporation Control Act, in our opinion, would not be applicable to the above general fund appropriations which are financed primarily from taxpayer collections. A general fund appropriation is an authorization by an act of the Congress that permits Federal agencies to incur obligations and to make payments out of Treasury for specified purposes. Appropriations do not represent cash actually set aside in the Treasury for purposes specified in the appropriation act; they represent limitations of amounts which agencies may obligate during the time specified in the respective appropriation act. These limitations cannot be augmented nor can they be used to certify payments except to carry out the specific purposes of the appropriation.

Therefore, it is our opinion that amounts appropriated for Salaries and Expenses and Self-Help Development cannot be removed from the Treasury Department for keeping in bank accounts.

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The National Consumer Cooperative Bank is a mixedownership government corporation, chartered by Congress under Public Law 95-351. As such, it is subject to the Government Corporation Control Act, 31 U.S.C. 5841 et seq.

Section 867 prevents a government corporation from keeping bank accounts anywhere except with the Treasurer of the United States, unless certain specified circumstances exist. However, several government corporations are excluded from the restrictions of this section, including the NCCB. The exempted corporations are required only to make an annual report to the Secretary of the Treasury, stating the names of the depositaries which it uses.

I am therefore notifying you that the NCCB will be removing funds from the Treasury Department in the near future, in accordance with this section. Please let me know what specific procedures are to be followed in doing this.

If you have any questions, or need any further information, please call Robert Lightfoot, at 633-6734.

Sincerely,

Carol Greenwald

Greenwa

Carol Greenwald

Chairman ST GERMAIN. Thank you, Mr. Comerford, for your statement.

Now we will hear from Dr. Carol Greenwald, immediate past president of the bank. We will put your entire statement in the record. You may proceed. STATEMENT OF DR. CAROL S. GREENWALD, IMMEDIATE PAST

PRESIDENT OF AND CURRENTLY CONSULTANT TO NATIONAL CONSUMER COOPERATIVE BANK

Dr. GREENWALD. Thank you, Mr. Chairman. I would like to take this opportunity to orally apologize, as I previously apologized in writing to this committee, for the unintentional inconvenience I seem to have caused its members.

The May 25, 1983, hearing was announced to be on the policies and operation of the National Consumer Cooperative Bank. I was then, as I am now, one member of a panel which included Frank Sollars, the bank's chairman of the board, and Mitch Rofsky, the bank's executive vice president and acting chief executive officer, and was to be accompanied by several members of the board.

I sincerely believed that my inability to attend the hearing because of the unanticipated necessity of my being in New York on business would not keep the committee from learning all it wanted to know. I believe that both Frank Sollars and Mitch Rofsky know everything that I do about the policies and operation of the bank.

If there were questions that they could not answer to the committee's satisfaction or that the committee wanted my perspective on, I would have expected the committee to ask me to submit answers to those questions for the record or to appear at a later date. I certainly did not expect that the oversight hearing would be canceled. I am indeed sorry, and apologize that this was necessary.

Mr. Chairman, in your letter of May 24, you asked me to provide the committee with a full explanation of why I did not know or inform the committee further in advance that I would not be able to attend the scheduled hearing. For the last few weeks I have been trying to arrange a large transaction.

On Friday, May 20, my attorney told me that he had located a source of funds. I heavily discounted the reality of the money. However, an attorney representing the funding source asked to meet to discuss the proposed transaction on the following Monday. I authorized my attorney to attend.

After the meeting, the other attorney said that his principals were prepared to meet the next day and to sign a commitment letter but that they wanted to meet the principals of the Washington Financial Group; that is, myself. The Washington Financial Group did not have an exclusive in arranging the sale. Therefore, time was of the essence.

Given that I sincerely believed that there was nothing that I could tell you that the bank's chairman or acting chief executive officer could not tell you just as well, I decided that I owed it to my firm to not lose this major opportunity. We did in fact obtain a commitment letter for the funds from that meeting.

Turning to the subject of this oversight hearing, the National Consumer

Chairman ST GERMAIN. Dr. Greenwald, you said you owed it to the firm to make the attempt. But are you not the firm?

Dr. GREENWALD. I am a partner, Mr. Chairman.

Chairman ST GERMAIN. You have a Jim Rosapepe in there, but other than Rosapepe, you are the firm, are you not? You are the firm. Nobody knows who Rosapepe is. We cannot find out anything about him. In the financial world, Rosapepe is an unknown. We have been unable to find anything out about him. I mean, I'm sure he's a wonderful person. But let us face it, Carol Greenwald is the firm.

