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by a fine of not more than $10,000, or by imprisonment for not more than five years, or both.

(d) It shall be unlawful for any individual, partnership, association, or corporation (1) which is not a Federal home loan bank to use the words Federal home loan bank,” or a combination of all such words, as a name or a part of a name under which he or it shall do business (except in the case of a name under which business is being done at the time of the enactment of this act), or (2)which is not a Federal home loan bank, to advertise or represent in any way that he or in is a Federal home loan bank, or to publish or display any sign, symbol, or advertisement reasonably calculated to convey the impression that he or it is a Federal home loan bank, or (3) which is not a member, to advertise or represent in any way that he or it is a member, or to publish or display any sign, symbol, or advertisement reasonably calculated to convey the impression that he or it is a member. Violations of this section shall be punishable by a fine of not exceeding $1,000, or by imprisonment of not exceeding one year, or both.

(e) The provisions of sections 112, 113, 114, 115, 116, and 117 of the Criminal Code of the United States (U. S. C., title 18, secs. 202 to 207, incl.), in so far as applicable, are extended to apply to contracts or agreements of any Federal home loan bank under this act, which, for the purposes hereof, shall be held to include advances, loans, discounts, and purchase and repurchase agreements; extensions and renewals thereof; and accepta ces, releases, and substitutions of security therefor.

(f) The Secret Service Division of the Treasury Department is authorized to detect, arrest, and deliver into the custody of the United States marshal having jurisdiction any person committing any of the offenses punishable under this act.

MISCELLANEOUS

Sec. 20. (a) In order to enable the board to carry out the provisions of this act, the Treasury Department, the Comptroller of the Currency, the Federal Reserve Board, and the Federal reserve banks are hereby authorized, under such conditions as they may prescribe, to make available to the board in confidence for its use and the use of any Federal home loan bank such reports, records, or other information as may be available, relating to the condition of institutions with respect to which any such Federal home loan bank has had or contemplates having transactions under this act or relating to persons whose obligations are offered to or held by any Federal home loan bank, and to make through their examiners or other employees, for the confidential use of the board or any Federal home loan bank, examinations of such institutions.

(b) Every institution which shall apply for advances under this act shall, as a condition precedent thereto, consent to such examination as the bank or the board may require for the purposes of this act and/or that reports of examinations by constituted authorities may be furnished by such authorities to the bank or the board upon request therefor.

(c) Section 5202 of the Revised Statutes of the United States is amended by adding a clause as follows:

“Ninth. Liabilities incurred under the provisions of the Federal home loan bank act."

SEC. 21. Each Federal home loan bank shall have succession until dissolved by the board under this act or by further act of Congress.

Sec. 22. Whenever the board finds that the efficient and economical accomplishment of the purposes of this act will be aided by such action, and in accordance with such rules, regulations, and orders as the board may prescribe, (1) any Federal home loan bank may establish a branch or branches within the district in which such bank is located, or (2) any Federal home loan bank may be liquidated or reorganized, and its stock paid off and retired in whole or in part in connection therewith after paying or making provision for the payment of its liabilities. In the case of any such liquidation or reorganization, any other Federal home loan bank may, with the approval of the board, acquire assets of any such liquidated or reorganized bank and assume liabilities thereof, in whole or in part.

Sec. 23. If any provision of this act, or the application thereof to any person or circumstances, is held invalid, the remainder of the act, and the application of such provision to other persons or circumstances, shall not be affected thereby.

Sec. 24. Any institution organized under any law of the United States, including the laws relating to the District of Columbia, shall be authorized to subscribe for stock of a Federal home loan bank if otherwise eligible to make such subscription under the terms of this act, any provision in any such law to the contrary notwithstanding.

SEC. 25. The right to alter, amend, or repeal this act is hereby expressly reserved.

PRELIMINARY STATEMENT

Senator Watson (presiding). This is a meeting of a subcommittee of the Committee on Banking and Currency appointed for the purpose of considering Senate bill 35, and its present substitute, Senate bill 2959, which is a new bill.

The subcommittee of the House of Representatives of which Congressman Luce, of Massachusetts, is the chairman took this matter up for consideration several days ago. Many persons appeared, and the result of their conferences was the adoption of many new amendments, which they incorporated into a new bill, constituting S. 2959.

Senator COUZENS. Who introduced the last bill?

Senator WATSON. I introduced Senate bill 2959 in the Senate, after consultation with the House people, embodying the new features.

Senator COUZENS. Have we copies of the new bill?

Senator WATSON. We have but two or three at present. More will be here very shortly. I want you to have them so that we can compare the two bills, if it be the desire, to show the difference. I do not know why that should be done, however, because we can proceed upon the basis of the new bill.

Senator TOWNSEND. Has the House subcommittee agreed on the new bill?

Senator WATSON. No. I think possibly they have, but they did not say so.

It has not been done officially or publicly. Senator COUZENS. I understand from the chairman that this new bill is the latest and the last word.

Senator WATSON. It is the last testament; yes. That is the one we want to consider.

Senator COUZENS. Approved by the President and the chairman?

Senator Watson. Not approved by me, but I think approved by those who have been dealing with this question. As I have stated in the beginning, I have no pride of authorship about this bill, because I did not write it. I only made two or three suggestions with respect to it, and I am not certain that any one of them has been adopted.

First, I desire to insert as a part of the record a statement made by the President with reference to this bill.

(The statement is as follows:)

I shall propose to Congress the establishment of a system of home loan discount banks for four purposes:

1. For the present emergency purpose of relieving the financial strains upon sound building and loan associations, savings banks, deposit banks, and farm loan banks that have been giving credit through the medium of small mortgage loans upon urban and farm properties used for homes, thereby to relieve pressures upon home and farm owners.

2. To put the various types of institutions loaning on mortgage in a position to assist in the revival of home construction in many parts of the country and with its resultant increase in employment.

3. To safeguard against the repetition of such experiences in the future.

4. For the long-view purpose of strengthening such institutions in the promotion of home ownership particularly through the financial strength thus made available to building and loan associations.

The immediate credit situation has for the time being in many parts of the country restricted severely the activities of building and loan associations, deposit banks, savings departments, savings banks, and farm loan companies in such a fashion that they are not only not able to extend credit through new mortgages to home and farm owners, but are only too often unable to renew mortgages or give consideration to those in difficulty with resultant great hardships to borrowers and a definite depreciation of real-estate values in the areas where such pressures exist.

A considerable part of our unemployment is due to stagnation in residential construction. It is true there has been some overbuilding in certain localities in the boom years. But even in these localities the inevitable need is obscured by the tendency of the population to huddle temporarily due to unemployment. The real need steadily accumulates with increasing population and will become evident and insistent as we come out of the depression. The high importance of residential construction as a matter of employment is indicated by the fact that more than 200,000 individual homes are erected annually in normal times, which with initial furnishing contribute more than two billions to our construction and other industries. This construction has greatly diminished. Its revival would provide for employment in the most vital way. As a people we need at all times the encouragement of home building and many such undertakings are only possible through an opportunity to obtain long-term loans payable in installments. It is urgently important, therefore, that we provide some method for bringing into continuing and steady action the great facilities of such of these great national and local loaning concerns as have been under pressure and should provide against such difficulties in the future.

The farm mortgage situation presents many difficulties to which this plan would give aid. I have consulted with reprezentatives of the various groups granting credit on mortgage loans for the home and farm as well as Government officials and other economic agencies, and as a practical solution from the various needs and the various ideas advanced I propose the following general principles for the creation of an institution for such purpose:

(a) That there be established 12 home loan discount banks (if necessary), one in each Federal reserve district, under the direction of a Federal home loan board.

(b) The capital of these discount banks shall be initially of minimum of five to thirty million as may be determined by the Federal board upon the basis of the aggregate of such mortgage loans and probable needs of the particular district.

(c) The proposed discount banks to make no initial mortgages but to loan only upon the obligations of the loaning institutions secured by the mortgage loans as collateral in order to assure and expand the functioning of such institutions.

(d) Building and loan associations, savings banks, deposit banks, farm loan banks, may become members of the system after they have satisfied the conditions of qualifications and eligibility that may be fixed by the Federal board.

(e) The mortgage loans eligible for collateral shall not exceed $15,000 each and shall be limited to urban and farm property used for home purposes.

() The maximum amount to be advanced against the mortgage collateral not to exceed more than 50 per cent of the unpaid balance and unamortized or shortterm mortgage loans and not more than 60 per cent of the unpaid balance of amortized long-term mortgages, and no advance to be made on any mortgages where interest, taxes, or amortization payments are in default. Such loans are to be made on the basis that there are sound appraisals of the property upon which such mortgages have been made. In other words, given sound appraisals, there will be advanced in the case of short-term or unamortized loans 25 per cent of the appraisal, and in case of amortized long-term loans 30 per cent of the appraised value of the property.

(9) The discount banks as their needs require from time to time to issue bonds or short-term notes to investors to an amount not to exceed in the aggregate twelve times the capital of the issuing bank. The bonds of these discount banks would be thus secured by the obligations of the borrowing institutions, the mortgages deposited as collateral against such obligations and the capital of the discount banks. These bonds to be acceptable for security for Government and postal deposits and might be considered free of normal income taxes. The result would be a bond of high grade as to quality and security.