Dr. GREENWALD. I am sorry. Legally, I have a partnership.

Chairman ST GERMAIN. Carol, let us not play games here. Too many games have been played here. You know, we are not naive. You formed the firm. You are the firm. Without you, the firm, Rosapepe would try to form the firm, he would hardly get any clients, I would imagine. You do think that you are a rather intelligent lady?

Dr. GREENWALD. I think I am an intelligent lady. I also think I am a partner who works for and deserves the 50 percent ownership.

Chairman ST GERMAIN. I do not know how much ownership you gave them. I have made the point, however, that you are, as far as this member is concerned, you are the firm.

Dr. GREENWALD. I will try to renegotiate my partnership agreement.

Chairman ST GERMAIN. Because when you say, you know, the firm losing some money, you are the firm. Go ahead.

Dr. GREENWALD. Turning to the subject of this oversight hearing, the National Consumer Cooperative Bank has an exciting and challenging future. Its congressional charter gives the bank a difficult and important mandate to lend to creditworthy consumer cooperatives at essentially market rates of interest.

If the bank is lending at market rates of interest, as do conventional sources of credit, why is there a need for a new federally funded bank? The answer is, I believe, that the cooperative bank subsidy is to be found in the greater degree of risk it is willing to assume in making loans. The bank sometimes refers to this as its ability to be a sympathetic and creative lender.

It is this willingness to assume a greater degree of risk in making loans that allows it to lend to many consumer cooperatives who could not otherwise receive credit. These groups often lack the equity investment in the enterprise that a bank would normally require and/or the management and board lack the business experience that is often required by conventional lenders.

This lack of investment capital and business experience is inherent in the nature of these cooperatives, which are often formed by neighborhood groups of low and moderate income tenants seeking to buy their own building. One of the challenges facing the bank is to sort out over time which rules of conventional banking can safely be relaxed so that loans can be prudently made.

The Federal Government has traditionally played the role of pioneering new standards. TVA was set up in the face of industry opposition to set a standard for electricity rate setting. The conventional wisdom at the time was that the demand for electricity was

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price inelastic. TVA showed that by lowering rates, demand increased enough to more than compensate for the lower price.

TVA set the standard for pricing in the electric power industry. Similarly, the conventional home mortgage in this country until FHA was set up was a balloon note. The Federal Government pioneered the concept of an amortized residential mortgage. The National Consumer Cooperative Bank has a similar role to play in exploring and establishing lending standards for consumer and housing cooperatives.

For example, banks will generally not lend to tenant groups who seek to prevent the conversion of their property into high-priced condominiums. And the tenant group cannot usually provide the equity investments in the project that would make a bank feel comfortable.

The co-op bank has worked over the last 3 years to prime the appropriate mix of risk-taking and prudent lending in helping tenant groups. The bank's task was complicated by the weakness of the housing market over this period, thus making it very difficult for co-op groups to find buyers for unsold units.

Another example is lending to neighborhood groups who want to open an abandoned supermarket. These groups are running a highly leveraged operation because they rarely have enough equity to finance the $250,000 needed to stock and renovate a moderatesized supermarket.

Now, leveraging poses risks in a recessionary economy because it makes it more difficult to meet the critical sales levels. These neighborhood supermarkets are important links in a community and are often critical to the life of the commercial area.

The necessity of the co-op bank to take larger risks than conventional lenders places the bank in a difficult position vis-a-vis its examiners who maintain that the only loan standards they know are those applicable to commercial banks. By that inappropriate standard, it is obvious that most loans at the co-op bank would be adversely classified. This is even more true, of course, for title II loans.

I told the examiners that if the title II program were meeting its congressional purpose, every loan should be adversely classified; that is, it entailed greater risk than was normal for a conventional lender.

The co-op bank has done much good in its initial 3 years, and it has learned from some of its mistakes. I could not disagree more with the GAO's conclusion that the bank is not a viable entity. They misunderstood my statement that there were only 16 or so creditworthy consumer cooperatives in this country. I note that there were only that number who could now establish themselves as creditworthy by commercial bank standards.

I have long been associated with arguing that those standards are too risk-averse, as in the case of red-lining. The co-op bank's role is to help redefine standards by its example so that many more co-ops and other small businesses will be seen as creditworthy. It is a difficult challenge, but clearly an important goal.

Thank you, Mr. Chairman.
[The prepared statement of Dr. Greenwald follows:]

23-148 0-83-8

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