(h) If the aggregate initial capital of the discount banks should in the beginning be fixed at $150,000,000 it would be possible for the 12 banks to finance approximately something over $1,800,000,000 of advance to the borrowing institutions. (i) It is proposed to find capital for the discount banks in much the same way, in so far as is applicable, as the capital was found for the Federal reserve banksthat is, that an organization committee in each district should first offer the capital to the institutions which would participate in the service of the bank. And as was provided in respect to the Federal reserve banks, if the initial capital is not wholly thus provided, it should be subscribed by the Federal Government; and as was provided in the case of the Federal land banks those using the facilities of the discount banks should be required to rchase from time to time from the Government some proportionate amount of stock it becomes necessary for the Government to subscribe. In this manner any Government capital will gradually pass over to private ownership in any event.

The above methods of erecting the institution are put forward as suggestions in order to give clarity to the central idea rather than as fixed details. The whole plan would necessarily be subject to the action of Congress and many parts of it will need development upon exhaustive consideration.

This proposed institution does not in any way displace the National Credit Association which occupies an entirely different field of action.

STATEMENT OF JOHN O'BRIEN, ASSISTANT LEGISLATIVE

COUNSEL

Senator Watson. We will ask the assistant legislative counsel to describe the bill.

Mr. O'BRIEN. Mr. Chairman and Senators: At the request of Mr. Luce's subcommittee the office of the legislative counsel was called in consultation with the idea of redrafting Mr. Luce's bill, which is exactly the same as S. 35, which Senator Watson introduced. There were drafted in the office of the legislative counsel certain changes which were suggested, and we had consultations with Mr. Luce, incorporating suggestions which he made as to the improvements in the bill.

I might point out what was done.

The bill has been reorganized to a certain extent, some definitions have been inserted, and other improvements made as far as drafting is concerned.

I might go through the bill section by section, indicating the most important features of the bill, if that would be enlightening to the committee.

The first important section is that which deals with definitions. I might point out in that connection that in section 2, subsection (4), a member, in the sense of an institution which is capable of taking advantage of the benefits of this act, is defined to mean an institution which has subscribed for stock in this new bank, as well as an institution which has put up security to become a member of the bank in cases in which State laws do not permit, say, a savings bank or a building and loan association to subscribe for stock of such a bank.

Senator COUZENS. Will the witness please tell us what page he is referring to?

Mr. O'BRIEN. Page 2, line 3.
Senator Watson (reading):

The term “member" (except when used in reference to a member of the board) means any institution which has subscribed for the stock of a Federal home loan bank, and includes any institution which has, in lieu of subscribing for stock, deposited cash or securities, as authorized in section 5 (e).

Senator Couzens. In that connection, will the witness tell us in just what way section 5 (e) relates to this?

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Mr. O'BRIEN. Section 5 is a section which relates in general to subscriptions for stock in the new banks that are to be created under this act. There are two ways provided in that section by which, say, a building and loan association or a savings bank may become eligible to get loans from this new bank. First, if the institution is authorized under the laws of its State to purchase stock which will be issued by this bank, the institution purchases a certain amount of stock, and thereby becomes eligible to apply for advances from the new bank.

Senator WATSON. Tell us about the establishment of the new bank-what it is.

Mr. O'BRIEN. The proposal is that a board be created, which is appointed by the President by and with the advice and consent of the Senate. This board will divide the United States into 12 districts, and in each one of those districts a bank will be established under this act.

Senator Watson. Do they correspond to land-bank districts?

Mr. O'BRIEN. No; the board is left free to determine the districts themselves.

Senator TOWNSEND. How many members are to comprise the board?

Mr. O'BRIEN. I think five.
Senator WATSON. Five in the old bill.

Mr. O'BRIEN. The number of members of the board has not been changed.

This board is to establish 12 districts in the United States, in each of which districts there is to be one of these banks. The bank is to be located in the city which the board designates, and the bank is to have in its name the name of the city in which it is located. No State is to be divided for the purposes of districting. The districts are going to follow State lines. I might point out that the provision includes Alaska and Hawaii, so they might be in one district, too.

The board as soon as possible under the act will establish these banks by opening books for subscription to the stock of the bank in each district. Institutions which are capable of taking advantage of the benefits of this act are to be able to subscribe for that stock.

Senator COUZENS. Before you go into that, do I understand that it is mandatory to establish the 12 locations, whether they may be needed or not?

Mr. O'BRIEN. I understand it is; yes.
Senator WATSON. That is my understanding.

Senator COUZENS. In other words, whether there is a district that wants or has a need for such a bank, it must be established for the purpose of securing stock subscriptions?

Sena'or WATSON. Yes. Those are the terms of the old bill. I never saw this new bill until this morning.

Mr. O'BRIEN. The policy in that respect has been carried out in this new bill. We have not touched anything of that sort.

Senator WATSON. The Government has no stock in this institution?
Mr. O'BRIEN. Yes.
Senator WATSON. How much stock has the Government?

Mr. O'BRIEN. The Government subscribes not in excess of $150,000,000 for all the 12 banks; but the Government only subscribes the amount of the minimum capital established by the board which has not been subscribed at the end of 30 days.

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